MONEY College

How To Get Full Credit When You Swap Colleges

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B.O'Kane—Alamy

Transfers typically lose an entire semester's worth of credit and tuition, a new federal study has found. Here are three ways to avoid missing out on that money and time.

The more than one million Americans who transfer from one college to another each year find that about 13 credits on average—or about a semester’s worth of courses—are refused by their new school, a new analysis by the Department of Education has revealed.

Depending on the college, that means you typically spend anywhere from about $1,300 to more than $13,000 in tuition for classes that don’t get your closer to a degree when you transfer.

The federal study, which examined a large sample of college transcripts dating back to 2003, found great variation in the amount of lost credit. About 40% of transfer students lost all of their credits when they transferred. On the other hand, almost a third got credit for all of their courses. Overall, about 35% of college freshmen ended up transferring, the study found.

“This is pretty disturbing confirmation of problems in our system of higher education,” says David Baime, spokesperson for the American Association of Community Colleges. Other studies show that such wastes of time and money cause many students to give up and drop out, Baime notes.

The good news, Baime and other experts say, is that the new research, along with new laws and new web tools, can help your improve the odds of transferring all of your hard-earned credits.

Choose the Right Starting and Target Schools

More than 80% of students transferring out of for-profit colleges lost all of their credits when they jumped to a public or private non-profit school, the federal study found. (Noah Black, spokesperson for the Association of Private Sector Colleges and Universities, says that many schools’ transfer rules have changed recently. he added: “The question should be posed to other institutions as to why they are not accepting of credits from accredited institutions,” such as the for-profit colleges that make up his group.)

But the typical student at a public community college who transferred to a public university paid for 38 credits at the two-year school, and got credit for about 30 at the university, a loss of 21%. The researchers found that private colleges generally gave transfer students from public colleges credit for about two-thirds of their courses.

David Bergeron, vice president for postsecondary education at the Center for American Progress, notes that students who take a community college curriculum that qualifies them for admission to a selective private college also tend to win credit for most of their courses. “So try to go for the most selective college you can,” Bergeron says, adding that a growing number of private colleges are recruiting and awarding aid to community college transfers students. “Families should be exploiting that,” he says.

Check New State Laws

A growing number of states, including Florida, Pennsylvania, and Connecticut, are requiring colleges to make credits more transferable among public colleges, Baime notes.

Take Advantage of New Web Tools

While budget cuts have forced some public colleges to cut back on counselors who might help you figure out which courses will transfer, there are a growing number of web tools that you can use to find the courses that will be approved for transfer. One site Baime recommends is CollegeFish.Org, which is sponsored by Phi Theta Kappa, the International Honor Society of Community Colleges. And many colleges, such as the University of Virginia, now have tools that allow you to look up the transferability of each community college course.

 

 

 

 

MONEY College

How Does Your School Really Match Up to Its Rival?

Left: University of North Carolina Tarheels fans.  Right: Duke University Blue Devils fans.
Left: University of North Carolina Tarheels fans. Right: Duke University Blue Devils fans. These same-state rivals end up in close proximity on our rankings list as well. (left) Margaret Bowles/Southcreek Global/ZUMApress.com—Alamy; (right) Lance King—Getty Images

You know who dominates on the playing field. Now see which schools are the victors when it comes to providing the most value for your money, based on MONEY's Best Colleges ranking.

College rivalries are usually played out on the football field or the basketball court—or, in some cases, the research lab. In the game of life, though, winners and losers are sometimes counted in dollars and cents, rather than points on a scoreboard. MONEY’s Best Colleges rankings evaluated some 665 schools on 18 separate measures of educational quality, affordability, and alumni career earnings. Here’s how 10 pairs of classic rivals did in head-to-head matchups.

 

The Match-Up: Alabama vs. Auburn
The University of Alabama holds the lead in what some have called the greatest football rivalry in college sports, with 42 Iron Bowl wins vs. 35 for Auburn University. But the Tigers crush the Crimson Tide on a variety of financial measures. The average net price of a degree at Auburn (ranked No. 183 on our list) is around $100,000, or about $13,000 less than the price of Alabama (No. 409). (Our net price calculation represents the estimated total cost of attendance from freshman year through graduation—including tuition, room, board, books, fees, and other incidentals—taking into account all scholarships and grants from the school, inflation, and the average time it takes students to graduate.) Meanwhile, the Crimson Tide lives up to its name, with graduates leaving the school substantially more in the red. Alabama students graduate owing about $25,000 (including private loans), compared with less than $10,000 for the typical Tiger. Yet Alabama’s higher debt doesn’t pay off in higher salaries, as Auburn grads report pull in about $4,000 more a year on average than the typical Alabama alum.
The Winner: AUBURN

