This week I'm going to challenge everything you know about student loans. Well, actually, Mark Kantrowitz is. He's the publisher of FinAid and FastWeb, which are among the best resources out there for financial aid and scholarship information. And they're free. (It's been said before, but it bears repeating, don't ever pay for a scholarship search.) This piece is from the Washington Post's series whose aim is to challenge everything you about a wide range of topics. So here it is--consider yourself challenged.
From Mark Kantrowitz and the Washington Post
Many of the Occupy Wall Street protesters are struggling to repay student loans and want their debt to go away. An online petition calling for cancellation of all student loans has gathered more than 600,000 signatures over the past 11 weeks. President Obama responded, in part, last month with an improved income-based repayment plan, but most of the protesters and petitioners will not qualify for it. The increased attention on education debt has also brought attention to many misconceptions about how people borrow to pay for school.
1. Forgiving student loan debt would help stimulate the economy.
People who want all student loan debt forgiven argue that getting rid of monthly loan payments would lead to increased consumer spending, thereby providing a quick boost to the struggling U.S. economy. However, only about 40 percent of all outstanding student loan debt is actively being repaid. The remaining borrowers are still in school or otherwise not paying their loans back, so they wouldn’t immediately benefit from forgiveness.
And a “forgiveness stimulus” would have a limited impact. According to my calculations based on data from the Education Department’s Direct Loan Program, annual payments and default collections total about 5.6 percent of these outstanding direct loans. If this proportion is similar for other kinds of education debt, then forgiving the nearly $1 trillion in outstanding student debt would inject at most $56 billion per year. Not a paltry sum, but certainly small compared with more significant stimulus efforts.
2. All education debt is good debt.
Certainly, taking out loans to pay for college is an investment in your future and a key to a better-paying job. So it’s good debt. But too much of a good thing can be bad for you.
Students who graduate with high debt often must abandon certain career aspirations. I’ve spoken to hundreds of borrowers who are behind on their student loans, and they tell me they have delayed major life events, such as buying a car or a home, getting married, having children, or saving for their children’s college education or for retirement. According to a recent survey by Monster Learning, about a third of recent college graduates have to move back in with their parents to save on living expenses.
A good rule of thumb is that students’ total debt at graduation should be less than their expected starting salary — ideally, a lot less. This will allow them to repay their loans in 10 years. Otherwise, they will need to use an alternate repayment plan, which reduces the monthly loan payment by stretching it out over 20, 25 or even 30 years. This means that when their own children start college, some of these people will still be paying off their old loans.
3. If you declare bankruptcy, your student loans go away.
Neither federal nor private student loans can be discharged in a bankruptcy unless the borrower files an “undue hardship” petition — which often involves a very harsh and high standard that was set in a New York state case more than 20 years ago. It requires that the borrower cannot maintain a minimal standard of living while repaying the loans, that the circumstances that prevent repayment will probably persist for most of the life of the loans and that the borrower made a good-faith effort to repay the loans. In the words of one bankruptcy judge, a successful undue hardship petition requires a “certainty of hopelessness.”
According to the Educational Credit Management Corp., a guarantee agency that manages the student loans of federal borrowers with an active bankruptcy filing, about 72,000 federal student loan borrowers filed for bankruptcy in 2008, but only 29 succeeded in obtaining a full or partial discharge of their loans. That’s 0.04 percent. You’re more likely to die of cancer or in a car crash than to have your loans discharged in bankruptcy.
4. Widespread defaults on federal student loans would worsen the government’s deficit.
Some people argue that the student loan “bubble” could be the next to pop. Yet despite the recent increase in default rates to nearly 9 percent, federal education loans remain profitable for the government.
And the government has strong powers to compel repayment on defaulted loans. For example, it can garnish up to 15 percent of take-home pay without a court order for a borrower who is 12 months behind on student loan payments. The government can also intercept federal and state income tax refunds and lottery winnings, and offset up to 15 percent of Social Security disability and retirement benefit payments. Default rates would have to more than triple for the government to lose money on federal education loans.
5. The federal government should get out of the student loan business — the private sector can do it better.
Private loans make up a relatively small percentage of total education debt. Some private loans currently offer lower interest rates than federal education loans — but most of those rates are variable and restricted to borrowers with excellent credit or with a creditworthy co-signer (usually a parent). Interest rates are unusually low now, but the rates on variable loans are likely to start increasing soon.
The federal government, on the other hand, seeks to increase access to a higher education in addition to earning a profit. The federal Stafford loan is available to all students without regard to the borrower’s credit history. The federal PLUS loan requires that borrowers not have an “adverse credit history,” but this is a weaker standard than the ones used by private lenders.
