Archive for November, 2010

For Profit Colleges – Abysmal Graduation Rates

Nov. 29th 2010 17:19

Let’s face it, when it comes to graduating students, colleges as a group are not getting the job done. With graduation rates trailing those of high schools by roughly 25 percentage points, there is little doubt that college dropouts are a huge issue.

But a new report from The Education Trust reveals that the for-profit college sector takes the 50 percent national college graduation rate to depths not seen before. It seems that the for-profit industry is graduating barely 20 percent of its students when using the standard statistical time frame of six years.

ET_subprime_reportCvrThough for-profits spend far less to educate each individual student than public and private colleges, the average low-income student at a for-profit actually ends up paying almost $8,500 more per year than the average low-income student at the more expensive private nonprofit. The result is that these institutions, rolling in profits from strong marketing campaigns, appear to be doing very little for students with the exception of saddling them with enormous amounts of debt.

This sad state of affairs is summarized in the Trust report as follows:

As with the collapse of the subprime lending industry, the showdown between for-profit colleges and the government shows how the aspirations of the underserved, when combined with lax regulation, make the rich, richer and the poor, poorer. For-profit colleges provide high cost degree programs that have little chance of leading to high-paying careers, and saddle the most vulnerable students with heavy debt. Instead of providing a solid pathway to the middle class, they pave a path into the subbasement of the American economy.

The report certainly clouds our thoughts as to whether or not one should still consider for-profit institutions when thinking of where to apply to school.

Some samples of graduation rates in the report:

University of Phoenix – 9%
DeVry University – 31%
The Art Institute – 41%
Berkeley College – 35%
Sullivan University – 15%
Westwood College – 27%
International Academy of Design and Technology – 16%
School of Visual Arts – 67%
The Illinois Institute of Art – 44%
ITT Technical Institute – 66%

Posted by Thomas | in Applying to College | No Comments »

College Student Begs for Help Paying Student Loans

Nov. 23rd 2010 18:31

Having borrowed $200,000, a graduate of Northeastern University resorts to begging for help online.

One college student is receiving a great deal of publicity for her unique way of dealing with her student loan debt. In a form that one could only describe as Internet begging, 23-year-old Kelli Space has created the web site Two Hundred Thou.

The home page displays this simple explanation:

I owe over $200,000 in student loans. Please donate to the cause: together we can make these loans disappear faster than you can ask why I went to such an expensive school!

Learning What Not To Do

iStock_000005363862XSmallWith current loan payments of $891 a month, Space provides us a powerful example of how naïve some college students are when it comes to borrowing for school. With payments on her federal loans set to nearly double by November of next year, the young lady now realizes her situation is hopeless unless she can find some extremely charitable souls.

On her site she offers the simplest of explanations as to how she managed to incur $200k in debt?

Tuition and room + board for four years, along with 2 summer semesters, a 3-month stint abroad (as it is 1 of several options offered to fulfill Northeastern’s experiential education requirement), and books for approximately 3 semesters when I did not have a job at the onset. AND the interest that has accrued over the past 5 years (as interest accrues on private loans as soon as you take them out).

Space insists that she worked most of the time she attended school including her on campus work-study option. She also insists she did not receive any grants, just aid in the form of student loans. In spite of the costs of schooling and the lack of financial support, she also insists that she followed the advice of a financial advisor at the school “to explore other options” to help fund her Northeastern education “including private lenders.”

The Power of Compounding

Space provides us a great lesson in the power of compounding. On the site she reveals that her federal loans alone accrued more than $20,000 of interest during her time in school. So more than one-tenth of her debt is simply the interest on the original loans.

In addition, in her plea for help, Space also demonstrates the famous power of compounding. She notes that she would need one fairy tale donor, a very exceedingly generous soul, willing to cough up the full $200,000 to make her debt free.

3D Character with head in hands, sitting on the word StressBut she could make the issue far more manageable if she could find just 1,000 sympathetic visitors. It would take only a modest $200 donation from each of those individuals to put an end to her debt.

