Breaking the Small Business Code

Comment on Direct Vs Private Loans - Misdirection is the Game

    This morning I posted a comment to an article from Inside HIgher Ed on the muted response from Financial Aid Advisors (FAA) on the proposal to eliminate private lenders from student loans and let the Federal Government be the only provider  effectively making ALL Federal Family Education Loans (FFEL) DIrect Loans. 

    The article itself is interesting but it is in the comments that we see the REAL problem with student loans!  It is a "them versus us" dialog that shows the gulf is between the colleges and the recipients!      The premise of manyof the comments is the "evil" nature of FAAs and their representative body the National Association of Student Financial Aid Advisors (NASFAA).  Following is my comment to the dialog:

   

We all know one (or more) rotten apples in any group. We also know many good people in that same group. The "good" or "rotten" actions of indivuduals is not evidence of the value or honesty of the group. It is the VALUE of the service that the group renders that counts. The service itself needs to be judged.

Is The Idea of Need-Based Aid Flawed?

     An article in the February 21st New York Times focused on the infamous FAFSA - Free Application for Student Aid - the gateway form for getting money for college.  The story focused on how terrifying, confusing and frustrating completing the form has become.  As with just about everything associated with college, the views of the people interviewed show that change is not going to happen anytime soon.

    In my opinion - and the opinion of many others involved in helping families pay for college - the basic premise of need-based financial aid is flawed. Therefore, the system designed to measure the need and then determine how to meet that need is flawed! 

    What is that flawed premise? 

     The idea is that (a) everyone should have access to college regardless of ability to pay and (b) if you cannot afford the cost of a particular college, the "system" should fill in the gap between what you can afford and what it costs. 

      This premise sets up the need to detemine how much you should pay based on your financial situation called the Expected Family Contribution (EFC).  That means someone has to decide how to measure your ability to pay (EFC) and then set some value or percentage that you should pay before getting outside help.

     This also sets up the assumption that someone else will fill in your gap between cost of attendance (COA) and your EFC.  That "someone" starts with the government (Federal and State) and then the individual college. What has happened is the need gap is NOT being filled.  For too many families, the FAFSA has simply become a loan application!

    I have several students with ZERO EFC getting nothing but Federal loans. The get the maximum in loans, grants and work-study but still cannot get close enough to the cost to make college affordable.  Unless a college meets 100% of need for all admitted students, families will face gaps as severe as before the premise of need-based aid!

    So before we discuss changing the FAFSA, how about revisiting the ENTIRE concept of paying for college!  Your comments?

   

Warning about HIDDEN Scholarship Traps

WARNING, what you are about to read is what I call the second "dirty little secret" about scholarships (the first dirty little secret is Resourcing).   What I am talking about is the sale of  the information you provide for a scholarship application or search!

With fewer and fewer exceptions, almost ALL the scholarships on the web are simply fronts for marketing and list-building companies.  Once you finish this posting you may never want to apply for an on-line scholarship again!

I spend most Sundays watching auto racing while surfing the web for tidbits and to find "safe" websites for my clients like the College Leadership Foundation's College eCoaching Program.  Well, I just found another one of those HIDDEN relationships between a marketing company and a scholarship that make me so angry! 

I don't mind a company using a scholarships as a marketing tool as long as it is absolutely clear ON THE SAME WEB PAGE as the scholarship offer that they will be sending you information from their sponsors and partners.  A "good guy" example is Financial Aid Podcast with Chris Penn which makes no secret that its $10,000 scholarship is directly related StudentLoan Network.

What I call the "bad guy"  sites are ones where the only thing you see is information about  scholarships and maybe some window dressing about financial aid.  Their relationship with marketing and list companies is buried in 7 point font on page 15 of micro-mini pages under Terms & Conditions or Privacy which is usually at the bottom of the page, again in micro print but in such a light color that it is almost invisible!  Oh they cover themselves legally by asking you to opt-out by unchecking an already completed box.  But unchecking the box make it look like you might miss out on another scholarship or special offer!

These people attract MILLIONS of students by offering one scholarship worth as little as $500 all the way up to $10,000. Your email and any other information you include to "qualify" for the scholarship is then used, sold and re-sold for years.