The Match-Up: Berkeley vs. Stanford
In Big Game match-ups between these longtime Bay Area rivals, No. 5 Stanford has a clear edge (59-46-11). But when assessing which university offers students the best educational value, the winner is less clear-cut. As a state school, the University of California at Berkeley (No. 13 in the overall rankings and No. 2 among public schools) is substantially cheaper to attend, with an estimated net price of a degree ($126,800) that’s more than $40,000 below what the typical student pays to attend Stanford. Yet generous financial aid policies allow Stanford grads to emerge with less than half as much debt as Berkeley students. And while Stanford grads report earning a few thousand more a year over the course of their careers, alumni of both schools make substantially more than average—and more than would be predicted given the economic and academic profile of students who go there. Berkeley’s “value added” grade is a stellar A-minus, while Stanford gets a B-plus.
The Winner: IT’S A TIE

The Match-Up: Caltech vs. MIT
The simmering rivalry between these two top science and engineering schools is traditionally played out in pranks rather than on a sports field. The latest: At an event for prospective students earlier this year, Caltechies handed out mugs that featured the MIT logo when cold but, when filled with hot liquid, changed to read, “Caltech: The Hotter Institute of Technology.” As for which school is the better value, MIT (No. 3 in our rankings) costs the typical student about $20,000 less than Caltech (No. 10) after factoring in aid. Still, alums from both schools go on to earn an average salary of more than $68,000 annually within five years of graduation—among the highest salaries reported by students of any of the colleges in our rankings.
The Winner: MIT, by a nose

The Match-Up: Duke vs. UNC
These same-state private-public school rivals end up in close proximity on our rankings list as well, with Duke at No. 32 and the University of North Carolina-Chapel Hill landing at No. 40. As a state school, UNC is considerably cheaper to attend, with an estimated average net price of a degree of just $84,000, almost half what it costs to attend Duke (net price of a degree: $192,800). But Duke students tend to earn considerably more, with a gap that widens from early to mid-career, according to the salary figures that alums of both schools report to Payscale.com, our earnings data supplier. Meanwhile, both schools get an impressive grade of A-minus on our value-added measures, which look at how well an institution helps its graduates exceed expectations, given the academic and economic profile of the student body.
The Winner: IT’S A TIE

The Match-Up: Florida vs. Georgia
These southern schools have been fighting hard on the football field for nearly 100 years, maybe more (there’s disagreement over when the rivalry began). The Georgia Bulldogs have won more games but the Florida Gators top them on our financial measures. University of Florida, ranked No. 28 on MONEY’s Best Colleges list and seventh among public schools, charges the typical student less to get a degree (around $87,000 vs. roughly $100,000 at Georgia), according to our calculations. That enables attendees to graduate with less debt (average amount owed: $7,000 vs. $10,000). And Florida students also tend to earn somewhat higher salaries, about $3,000 more a year, early in their careers. Take note, Bulldogs: Georgia’s top 100 showing—the school came in at No. 62 overall and No. 17 on the best public colleges list—is still impressive, putting it among the best values in the country.
The Winner: FLORIDA

The Match-Up: Georgetown vs. Syracuse
To the delight of fans, the competition between these two basketball powerhouses, on hold since Syracuse left the Big East Conference for the ACC in 2013, resumes next year, with the recent announcement of annual games scheduled for four years starting in the 2015-16 season. The Orange holds the edge on the court (‘Cuse has won 49 of the 90 meetings between the two teams), but in MONEY college rankings metrics, it’s a slam-dunk for the Hoyas. Despite having one of the highest net price tags on our list at $204,480 (partly due to the high cost of living in the nation’s capital, where the school is located), the average Georgetown student borrows just over $7,100 to get an undergraduate degree—that’s a third of the amount the typical Syracuse student owes (average debt on graduation: $21,450). And Georgetown students tend to earn more after they graduate too—$53,000 on average vs. $47,700 for Syracuse alum. That helps explains why Georgetown landed at No. 37 in our rankings, while Syracuse, at No. 246, failed to crack the top third.
The Winner: GEORGETOWN

The Match-Up: Harvard vs. Yale

Harvard (ranked sixth overall in our rankings) and Yale (No. 15) cost nearly the same amount to attend on average, according to MONEY’s estimated net price of a degree: $181,200 for Harvard, $182,800 for Yale. Yet alums from Cambridge earn about $55,300 within the first five years of graduations, or about $5,000 more than the New Haven crowd. That may help explain Harvard’s special allure for prospective students. Some 84% of applicants admitted to Harvard enrolled in the university for the 2012-13 academic year (the most recent stats available from the Department of Education when we collected the data earlier this year), vs. 64% of admitted applicants who choose to attend Yale.
The Winner: HARVARD

The Match-Up: Michigan vs. Ohio State
Go Blue: At $94,500, the average net price of a degree from the University of Michigan (No. 22 overall and No. 5 among public colleges) is about $10,000 less than the roughly $105,000 cost of a BA from Ohio State University (No. 144), according to our estimates. Plus, Wolverines typically graduate with less debt and earn about $8,000 more a year over the course of their careers than Buckeyes. In this face-off, Michigan scores a touchdown.
The Winner: MICHIGAN