She also notes that just $5 per donor would be enough if she could find 40,000 sympathetic souls and just 67 cents per person if just one of every 1,000 Americans (300,000 out of more than 300 million people) felt enough kindness to help with the young lady’s plight.

The Debt Load

In our Student’s Guide to Finance we offer some basic ways for students to determine how your loans will affect you. We offer the advice of MSN Money professionals who insist that monthly loan repayments from school should not exceed 10% of your expected earnings.

Furthermore, to be safe in determining expected repayment, experts indicate that students should project an 8% interest rate return on the amount borrowed. Under such a scenario, every $1,000 you borrow costs roughly $12 a month to repay for a 10-year loan.

Therefore the average college student who leaves school with $24,000 in debt would face a monthly payment of about $288 per month. According to the MSN experts, to be safe you would need a monthly income of $2,900 to meet the 10% threshold, or a starting salary of about $35,000.

A person accruing $50,000 in student debt would face monthly payments of over $600 and thus require a monthly salary of $6,000 and yearly earnings of $72,000.

Can you predict what Kelli Space now faces?

One Naïve Young Lady

Our quick calculation reveals that $200,000 in student loans would normally yield a monthly bill of about $2,400 and thus require a yearly salary approaching $300,000.

Yes, this young lady would need a salary of $300,000 a year despite having earned only an undergraduate degree.

Such an amount would be viable only if one could claim a graduate degree in law or medicine but would still be a challenge even for them. Nowhere on the site could we find Ms. Space’s college major, so we cannot assess what would have been a realistic amount for her to borrow.

Instead, we can only shake our head in disbelief.

And acknowledge the young lady has now likely taken the only step that might allow her to correct this incredible mistake.

But begging for funds over the Internet is not a method we can recommend others contemplate. Instead, we suggest that students educate themselves on the damage that excessive borrowing can wreck on one’s future.

Posted by Thomas | in Miscellaneous | 4 Comments »

To How Many Colleges Should I Apply?

Nov. 17th 2010 18:03

As the school year heads into its second quarter, high school seniors are now beginning the process of finalizing which schools they will apply to. One aspect of this process involves what may seem like a rather arbitrary decision but it is one that students should think carefully about.

We are talking about the choice as to how many schools to apply to.
Before presenting our recommendation as to how many, let us look at the current norm as published in the 2010 State of College Admission Report.

First off, the 2010 report reveals that seventy-five percent of those students who became college freshman in the fall of 2009 applied to three or more colleges. As for the heavy hitters, nearly one out of every four students (23 percent) submitted seven or more applications.

Clearly, applying to one or two colleges would place you in a distinct minority these days. But the suggestion that everyone is now applying to at least six to ten colleges is simply not accurate either.

One good reason for limiting the total number of applications is the cost of filing one. According to the report, 90 percent of colleges had an application fee and the overall average was $39.

But larger institutions, as well as the more selective colleges, tended to have higher fees. However, 84 percent of those colleges that charged an application fee waived them for students with demonstrable financial need.

While applying to a number of schools can be expensive, the ease with which one can apply has grown exponentially. With a common application that can be filed online with the touch of a button, students may now easily apply to multiple schools.

Colleges Seek Your Application

It is important however for students to understand that colleges, in general, are actively seeking your application even if they are not actively seeking you as a potential student. In the college rankings game, it is important for schools to be able to publish data that seemingly demonstrates how sought after the school is by students.

The process works like this: a larger number of applicants is seen by outside agencies as a sign that a school is highly thought of by students. Likewise, a greater applicant pool allows a college to also sift through the many candidates to offer admission to those seen as the most worthy.

The result is that colleges can increase their selectivity rating and thus select a lower percentage of students for admittance. The increased number of applications combined with a lower percentage of acceptances works to improve a college’s ranking in those all important guides.

For that reason, colleges reach out to students for the purpose of drumming up interest in the school. Again, quoting the recent report, on average, colleges and universities spent about $524 just to recruit each applicant for Fall 2009 admission ($843 for each admitted student and $2,553 for each enrolled student). Ultimately, students need to understand that a good many people are working very hard to get an application from you.