What is insidious about these marketing scholarships is they get "filtered" and passed along in ways that make them seem safe.  Aggregators like FastWeb are full of  marketing scholarships like BrickFish.  These not-so-nice sites also get passed along by high school counselors and groups like NACAC who are just trying to help students.  But others are affiliates who get paid to send you to these scholarship sites! Now social media is passing them along and it's pissing me off!

Today I found a GREAT example of how families are being duped through SOCIAL MEDIA!!  It started with a Twitter message I got that referred me to the blog "College Finance 101".  Inside the site was a blog entitled FREE COLLEGE MONEY.  Inside the blog was a link to ScholarshipExperts dot com site.  What made me mad was this was an affiliate tag so the blogger is either being paid per click or per applicant.  From there, I was asked to fill in my basic information on the squeeze ScholarshipExperts front page. 

So what's so bad about that process I just described? Several things.  First, I now don't know whether or not I can trust the content of College Finance 101.  There may be some fabulous information in that blog but it is now tainted because I have to worry what else is a hidden front for affiliate marketing.  I have no problem with ads or banners or stated affiliate relationships.  I do have a problem with a link that looks like an endorsement without revealing the relationship is financial!

Finally, here is what ScholarshipExperts says in its Terms & Conditions (I added color and bolding for emphasis): 

When You submit a profile or application, ScholarshipExperts.com may access, store, and use all information included therein for any purpose. Additionally, if You provide permission to do so, ScholarshipExperts.com may sell, share, distribute, or disclose to third parties all information You provide, including scholarship providers, educational institutions and others.

This is why I wrote my Insider Secrets to Scoring Scholarships.  It shows ALL the good, the bad and this ugly kind of stuff that everyone else leaves out!  I hate scholarship hyprocrisy.  I like my data straight and to the point.   If you are an affiliate, carry the ad or banner, don't bury it in your blog.  If you sell the information, say so.  If there is going to be someone calling you about the offer, say so.

To learn more about my crusade against scholarship abuses, visit www.LindaPTaylor.com

Website Makes Getting College Information Easy! (But Where's the COA?)

         I just finished reviewing the UCAN  website hosted by the National Association of Independent Colleges and Universities (NAICU).   Per their press materials and website  (I have bolded phrases for emphasis): 

       "More than ever, as tuition continues to grow, families are focused on getting the best value for their dollar. The first step is finding the right information to make the right college choice. To this meet this challenge, the National Association of Independent Colleges and Universities (NAICU) has developed U-CAN (the University and College Accountability Network), a free, consumer-informed college information Web site.  For the first time, institutions of higher education have come together to develop and deliver key college information directly to consumers. With U-CAN, we will take an important step toward better educating consumers, and fostering student satisfaction and success." 

       This is one of the EASIEST sites I have ever seen for getting key information! The summary pages are visually appealing and simple to use.  It is easy to see how many students come from where, how many graduate, how many return after the freshman year, etc.  This is the key information with the option to click through to details like the surrounding area resources!

But I have not yet gone through each listing to see how each college lists the Total Cost of Attendance (COA).  So far, almost each one I looked at played "fair" . . . . BUT some are still are playing "hide the COA"!!

       Sadly, one of my local colleges --  California Lutheran College (Cal Lu) -- did not list the COA.  It listed only percent of freshman receiving aid.   I hope this is an oversight and NOT a deliberate attempt to hide their COA from prospective families!

Again, I applaud NAIC for a GREAT website.  But I continue to CHASTISE and RANT at those colleges who do NOT simply state their COA clearly and simply.  To hide the COA, omit it, only provide tuition, or to provide after-aid averages is DECEPTIVE and beneath the dignity of an institution of higher learning! 

Please let me know what you think about this issue of hidden COAs.

Which Survey Category Will You Fall Into?

ORIGINAL DATE: 08/25/2008 09:54:01 PM

SallieMae recently published a very extensive survey done for them by Gallup on how the 2007 Freshman Class paid for college.  The information is both encouraging and discouraging at the same time! 

First, the good news is that nearly 90% of low income families (less than $50K in earnings) filed the FAFSA. And 97% at the lowest income levels filed!  This means that all the outreach to lower income families is paying off!  This means the maximum in aid should have been available to the most needy families.