The Match-Up: Notre Dame vs. USC
Often called the greatest intersectional rivalry in college football, Notre Dame and the University of Southern California have combined to produce more national titles, Heisman trophy winners, All-Americans, and future NFL Hall of Famers than any other college football rivals. While the two schools are tied in the number of national titles each has won and Heisman trophy winners they’ve produced, the Fighting Irish lead their football series, with 45 wins in 85 meetings. And they beat the Trojans in many of MONEY’s key measures as well, though not by a wide margin. Notre Dame is a little less expensive (estimated net price of a degree: around $184,500 vs. $192,000 for USC), grads earn a little more ($54,000 a year early in their careers vs. about $51,000 for USC alums) and come out with a lot less debt, on average (about $5,600 for Notre Dame, compared with $15,500 for USC). That helps explain why, although both schools are highly ranked, more than 100 spots separate Notre Dame (No. 20) and USC (No. 129) on our list.
The Winner: NOTRE DAME

The Match-Up: Oklahoma vs. Texas
The University of Texas at Austin holds the lead in the annual Red River Showdown between the Sooners and the Longhorns, and has an edge off the football field as well. The flagship school at Austin is ranked No. 53 on our list (and No. 17 among public colleges), while Oklahoma-Norman comes in at No. 122. That’s still a high enough ranking for Sooners to brag about being one of the country’s top college values but not quite good enough to beat their old rival, which despite a somewhat higher price tag, produces graduates who emerge with less debt ($11,200, on average for UT grads vs. $13,200 for Oklahoma students) and go on to earn slightly higher salaries ($50,400 a year on average in the first five years of their careers vs. $47,700 reported by Oklahoma alums).
The Winner: TEXAS

See more of Money’s Best Colleges:
The 25 Most Affordable Colleges
The 25 Colleges That Add the Most Value
The 25 Best Colleges That You Can Actually Get Into

 

MONEY College

Why Veterans Will Soon Save Thousands on College

War veterans & co-eds taking notes during classroom lecture at crowded University of Iowa
The latest change to the GI Bill will help fill college classrooms for less. Margaret Bourke-White/The LIFE P—Getty Images

A bill heading to the president's desk grants veterans and their families automatic in-state status at all public colleges, potentially saving them time and money.

Great news for college-bound veterans and their families: Starting next year—the fall of 2015—veterans and their dependents will be able to pay low in-state tuition at any public university in the country.

A bill granting veterans automatic in-state status at the nation’s public colleges got final bipartisan approval by Congress last Thursday, and President Obama has said he will sign it into law.

While public colleges are concerned that the new bill will cost them money, veteran’s organizations are thrilled. “We’re really excited,” says William Hubbard, vice president of government affairs for the Student Veterans of America, which estimates there are 550,000 veterans currently in higher education.

Because members of the military often spend long periods overseas, many don’t maintain residency in any U.S. state. So servicemen and women often can’t find an affordable college when they return home to start civilian life, Hubbard says.

Twenty-four states have passed state laws giving vets in-state status at their public colleges, but many veterans live or want to live in states that haven’t done so, such as California or North Carolina, he says. At the University of North Carolina, for example, in-state residents are charged tuition and fees of about $6,400 this year; out-of-state students pay roughly $31,800.

The bill could save families tens of thousands of dollars, since the automatic in-state status will also be granted to veterans’ spouses and children.

Because veterans won’t have to wait to establish residency in a state to pay the lower tuition, the new law will also save time and speed the transition to civilian life, says Ryan Tomlinson, education program coordinator of the Iraq and Afghanistan Veterans of America. “I’m happy for the vets,” he says. “This increases their access to good colleges.”

Public colleges and universities, while sympathetic to the veterans’ plight, expressed concern that Congress was forcing them to take on extra expenses. Peter McPherson, president of the Association of Public Land-Grant Universities, notes that states have been cutting the budgets of public colleges for years. This new law, by reducing their tuition revenues, “would add further financial strain to these institutions,” he warned.

Learn more about Money’s Best Colleges 2014-2015

MONEY College

How to Judge a College By Its Career Services Office

ESPN "This is SportsCenter" campaign with Bucky the Badger, the official mascot of the University of Wisconsin–Madison, by Wieden+Kennedy.
Will your child's dream school land him his dream cubicle? Wieden+Kennedy

The placement office is now one of the most important stops on the campus tour.

With loan-burdened students and parents increasingly demanding that a BA lead to a J-O-B, colleges are beefing up their placement services. This year, for the first time since the financial crisis, the typical career office—which has struggled with caseloads of about 1,500 undergrads per staffer—­enjoyed a boost in operating budget instead of a cut, the National Asso­ciation of Colleges and Employers (NACE) reports. “We’re about to experience the golden era of career services,” says Thomas Devlin, director of UC Berkeley’s career center.

To ensure that gold enriches your kid’s job search, look for colleges with good answers to the following questions. Just be sure to temper sales spiels with feedback from students and alumni, plus data from sources like Payscale.com.

How is the office staffed? The best career offices have caseloads of fewer than 1,100 undergrads per counselor, allowing at least one staff hour per student per year. Expertise matters too. “It’s a bad signal if a school doesn’t have someone dedicated to encouraging employers to recruit,” says Andy Chan, vice president of career development at Wake Forest. Each office should also have a person who specializes in connecting students with alumni, as well as an expert in technology and social media (like LinkedIn).