The Number to Apply to?

While 23% percent of students currently apply to seven or more schools it is interesting to note that only 13% of students in 2000 applied to that many schools. One reason for the increase may be the concern that more students are attending college and therefore competition for openings is more of an issue.

But is also interesting to note that the acceptance rate for students in 2009 was 67%, nearly the same number (71 percent) as in 2001. That means that virtually every single applicant is accepted by at least one worthy college even if it is not the person’s first choice.

The result is that students are giving careful consideration as to where they will apply and even beginning to rethink the number as well. We read recently where there is a growing consensus that less could be more and the case of a very strong student coming up with a list of just five schools.

Those schools should include a good mix of reach, match and safety schools. And while some are still suggesting applying to between six and ten schools three reach, three match and two safety schools, we believe that identifying one or two reach schools at most, two match and two safety can give students a great deal of choice.

Five to six, maximum remains our recommendation. The key is to do your homework and determine the schools that are the best match for you.

Do not waste time applying to any school based simply on the notion that your peers are applying to eight or more. There is absolutely no sense in applying to a school that you are not 100% interested in attending no matter how easy it is to apply or how much one specific school seems to be reaching out with admissions info.

Posted by Thomas | in Miscellaneous | No Comments »

Too Many Students Paying More than They Can Afford for College

Nov. 15th 2010 17:45

When it comes to students choosing where to apply to college, there is growing evidence that the total cost of attendance is not given enough consideration. In fact, the failure to discuss how students are going to pay for school is called the “Pink Elephant in the Room” by Anne Richardson, the Director of College Counseling at Kents Hill in Readfield, Maine.

A new report from the College Board and the higher education consulting firm Art & Science Group LLC, confirms Richardson’s assertion. The new study reveals that many students consider colleges that they simply cannot afford to attend.

iStock_000001386983XSmallMore than a thousand high school seniors were interviewed in the study. Participants were randomly selected and interviewed on two occasions.

In the early part of winter students were asked where they were thinking of applying to college. In addition, the researchers asked students about the challenges of paying for school. Just over 900 of those students were then randomly selected for a follow up session in late spring where they were asked the same set of questions.

In the first set of interviews, 63 percent of the students indicated that they and their families would have a hard time paying for college. In the second set of interviews, 59 percent continued to indicate that they would have a hard time paying for college.

However, though it was clear that the cost of college was going to be a significant challenge for more than half of the respondents, the students clearly had done very little work towards determining how they were going to pay for school. Despite the large number of web sites offering financial aid calculators, 40 percent of the second group of interviewees still had not used an aid calculator to examine how much they and their families would be required to pay.

The most disappointing element was the number of students who indicated that they were going to “work out how to pay” for school when the time comes. While 24 percent of the early group gave such a response, come spring, when the time was now upon them, 22 percent still gave the very same answer.

In addition to not having done any additional work as to how they were going to pay for school, the respondents also clearly lacked a basic understanding of what payments they would have if they borrowed for school. For the first group polled, 40 percent said that they had “no idea” what their loan repayment would be on a monthly basis. For the second group, 39 percent said the same thing.

Sadly, too many students focused on school prestige and strength of academic programs exclusively and gave little regard as to how they were going to pay for these schools. Simply stated, those polled were not giving enough thought as to the affordability of specific schools.

Art & Science group principal Richard A. Hesel told the Chronicle of Higher Education that he is worried about this disconnect, that far too many students are unrealistic about how they will pay for college. He goes on to insist that “institutions have to work much harder to monitor what’s going on with students and stay in touch.”

While we agree with his assessment to an extent, we must insist that students and families also own a piece of this problem. There needs to be a critical discussion at some point that focuses in on how much is “too much to pay for college.”

Of course, that value changes if one has to borrow significant sums to earn that all-important diploma. If one is of unlimited means, then the question becomes essentially moot, the prestige and programming at the most expensive schools is likely the way to go.

But if one has to take on debt the question as to how much is too much is a fundamental one for students and parents. Depending on one’s future earning power, borrowing can become a real problem.