Sadly, the numbers filing the FAFSA falls off as income rises. At over $150k, the number filing the FAFSA is about 40%.  The survey also shows that the higher the income the more expensive the college they attend.  And the more expensive the college, the more likely you are to qualify for financial aid at higher incomes!  This past year Elite Ivies like Harvard, Yale and Dartmouth offered free tuition to families earning up to $150,000!  So 60% of these higher income families left money on the table! And many of these higher earners are business owners who have many options for reducing the cost of college but don't take advantage of them - just like they don't take advantage of the FAFSA!

The next thing that grabbed my attention was that 61% of parents BEGAN discussing how to pay for college when their student started high school.  Most began thinking about college funding in the junior year or after the first admissions test like the PSAT!  This explains the survey results that most families use loans and cash flow to pay for college and not savings. 

The survey has lots of details that will help me and organizations like the College Leadership Foundation better serve our college-bound families.  One thing that became clear was college is really a parent CASH FLOW and lifestyle problem.

So where do you fall?  If you reading this blog you are probably aware of the upcoming costs of college.
So what grade level is your student?  Are you planning to file the FAFSA?  Do you have a plan in place to handle the impact of college on your debt and your lifestyle?  Do you know whose input on college planning you can trust?

May I suggest you visit the nonprofit College Leadership Foundation's website and sign-up for their free eNews that provides neutral and unbiased information for college planning.  www.CLFeCoach.org/eNews.

Who Speaks for College Families?

ORIGINAL DATE: 07/07/2008 09:21:43 AM

Interesting article in today's July 7th 2008 Inside Higher Education about a panel on student loans held at the convention of the National Association of Student Financial Aid Administrators - you know - the guys and gals who make the decision on how much money and what kind of money you get for your college dreams.  The article noted that NO ONE on the panel and only 1 person spoke on behalf of YOU - the college family who is going into deeper and deeper debt to pay for college!

Everyone on the panel (with the exception of a Dept of Education spokesperson) was a lender!  So as you suspect, it was all focused on loans and "woe is us, there is not enough profit in student lending" so you NASFAA members will have fewer options for lenders.  They also "threatened" the NASFAA that the "poor" students will not be getting loans because the lenders will need tougher "credit" standards to provide loans.

The article pointed out that many lenders had left the business and fewer lenders were in the Exhibit Hall because of how Congress changed the structure of the reimbursement to lenders.  Of those that left, the members we gleeful that one of them was MyRichUncle - the lender that pulled back the curtain on the cozy relationship between some lenders and the colleges.

The call for action from the panel and the response of the audience was predictable.  Please NASFAA members, lobby Congress to get our lenders back their margins.  Let's make loans easy again. NO ONE talked about how else they could help make college affordable.  No one talked about the massive debt families are being asked to take on for college. It was all about how to get our lenders back and keep making easy loans.

When loans are easy, it is also easy for NASFAA members to make those loans part of financial aid.  And before they provide one drop of free money, loans are ALWAYS maxed out to the legal limit.  Then, and only then, do you see them add Federal Grants (not their money), add state grants (not their money), absorb outside private scholarships (not their money), and then and ONLY then do they consider offering their own money.    So be aware that when they are screaming about loans, they are screaming about putting you and your student into more debt!

So what do you do?  HAVE A PLAN!  Learn the rules of college funding.  You can't win a game you don't know how to play.  Once you learn the rules, then get a strategy.  You can't win big if you don't know the best techniques for your family.

PLEASE comment on this article.  I want to know what you think about loans and how the aid administrators are being talked to about loans and lenders!

Sallie Mae Dings Credit Score of 10% of Borrowers

ORIGINAL DATE: 05/15/2008 05:44:48 PM

Thousands of student borrowers have had their credit scores severely damaged because Sallie Mae erroneously reported that they were delinquent on their student loans. Sallie Mae has said they fixed the error, but in the meantime some borrowers have seen their FICO scores tumble by as much as 150 points. This has repercussions beyond just FICO scores. Most people know FICO scores are important when you are looking for loans. But this error may impact job searches and credit card rates! I know from personal experience that employers sometimes use credit history to determine suitability for sensitive positions. An incorrect late payment on just one of the three credit agencies was enough to delay my being approved as a financial advisor at Mass Mutual in the early 1990's.  It took 6 weeks to clear up the mistake and I lost income because of it!