What services are offered? Employers prefer to recruit at campuses where students come to interviews prepared and book meetings only for jobs they’d actually consider, says Dan Black, president of NACE and Americas director of recruiting at professional services firm EY. So confirm that the school works with students one-on-one to narrow the
ir career focus and coaches them for interviews, he says. And ask if there are formal ways of networking with alums, like shadowing or mentoring; if academic departments also work on career skills; and what help is offered to grads, whether it’s simply job listings (eh) or counseling (better).

When does career prep begin? Studies show that the sooner students start working on career preparedness, the better they do in the job market. Ideally, the college will be equipped to work with students during their first or second year. Since underclassmen tend to steer clear of career services, though, some schools are experimenting with ways to motivate young’uns to think about vocations. Willamette University, in Salem, Ore., for example, requires freshmen to create a résumé before registering for sophomore classes.

Are internships a priority? On-campus recruiting by prestigious employers is definitely a good sign, but few undergrads get jobs that way, says Bob Orndorff, associate director of employer relations at Penn State. Meanwhile, at least 24% of internships lead to job offers, NACE reports. “Employers are looking for recruits with rele­vant experience,” Orndorff says. So find out how the school helps arrange internships and what percentage of students get them. The more students doing paid internships, especially, the better.

Hire Ed

___________

WATCH: Was your college’s career services office any help?

MONEY 101: How to start saving for college

MONEY cars

Money Hero: Rosemary Shahan

Rosemary Shahan, president and founder of Consumers for Auto Reliability and Safety Why she’s a hero: Shahan, 62, has spent three decades fighting on drivers’ behalf for more effective repairs, improved safety, and fairer financing. Turned activist in 1979 when a garage failed to fix her VW Dasher, the California college instructor lobbied the state for better protection; her model lemon law requiring timely repairs and dealer disclosures sparked legislation nationwide. Her current passion: She’s pushing the Federal Trade Commission to crack down on “yo-yo financing” — a bait-and-switch practice in which car buyers drive off the lot believing that their loan has been approved but are told later that they’ll have to pay a much higher interest rate. Quote: “Concerns about auto safety are in my bones. My parents were hit by a drunk driver when I was about 10. My mother never fully recovered. She lived to be 86, and to her dying day she asked me, ‘Could you rub my shoulder?’ ” — Kim Clark For a special feature in our July issue, MONEY magazine is searching for 50 more Money Heroes. Do you know of an unsung person who has made an extraordinary effort to improve other people’s personal finances? If so, please tell us about your Money Hero in the form below, and a MONEY staffer will follow up on your suggestions. Thanks!

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MONEY College

How to Tell Your Kid You Can’t Afford Her Dream College

You meant it when you said, "Study hard in high school, and we'll send you to the best college you get into." But now you're looking at the cost of Dream U -- and panicking.

Sticker prices at the top private colleges exceed $60,000. Even with scholarships, typical middle-class families face bills totaling $24,500 a year at private colleges, and $16,500 at public ones, the Department of Education reports.

Think you’ll have to tell your kid that her top prospect isn’t a possibility? Better to do it sooner than later. “Ideally, parents would have the affordability conversation when the child is starting high school so he or she can be realistic,” says Mark Montgomery, a college-admissions adviser in Denver.

The Ground Rules

Get the facts. Prepare a summary of your family’s financial situation along with the amount you can afford to contribute to college expenses vs. the net prices provided by the colleges’ aid letters or their net price calculators, says Deborah Fox, a college-funding adviser in San Diego.

Be the grownup. Don’t let your kid’s anger and disappointment cause you to do something you’ll regret, like fighting back or taking loans you can’t afford. “Hold your line,” says Mashpee, Mass., social worker Beth Wechsler.

When You’re Face to Face

1. Show, don’t tell: “Honey, we are so proud of you. But you’ve heard how the prices of some colleges have gone crazy. Let’s look at our family finances to see whether your top picks are in our reach.”

Why this works: “Saying no without explanation may cause kids to shut down,” says Nathan Dungan, a Minneapolis family wealth consultant and founder of ShareSaveSpend.com. Instead, treat your child as the adult he or she is becoming: Explain what you can afford, what the school will cost, and the impact of any gap.

Related: How to ace your annual review

2. Apologize: “We’re sorry. We should have looked at the numbers before promising that you could go to any school you wanted.”

Why this works: Some children will become upset at parents who change the terms of a commitment, says psychologist Laura Markham, author of Peaceful Parent, Happy Kids.

You won’t be able to move the conversation forward until you acknowledge the mistake, she adds. Apologize without getting defensive about past spending. “Don’t say, ‘But the old car was breaking down.’ Say, ‘I know how you had your heart set on going there. I understand why you’re so upset,'” Markham advises.

3. Allow for grief: “Let’s take a break and reconvene later.”

Why this works: A child who is fixated on a particular college “will go through all the grieving stages, including denial, rage, and acceptance” when that dream dies, Markham says. To have a productive conversation, wait until the emotions on both sides calm down.