The fact that students and their families are not tackling the “pink elephant” in the room is appalling. The failure to have this discussion is clearly one of the key reason’s why student debt has reached crisis stages.

Posted by Thomas | in Applying to College, Finance | No Comments »

Need a Credit Card – Avoid the Companies Peddling on Campus

Nov. 11th 2010 18:36

Credit card companies with excessive fees paying colleges millions for the right to access you on campus.

Over the past few weeks we have spent a great deal of time discussing the growing problem of student loan debt. Simply stated, students are borrowing far too much in the process of earning their diploma and their accumulated debt is endangering their entire future.

At the same time that loan debt is creating a heavy burden for students, another form of debt is wreaking havoc for the general public. We are talking about credit card debt, an issue for all adults including those just graduating from college.

iStock_000014696238XSmallCurrent data suggests that college students possess an average credit card debt of $4,100. Such a number is almost inconceivable to us, because this is not the number the highest set of borrowers owes – it is the average. With credit card interest rates for young people at astronomical levels, those accumulating such a level of debt soon find their monthly payments growing without those payments reducing their card debt.

We have long advocated that students think twice about all debt but particularly that associated with credit cards. To ensure that students don’t get in over their heads, we have advocated that they shop around and get a single card that can be used only in a true emergency. We further advise students who have charged or continue to charge any amount to pay the balance in full each and every month to avoid the exorbitant interest charges most credit card companies assess.

Resisting Temptation

Clearly, that advice has been falling off deaf ears. But then again, we can easily grasp how students get snookered given how hard card companies work to get a card into your hands.

Thanks to the Credit CARD Act of 2009 it is now possible to get a full glimpse as to how much companies are willing to spend to get students onto the debt bus. Under the Act, credit card issuers had to submit some very specific data to the Federal Reserve. That data included how much money credit card companies spent in fees to universities just so that they could set up shop on college campuses. In addition the CARD Act demanded issuers release how many new accounts were opened due to these on-campus opportunities.

Consider the data that was collected. First off, credit card issuers paid more than $83 million for the right to go on campus and thus potentially sign students up for an account. That’s correct, a total of $83 million.

According to the data collected by the Federal Reserve, a total of 17 different credit card companies issued more than one thousand college card agreements. As but just one example of the 17, Chase Bank spent over $13 million to entice new student customers. This of course does not take into account the cost of each company’s employees’ time on campus recruiting new customers.

iStock_000013415968XSmallAt the same time, to get a sense as to how much these credit card companies are making off of students, this $83 million enabled card companies to sign up 53,000 new student clients. This translates to an astonishing figure: these companies spent, on average, about $1,600 for each and every student just for the right to sign these new customers up.

Yes, these companies spent $1,600 just for the right to try to get a card in your hands. Anyone with a basic business understanding realizes that to make up these initial marketing costs, the cards offered have to be laced with fees and high interest rates. Otherwise, these companies would not spend such extraordinary sums of money just to get the chance to sign you up for card.

Their goal is simple – get a card into your hands and then start charging you excessive fees whenever you miss a payment or incredible interest rates when you are unable to pay off the loan balance immediately.

Don’t Get a Card on Campus

The thought of easy access to credit can be enticing but students need to understand that those card companies on campus are simply not the ones to consider. If you head over to you will see a list of those companies that Credit Card Connection warns consumers to avoid due to their unfair and unethical practices.

A single credit card to be used in emergency situations is a good idea. But not all cards are created equal – do your homework and find a card that has reasonable interest rates and minimal finance charges. Many credit unions offer a card that offers reasonable access to credit as well as a fair fee structure should you not be able to keep your monthly balance zeroed out.

The bottom line is that debt is a very bad thing and we are talking all forms, student loan and credit card. But the most insidious is credit card where card companies take advantage of unsuspecting students.

If you see one of those card companies on your local campus, you would do yourself a favor if you began walking in the other direction as fast as you can.

Posted by Thomas | in Miscellaneous | No Comments »