Sallie Mae has stated that less than 10 percent of Sallie Mae's borrowers were affected.  However, Sallie Mae is the largest provider of student loans so this "less than ten percent" equates to over 1 million borrowers.  And we don't know if there are other mistakes so there are potentially millions of student loan holders that were impacted. According to Sallie Mae, the error occurred in a routine transfer of account information to the credit bureaus last week.  The error was discovered on Friday, but by the time Sallie Mae notified the various credit agencies, Equifax had already posted the delinquency information. As a result, the accounts of some student loan borrowers were shown to be behind on their payments, causing the borrower's credit score to plunge immediately. Supposedly the credit ratings have now been restored, according to a spokesperson for Sallie Mae. They said that borrowers would see no negative repercussions but those who think they may have been affected are encouraged to call 1-888-2-SALLIE.  For those in the process of trying to get other loans, Sallie Mae has offered to supply credit references on request. This just points out the risks of borrowing for college. I want to remind my readers that the use of loans can be minimized by simply knowing the insider secrets to college funding.  But if you do use loans, it becomes critical that borrowers stay on top of their payments AND their credit reports. I strongly recommend that students with Sallie Mae loans contact the three major credit bureaus to make sure they were not impacted by this or any other mistakes.  Per federal law, everyone is entitled to a free report each year so take advantage of that right now.

I APOLOGIZE!

ORIGINAL DATE: 04/27/2008 10:52:38 PM

It’s All My Fault And I’m Apologizing!

Here is a recent conversation I had with a mom I met at a birthday party for a mutual friend this past weekend in Orange County, CA.  After I introduced myself, she wanted to know more about what I did for a living.  Being passionate about my work, I spent about 5 minutes telling her how I help college-bound families with cash flow planning, tax capacity and minimizing debt – things she said she had never heard applied to college planning. I then asked her about her family. She told me that their daughter was graduating from UC Davis this summer after 5 years. She told me that her husband had had to postpone retiring because they had accumulated nearly $100,000 in PLUS Loans for the direct college costs as well about $18,000 they had borrowed from their home equity line of credit for the “incidentals” that kept popping up.  She had over $1,500 per month payments that were not tax-deductible. She was quiet for a minute and then asked me where I had been for the last 5 years! She was actually angry that she had never heard of people like me. I told her that fee-based college consulting is a very specialized occupation and sadly, very few “players” in the system really know how to help families in the right way.

She informed me that all she ever saw was all about either selling her something (529s, books, insurance, even the colleges) or telling her to borrow (students, parents, home, private loans).   She looked for the "free ride", did the FAFSA, read a "free report" on the "9 Secrets" from an insurance salesman, and attended every college night and seminar she could!  They spent lots of time searching for scholarships and found about $3,200 all 4 years. I then made a MAJOR mistake. I did some quick mental calculations based on what she had told me and gave her a couple of ideas that would have cut her costs in half. But before I could share some things she could do now, she told me it was MY FAULT she had all that debt and walked away, clearly upset. I was stunned but after thinking about what she had told me, she was absolutely right to be mad!  She had never been given the information I had shared!  She had told me about all the places she had gone for information – the colleges, the high school, her financial planner, her tax professional, the internet – and got nothing that helped her!  I was just a handy target for her anger. Good news is she came back later in the evening and she will be meeting with me to see if there is anything we can do now. Her husband works in law enforcement and he can retire anytime but he is still working because of all their college debt. Good news is there are ideas we can use. Then I got an eMail from Chuck Moore – one of the masters of college financial planning!  He had had an almost identical situation with the head of Human Resources at a company where he had been referred! The person he was talking to had massive debt for two children who were out of college and was angry at him for failing to let people like her know they had options! Chuck said it had really made him stop short! He felt it was partially ALL our faults in the college planning field.  We were not getting our information out to enough people!  No one knew they had options! I hate to keep repeating myself, this confirms that the College Leadership Foundation and their revolutionary College eCoaching Club is the right thing for families NOW.  Families who join the Club will have choices and options based on KNOWLEDGE that is unbiased and immediately useful.  Visit www.CollegeLeadershipFoundation.org.