Related: Baby on the way? Time to make a budget

4. Ask open-ended questions: “What about this school made it so attractive to you?”

Why this works: By pinning down what the student is seeking, families can focus on lower-cost alternatives that still match the student’s dreams, says Wechsler.

5. Make a game plan: “Let’s figure out what our options are.”

Why this works: “You’re getting the family working together as a team” while nudging the child to take responsibility for charting his own future, says Montgomery. Offer help with options that won’t harm the family’s finances, such as applying for more aid, starting out at a lower-cost school, or deferring for a year to allow Junior to work and save.

MONEY

Nab More Cash for College

These strategies may lead you to a winning formula for scoring private funds to help pay tuition. Illustration: Mikey Burton

These strategies may lead you to a winning formula for scoring private funds to help pay tuition.

With the sticker price on private colleges averaging $45,000 and even the typical public university asking $23,000 a year, families at all income levels need help with tuition bills: A College Board poll last February found that about three-quarters of families earning more than $100,000 were applying for aid for the 2013-14 academic year.

Your best shot at “free money” — grants and scholarships vs. loans and work/study—comes from government agencies and the colleges themselves. So be sure to fill out the Free Application for Federal Student Aid at fafsa.ed.gov and suss out schools most likely to give your child money at sites like collegedata.com and meritaid.com.

Beyond this assistance, though, there’s another $11 billion or so a year in private scholarships given out by foundations and companies, the College Board reports. About 8% of students receive these awards, averaging just over $3,400 but ranging up to the full cost of attendance, according to the U.S. Department of Education.

To help improve the chances that your kid will be one of the lucky ones, MONEY tapped a team of high school and college students to conduct an informal test of the most popular scholarship search engines, in addition to seeking advice from college aid experts. Here are their tips.

Uncover national gems online

The leading scholarship search engines, such as Fastweb, Cappex, and Scholarships.com, get millions of visitors a year. Most focus on big awards available countrywide. A sampling: the Coca-Cola Scholars Program grants for high school seniors with outstanding leadership ($10,000 to $20,000); the Elks National Foundation competition for Most Valuable Student ($4,000 to $50,000); and the John F. Kennedy Profiles in Courage essay contest ($500 to $10,000) from the J.F.K. Library and Museum.

Understand going in, though, that these lucrative awards have infinitesimal odds: Coke, for one, received 112,000 applications last year for its 250 awards, making this scholarship about 25 times as selective as Stanford. So weigh your child’s qualifications against the time and effort required to apply, says Katy Murphy, president of the National Association for College Admission Counseling.

Watch out for potholes

Sorting through the several dozen or more “matches” that scholarship sites spit out can be tedious, as our student testers discovered. “I was surprised at how exhausting the process is,” says Kiera Crenny, a rising senior at Conestoga High School in Berwyn, Pa.

Testers also found many suggestions to be an obvious mismatch—such as scholarships for Missouri natives that popped up for kids from Virginia — and relatively few for which they had unique qualifications. Though you’ll have to wade through even more mismatches, you can increase the number of promising scholarships you find by creating multiple profiles on several sites, says Ben Kaplan, author of How to Go to College Almost for Free. Kaplan, who says he won $90,000 in outside scholarships to help pay for his Harvard degree, says, “Use keywords like, say, ‘physics’ for one and ‘science’ for another because the matching software might give you different results.”

Another problem: Many sites cluttered results with “scholarship” suggestions that were really just marketing sweepstakes offering the chance to win a prize in return for providing the company with contact info for family and friends. To avoid getting tripped up, says Amy Weinstein, executive director at the National Scholarship Providers Association, “Use your common sense. Don’t give information about others without their consent.”

Look closer to home too

In addition to looking at scholarship sites, Kaplan advises checking out organizations your child has a connection with, such as your church or employer, and talking to his high school counselor. Local scholarships have less competition.

University of Connecticut freshman Brian Liang says he spent about 12 hours last year combing websites and applying to private scholarships. The two he won—a total of $1,100—were regional contests found through his high school.

Get the timing right

Some of the biggest scholarships have deadlines in the fall, so urge your child to start looking online now. Also block off time in January, since 25% of private scholarships listed with the College Board had deadlines in February.

If your child does land an award, you should also be prepared to step in to protect it. About 20% of colleges cut their own grants to students who win private money, a recent NSPA study found. Scholarship America, which manages dozens of scholarship contests, advises recipients to ask their schools to reduce loans instead. If that doesn’t work, the student should ask the scholarship provider for help, since colleges typically want good relations with funders.

MONEY

Are we at risk of another banking crisis?

One bank's failure can take down other banks -- and the economy, says Anat Admati, an economics professor at Stanford's Graduate School of Business. Photo: Joe Pugliese

Anat Admati, professor of finance and economics at Stanford University’s Graduate School of Business explains how to prevent another meltdown from taking place in the U.S. banking sector.

The big question: Are we at risk of another banking crisis?