But there’s more the federal government can do. The Consumer Financial Protection Bureau and the Education Department have proposed a plan to standardize financial aid award letters, so that they provide better disclosures of college costs and aid. College is becoming less affordable. Tuition rates at public colleges are growing at above-average rates, and low- and moderate-income students are increasingly being priced out of a higher education. Families need federal and private student loans to help pay for college, but they also need clear, correct and comparable information about college costs and financial aid so they can make informed decisions about affordability, and so students can graduate without crippling loan debt.
Mark Kantrowitz is the publisher of FinAid and Fastweb, financial aid Web tools, and the author of “Secrets to Winning a Scholarship.”
So, what's your major?
When you're a senior in high school everyone asks where you're applying college. The follow-up question inevitably will be about your major. Most people change their major at least once in college. I myself switched from business to psychology. For some, it can be a tough choice to make. There's been a lot in the news recently about whether or not college is a worthwhile investment, especially when you consider just how many recent graduates are struggling to find jobs. Unemployment rates for people aged 20-24 is at 16.5%, 10.9% for those aged 25-29. All higher than the national unemployment rate of 9.0%. Couple that information with the recent news about student debt climbing ever higher and, well...
Feeling any pressure to pick a major that pays well?
A friend emailed me a link to an interactive chart by the Wall Street Journal. Based on 2010 Census data, I can sort by unemployment, popularity, and earnings.
Do the most popular majors pay? Are you doomed to high unemployment because of your major?
Keep reading to see how the most popular majors fared.
I re-tweeted a NACAC link to a list of schools that extended their November 1 Early Decision deadlines due to that delightful October snowstorm. Thankfully my neck of the woods was only snowy for about a day, but those who live farther northeast were not so lucky.
These schools were generous to offer those extensions, but there's a life lesson here that we've all learned before: don't leave things to the last minute. That will be especially important to remember as a college student. There's more freedom in college and there's responsibility that comes with that. You'll be in class less than in high school and you'll need to be more proactive in those off-hours. Do you know how long it takes you to write a paper? How long will the research take? There's a really good chance that there will be a weekday where you only have one class. Can you maximize that time efficiently? You'll be the only one hounding you to study.
The goal, always, is to get the work done and have fun later. If you can plan your time right you won't have to watch your friends hang out without you, and you won't be tempted to blow off your work either.
This week there was just too much going on--too much to do, too much to read, too much everything. Add an internet outage and hey, necessity is the mother of invention, right? Because of this, I will now have a semi-regular feature to bring you. Here's a roundup of the week's most interesting stories.
Student Loans
College is expensive, we know this . It's probably the only time where it's almost considered responsible to take on thousands of dollars in debt because it's an investment in your own future. (Not like credit cards, which are usually an investment in new shoes and dinners out.) And now it's getting political attention--Ron Paul wants to end student loans. And then there's the White House. There has been a push to make the process more transparent (see net price calculators ) and now there is another effort to simplify: A one-page form to compare college aid offers. Right now they're asking for feedback, so we probably wouldn't see it for a little while, but I'll be watching to see how that plays out. Finally, an interesting "experiment" in community colleges and for-profit institutions-- limiting the amount of federal loans their students can borrow.
The NCAA
Amidst reports of yet another school jumping their conference ship (ahem, West Virginia.) Let's start with some good news: more athletes are graduating. There are some proposed NCAA reforms, namely a $2,000 increase in scholarship amount and increasing academic eligibility standards. No new proposal is without controversy, however-- as a Chronicle analysis shows that "Division I athletes, on the whole, appear to be better off, financially speaking, than the general student body". Even college administrators aren't convinced, saying that these reforms don't address underlying concerns.
Happy reading!
The National Association for College Admission Counseling, or NACAC, has released its annual State of College Admission report. The association culls information from surveys it sends to colleges and universities. This year's report outlines some interesting trends as they relate to enrollment, social media trends in the admissions process, information on high school graduation, acceptance rates, and factors in admissions decision-making.
Here are some highlights:
1. Number of High School Graduates Has Peaked after Decade of Growth
There were 3.33 million high school graduates in 2008-09. In 2010-11, that number will dip to an estimated 3.28 million. The decline will continue, but rebound eventually and remain there through 2017-18.
2. College Enrollment Continues at All-Time High
By 2020 college enrollment is expected to increase to 23 million, up from approximately 20.4 million in 2009.
3. Racial/Ethnic Minorities and Low-Income Students Underrepresented in College
Only 55 percent of high school completers from the lowest income quintile transitioned to college in 2009, while 84 percent from the highest income quartile went on to college.
4. Application Growth Continues
73 percent of colleges experienced an increase in the number of applications received from 2010. For students entering college in 2010, 25 percent of them applied to 7 or more schools.
5. More Colleges Use Wait List; Chances of Acceptance Drop
48 percent of institutions used wait lists for fall 2010 admissions. In 2009, that number was 39 percent. An average on 28 percent of students were accepted off the wait list, a six point drop from fall 2009.