Using Retirement to Pay for College - Should You Do It?!

ORIGINAL DATE: 04/16/2008 08:59:08 AM

Congratulations, your student got into a great college.  Hopefully they qualified for a great aid package based on need and/or merit.  But there is always something left for you to pay for.  How do you do it? The first place most people look is student and parent loans.  But that means a new monthly payment that grows every year of college.  Rule of thumb is your monthly payment on a 10-year Parent Loan for Undergraduate Students (PLUS) is the amount you borrow divided by 80.   So if you borrow $24,000 for 1 year at a state university, you would pay $300 per month.  At the end of 4 years you have a payment of $1,200 -- $1,500 if your student goes 5 years.  Borrow $50,000 per year for an elite ivy and your monthly payment is $2,500 or $30,000 a year!  And you add it for each loan for each student you have. If loans aren't your thing, it is VERY tempting to turn to your retirement accounts for help pay some of the costs.  IRAs require you to withdraw the money – no loans.  Some 401(k) and 403(b) accounts allow loans as well as withdrawals.  But let’s talk about withdrawals – retirement money you take it with no plan to pay it back. When you take no more than the total cost of attendance (COA) for the college year in a calendar year, you will only pay income tax on the total amount.  Good news is there is no 10% penalty for being under age 59½ as long as you don’t take more than the COA.  But you need to consider that you are losing money from your retirement.  Rule of thumb is if what you withdraw would have gotten a 7% return, what you withdrew would have doubled every 10 years.  So if you are 45 years old, taking $100,000 means you could be losing $400,000 in retirement assets!!  NOTE - If you have ROTH IRA, there is no tax or penalty as long as you only withdraw the COA.  But you still lose the growth potential. Borrowing from your 401k/403b may seem a better idea if loans are allowed. BUT there is a bigggggg catch.  If you leave the company for ANY reason, you have to pay all the money back in 60 to 90 days.  If you don't put it back, the loan becomes a withdrawal and you face taxes AND penalties on whatever exceeds that year's COA.  And borrowers rarely put money into their account at the same rate as before when making loan payments!  So you could have a double-whammy problem. BEFORE YOUR TOUCH a 401(k), have a financial advisor DO THE MATH to calculate how much money you have lost in growth for borrowing and/or not putting money into the account from now through retirement.   I think you’ll be shocked at how much you could potentially lose. Borrowing just $8,000 ($2,000 per year) for 5 years and not deferring the same $2,000 each year means a loss of $63,000 in 30 years.  Take more and for longer and you take a bigger hit! So before you touch your retirement, make sure you look at ALL the ways to pay for college – loans, work study, home equity, lifestyle, start a home business, tax planning, scholarships, college choices, get out in 3 years, use summer school, etc., etc.  the best way to pay for college is to do PLANNING for college at any age and any time in the process!   I strongly urge you to get coaching from a college planning professional if you are thinking about spending retirement money for college. Or you may want to consider joining the nonprofit College Leadership Foundation's "College eCoaching Club"  at www.CollegeLeadershipFoundation.org.

Will The Elite Aid Changes Help Other College Families?

ORIGINAL DATE: 03/11/2008 06:23:31 PM A client family of mine just called who have a 2007 adjusted gross income under $75,000. Their son is attending an expensive private college but not one of the Elites who have been announcing they are offering free tuition, free housing and replacing student loans with grants in their income range. They were wondering if these new "policies" would help them? Basically, was there anything he can get from this trend? The key is whether or not his college is one of the schools that has changed their policies to be (1) competitive with these schools and/or (2) to be "politically correct" in expanding the use of their endowments. I explained it will depend on the administration and their goals for the college. If they feel competitive without making these changes, it probably won't have an impact on them. I also explained that their financial aid package was meeting 100% of calculated need and although it did have student loans, was pretty decent in the free money it gave their son. So in order to do "better" than their current package, they would have to get more than 100% of need.I suggested she write a letter to the President of the college and inquire about their matching those other schools for no loans or work study. She has nothing to lose and everything to gain by asking. If you are in the same situation, ASK! For the price of the paper, envelope and stamp you might score more money!