Oh, yes. Definitely. We continue to have a system that’s way more prone to crisis than it needs to be.

Why are we still vulnerable?

Banks continue to be much too highly indebted and interconnected. That means they all tend to get in trouble at the same time, and the failure of one can take down others. It creates a contagion that spreads through the economy.

As with speeding, everything is fine as long as you don’t have an accident. When you have an accident, others can get harmed.

In your new book, The Bankers’ New Clothes, you and co-author Martin Hellwig say one simple, radical move can help. What is it?

You need to reduce dramatically banks’ indebtedness and increase dramatically the reliance on equity funding. This would make it less likely that the banks get into trouble, need bailouts, or drag down the economy.

So what’s equity funding, in practical terms?

It’s like the equity in your home, which is what you would have after selling the house and paying your mortgage. In accounting, it is the value of assets minus debts or liabilities.

For banks, one kind of debt is your deposits: A bank borrows your money to make loans or other investments. Its equity funding is money that is not borrowed from depositors or other sources, but instead comes from stock sales or retained earnings.

Why do banks borrow so much money instead of selling stock?

Banks, like all corporations, get a tax break on their interest payments, just like your mortgage deduction. But that’s not the only way that we subsidize and encourage banks’ borrowing and risk taking.

What do you mean?

People lend to banks at low rates because the banks have Uncle Sam or the FDIC to catch them if they fail. Large banks are not paying for the implicit guarantee to their creditors that the government will bail them out if something goes wrong.

How do you propose banks go about increasing their equity?

The easiest and most straightforward way is to avoid paying cash out to shareholders in dividends. Banks should retain their earnings just like Warren Buffett does. Publicly traded companies can raise more equity by selling more shares.

Wouldn’t shareholders object? Our readers love dividends.

The people who really benefit from bank dividends are bankers or people whose wealth is concentrated in banks. You and I are diversified shareholders. Any happiness you feel when banks pay dividends is shortsighted, because the payments harm the economy by making banks more fragile. And in a financial crisis, a diversified portfolio suffers.

Once banks build up enough equity, they can resume paying dividends.

Banks have rejected calls for increased equity. They say these higher capital requirements will reduce the amount of money they can lend. True?

No! Equity is just like debt: a source of funds for banks’ loans and other investments. If banks retain their earnings or sell more stock, they can use the money to make more loans.

They’ve also argued that it will hurt shareholders by cutting their return on equity — a bank’s profits as a percentage of its equity.

The focus on ROE may have more to do with bankers’ compensation than with shareholders’ wishes, since ROE is often used to calculate bonuses. ROE may fall if a bank uses more equity, but risks will be lower too, so shareholders would require less of a return.

How much equity are banks required to have now?

U.S. rules let banks have as little as 3% to 4% of their total assets as equity. The rest they can borrow.

How much equity do you think banks should have to be safe?

I think 20% to 30% of total assets is appropriate.

That’s quite a jump. Why so high?

Having more equity makes for better lending decisions. Highly indebted banks avoid making boring but productive business loans, because there is not enough upside. It is similar to how a homeowner who has little or no equity left in a house doesn’t put in new windows, because any investment in the house benefits the lender, especially if the homeowner owes more on the mortgage than the house is worth.

Banks funded with more equity will be able to make loans more consistently and they will make better lending decisions that would help the economy.

What do you think, realistically, can actually get done to improve the banking system?

A bipartisan partnership, Sen. Sherrod Brown (D-Ohio) and Sen. David Vitter (R-La.), is pushing a proposal similar to mine: It would require 15% equity for the six largest U.S. banks. This is a sensible, cost-effective measure that would correct enormous distortions. The politics of it are very daunting, and there will be a lot of lobbying. The battle has not seriously begun.

Would it help to make banks keep more money in their vaults?

I’m talking about how banks get their money, whether it’s through borrowing or other means. What you’re talking about are reserve requirements, which limit how banks can use their money. Unless reserve requirements are very high, they don’t reduce banks’ fragility.

Let’s say a bank has $100 in assets, and $10 of that is sitting in the form of cash reserves, earning little or no interest. If the bank invests the other $90 in risky derivatives and loses $20, the bank may not be able to pay its creditors, and will go underwater. Having that $10 on hand won’t keep it solvent.

How is your proposal different from the Dodd-Frank reforms that, for example, give the FDIC the right to take over institutions if their troubles threaten the financial system, as Lehman Brothers did?

Dodd-Frank gave regulators much greater authority. Unfortunately, it was regulators who allowed risks to grow before the crisis, and they still are not protecting us. The Federal Reserve, for example, lets banks pay dividends based on flawed stress tests.

The investigation of J.P. Morgan Chase’s $6 billion derivative loss in 2012 reveals poor risk controls. And Attorney General Eric Holder has said some banks are still too big to prosecute. These are clear indications that something is really wrong.

MONEY

College is Free! (But Sometimes You’ll Get What You Paid For.)

You can take college courses online for free -- but can you get credit for them? Illustration: Justin Wood

A guide to the frequently awesome, frequently buggy world of massively open online courses.