6. Admission Offices Identify Grades, High School Curriculum and Test Scores as Top Factors
In order of importance: grades, curriculum strength, standardized test scores, overall high school GPA, essay, demonstrated interest, class rank, counselor and teacher recommendations, and extracurricular activities.
7. Student-to-Counselor Ratio
US Department of Education data in 2009-10 showed a public school student-to-counselor ratio of 460:1 (that's including K-12 schools). NACAC data indicated an average ratio of 272:1 in secondary schools (including part-time staff). ASCA's ideal ratio is 100:1.
8. Time Spent Counseling for College
Public school counselors reportedly spent an average of 23 percent of their time on college counseling. Private school counselors spent 55 percent of their time on college counseling.
9. College Counseling Staff
26 percent of public schools had at least one counselor (either full- or part-time) on staff dedicated to college counseling, compared to 73 percent of private schools.
10. Cost to Recruit
$585 was the average dollar amount spent by colleges and universities recruiting applications for fall 2010.
In a word… very. That's not meant to oversimplify. No doubt you've heard that the essay is the best way for an admissions officer to learn about who you really are. Your grades and test scores aren't the things that define an applicant. If they were, why would colleges ask for more?
Joyce Carol Oats said "…as soon as you connect with your true subject you will write". No matter what question the essay actually poses, underneath it all the real question these schools want to know is "who are you?"
It's a hard question to answer. Don't know where to start? Still struggling? No matter where you are in this process, these three starting points can help you find your topic.
1. Free write
Forget about the essay topic at hand. Set a timer for 5 minutes and don't pick your pen up from the paper. Don't worry about grammar or whether or not it makes sense. Is there still time left on the clock? Keep writing. When you're done, underline any ideas you think might be worth expanding.
2. Idea clusters
Maybe you already know your writing topic. Write it down in the middle of a blank piece of paper and circle it. Any ideas related to your main idea will be connected to this with line and another circle. Any ideas worth exploring? Try free writing (see above).
3. Say it out loud
This is how I would start a session with a client. If you're having trouble getting the ideas from your head to the page, talk it out. Tell a story. Keep a notebook next to you when you have a brainwave, but keep going. If you're feeling inspired at the end of the conversation, dive right in and write!
You'll do several revisions of the essay, so don't worry about it being perfect from the get-go. Hopefully you'll find that the more you get into it, the more you'll find to write about.
One note to parents--try to be as hands-off as you can be during this process. Not only is this a critical part of the application, but it's also a very draining. Proofread it, don't edit. There's an important distinction there.
There are no bad topics, just bad writing. (It's an essay about YOU, how can that be a bad topic?) Just be thoughtful.
There's a lot of information here and a lot to think about. Don't get overwhelmed. Everything's manageable if you pace yourself.
Freshmen and Sophomores, you can find your tips here. Juniors and Seniors, it's officially college crunch time.
Junior year
1. It's time to work.
This is by far the most important year for your grades. Think about it--when you're applying to college there's a good chance your first semester of your senior year won't be over yet. So which year's grades will be sent? You got it. Don't worry if your grades from 9th and 10th grade aren't perfect. You'll make a strong argument for yourself if your Junior year grades show an upward trend.
2. Lead.
By now you should be involved in activities you care about. This is the year to start to take a leadership position. Go after an editor position if you're on the school paper or chair a committee.
3. Study for the test.
I already mentioned your grades…am I repeating myself? The PSAT, SAT, and ACT are all tests. You'd study for a history test or a vocab quiz, so why wouldn't you study for these? Prepare yourself--it's worth the effort.
4. Start the list.
This is when you think about college in more concrete terms. What do you want to study? Who offers those programs? Maybe it's been your dream to go to State U., but what if they don't have the program you need? Expand your horizons. There are thousands (literally) of schools out there and you'll attend the one that's right for you.
Senior year
1. GRADES.
Don't think for a minute that because your applications are in you can go easy on your work. Colleges have the option to rescind and believe me, they'll do it. You've worked hard for three years, don't let it all be for naught.
2. A little organization goes a long way.
There are a lot pieces to your applications and you've got to keep it all straight. Colleges get inundated with material and they'll lose stuff. Make sure you have copies of all of your material.
3. Fill out the FAFSA.
Hopefully you've taken a thorough look at the family finances before this. Think you don't need to or that you won't qualify? Do it anyway. There are grants, scholarships, and work study opportunities that require the FAFSA. Don't miss out on something because of an assumption.
4. Breathe!
Take some time to enjoy your last year of high school. You've accomplished a lot and you should reap the benefits of it. Go to events you wouldn't normally go to. You've been thinking about the future a lot, but don't forget to enjoy the now.