Two things about higher education have become clear. First, your children need it more than ever to stay competitive — and so might you, if you need to upgrade for a fast-changing job market. Second, the model colleges use to deliver that education is broken. Rising tuition, high student debt, and stingier funding for public colleges are making it more difficult for families to keep up.

So it’s hard not to get excited about this: Right now, for the unbeatable price of $0, Massachusetts Institute of Technology professor Anant Agarwal is teaching a class on circuits and electronics to thousands of people online — no MIT application required. Harvard, Princeton, Michigan, and other top schools have also started open courses for everyone.

The academic world is buzzing with the notion that this could change, well, everything. “We are at a pivotal moment,” says former Princeton president William Bowen. “Two forces are combining: extraordinary technological progress with economic need.”

True, it’s a long way (and many spinning “video loading” icons) from here to a day when students can put together respected degrees with Ivy simulations.

While logging in is free and easy, getting official credit for what you learn still isn’t. Online courses have bugs, including raucous student discussion boards and clumsy grading systems, and for many they are an inferior substitute for real classrooms. Yet there’s promise here for adults who want a new career skill, for traditional students looking for learning aids, and for anyone hoping to speed the path to a degree. More change is coming.

Here’s what you and your kids should know to make the most of it.

You can really sit in on courses with MIT profs

Agarwal’s course is known in education jargon as a MOOC, or massive open online course. Web courses and online degrees have been around for years. As the name implies, MOOCs are different for their size (with tens of thousands of students at a time), their free price tag, and, frankly, the cachet of the schools that started them.

A typical massive online class includes several short recorded lecture modules each week and reading assignments. You’ll chat with other students online, and there’s homework, which may be graded by a computer or by peers. Some classes offer a few online meetings in which professors address questions posed by students. Although there may be a weekly schedule, it’s flexible.

“I completed the first three weeks of classes while patrolling the Bering Sea,” says Coast Guard Lt. Cmdr. Greg Tozzi, who took a finance course taught by a Georgia Tech professor.

Tozzi’s class wasn’t delivered by Georgia Tech, but through a website called Coursera.org, which offers more than 300 classes from 62 schools. Two Stanford professors kicked off the for-profit venture with more than $22 million raised from colleges and Silicon Valley venture capitalists. (Where profits will come from, as with lots of tech startups, is hazy.)

Harvard and MIT have started a similar nonprofit hub at edX.org, where you can learn Greek classics from a Harvard prof or quantum mechanics via Berkeley.

Don’t want to wait for a course to start? Carnegie Mellon has free self-paced courses that you can try anytime at oli.cmu.edu, and so does the nonprofit Saylor.org.

Another for-profit site, Udacity.com, mostly offers classes without a university’s stamp, but it features star teachers like founder Sebastian Thrun, a co-inventor of Google’s experimental self-driving car, who teaches artificial intelligence for robotics. It was Thrun who sparked the frenzy for MOOCs in 2011, when he opened his 300-student Stanford class to web auditors, and 160,000 signed up.

No, it’s not the same as going to MIT

About 23,000 online students passed Thrun’s computerized exams. Here’s what they got: a sense of accomplishment and a PDF from Thrun suitable for printing and framing.

While Stanford, Harvard, MIT and the like may be building massive classes, they are not interested in letting you get Stanford, Harvard, or MIT credit.

The MIT-built MOOCs offer a chance to earn an”MITx” — not MIT — credential that won’t on its own help you toward a degree but might look nice at the bottom of a résumé next to other continuing-ed classes.

Coursera classes developed by Princeton, on the other hand, don’t even offer a certificate. And while a Duke MOOC on Coursera may earn you a “statement of accomplishment” from the instructor, Duke won’t award its own paying students credit hours for taking one.

Schools are guarding their prestige carefully. One of the valuable things about an MIT diploma, after all, is that it tells people you are one of the brilliant few who got into MIT. But there are also real quality differences between MOOCs and the classroom.

Aaron Krolik is one of 450 Duke students paying about $4,200 in tuition to take an on-campus course on genetics and evolution this semester; Duke has a free online course using the same lectures. Krolik doesn’t feel ripped off.

“I think there is a lot more that you get out of going to a university than the information,” Krolik says. And he does not mean Blue Devils basketball. He and his classmates see professor Mohamed Noor three times a week, and Noor uses extra class time to answer questions and help students with additional exercises.

Noor says five of his Duke students have dropped out or are in danger of failing. By comparison, roughly 10,000 of 12,000 online students who watched the first lecture either are failing or have given up.

Soon, Ivy classes may be part of a State U. degree

If massive classes were nothing but an elaborate new adult-enrichment program, the story would end here. But the growth of free online courses is happening at a time when the link between where you learn something and where you get the credit is breaking down.

Even if there’s no cheap and easy back-door into an Ivy like the University of Pennsylvania, a student may soon be able to take what she learns from the Penn-taught calculus class on Coursera and have another college award the credit.

Here is how it might work. In February the American Council on Education, the leading association of colleges, said it would recommend that colleges accept credit for some massive online courses.

Coursera’s Penn calculus class is one of four college-level MOOCs — all on Coursera — with an ACE recommendation as of early April. To get credit, you first must pay Coursera a fee, currently $128, for verifying your identity and proctoring the exams. (This could be one way Coursera someday makes money.) This doesn’t, however, guarantee a college will follow the ACE recommendation and award credit. It’s up to you to persuade your school.

That may get easier soon, and the result could be more-flexible or lower cost degrees. In California, legislators are considering a bill that would push state colleges toward accepting ACE-recommended online courses for credit.

In an experiment, San Jose State is offering credit for three Udacity courses it created, for $150 each. And more colleges are allowing students to study on their own — perhaps with a MOOC — and then pass exams that have been preapproved for credit. The University of Wisconsin system is launching a degree-completion program that will allow people to test their way into a BA.

Most people who try a class don’t finish it

The Duke genetics class’s low pass rate isn’t unusual. Katy Jordan, a Ph.D. student in education technology at Britain’s Open University, says that in 27 massive online courses for which she’s found completion data, some 93% of students drop out or fail.

Those numbers need some context: A free class will draw people who just want to try it out, and it’s easy to walk away when you’ve never written a check. Even so, Jordan, who has finished eight MOOCs herself, says the classes also have some features that turn many students off.

With thousands of students to evaluate, grading can be buggy or just plain wrong. Humanities courses rely a lot on peer grading, which can be tedious to do — and Jordan says some students report “quite rude” graders. In general, today’s MOOCs seem to work best in the sciences and other quantitative fields.

Course providers say they’re working to address such problems. But the track record of the earlier generation of online courses — the for-credit classes offered for years by traditional schools — suggests many students will struggle with them. Researchers at Columbia University have found that community college online students got lower grades and dropped out more often than those in regular classes.

“If we know community college students don’t do as well in online education, does it really make sense to be funneling [more] students into online classes?” asks Shanna Smith Jaggars, one of the Columbia researchers.

Jaggars says younger and struggling students are the least suited to online classes; they need the structure and time-management discipline of a classroom.

Traditional colleges will mix in MOOCs

Even if you aren’t interested in having your kids work toward a degree with online-only classes, what’s happening with MOOCs could nonetheless change their education.

MIT computer science professor Agarwal, who is currently president of edX, says he now assigns his short MOOC lectures to his class in Cambridge, Mass. In building his edX course, he learned that most students’ attention flags 15 minutes into a lecture anyway. Using online tools allowed him to create a “flipped” classroom — lectures are the homework, while class time is for collaborative work.

The flipped model also means that star teachers are now virtually exportable to lower-cost or less exclusive schools. Two Massachusetts community colleges, for example, are blending one of MIT’s free computer programming courses with their own.

The MOOC delivers lectures and sophisticated tutoring programs, but students also attend classroom meetings with instructors they know. “In two weeks we did what it would normally take a semester to do here,” says Mass Bay Community College sophomore Julian Kuk.

Free courses might boost your career

Free massive classes may hold the most appeal for adults looking to reboot their careers or just stay intellectually sharp. Tozzi, the Coast Guard officer, already holds traditional academic degrees, so, like a lot of people in midcareer or later, he’s not as worried about collecting credentials as he is about being able to hone specific skills.

He’s completed three classes on computing and investing and says the content is strong and the price is right. “The courses offered the chance to explore without having to deploy resources beyond time,” says Tozzi.

That may make MOOCs a real competitive threat to pricey professional education. David Seruyange, a software engineer in Sioux Falls, S.D., says he was considering a $32,000 master’s when he decided to try MOOCs instead.

“For-profit education and existing online-only degrees, such as MBA programs, will be most at risk,” says Karen Kedem, manager of the higher education team at Moody’s Investor Service.

Certainly it’s easy to see how a one-time liberal arts major who ended up in a numbers-driven business career might benefit from Carnegie Mellon’s open courses on statistics, or Udacity’s class on building an entrepreneurial startup.

Udacity and Coursera are trying to make MOOCs even more attractive to job seekers by getting into the recruiting business — flagging top students who opt in to employers.

David Luebke, senior director of research for Nvidia, who is co-teaching an Udacity class on programming, says he is watching student performance as well as interaction on discussion boards. “I see students who not only know exactly what is going on, but are being super-helpful,” he says. “That is exactly the kind of employee you want.”

This might wreck college — or save it

Massive courses open up higher ed to the price-slashing economics of the web. Building an online class isn’t cheap: A good one can cost $100,000, college leaders say. Yet once a school has a class for 1,000 students, the cost of letting in the next 100,000 is small. It’s the same effect that’s put free news on your computer — and is putting newspapers out of business.

George Mason University economist Alex Tabarrok, who has launched a MOOC platform called Marginal Revolution University with colleague Tyler Cowen, warns that some less prestigious but still expensive colleges may not survive. “I can go to the local university and take a class from an adjunct, or I can go online and get something from one of the best teachers in the world,” he says.

A bigger worry is that colleges that are desperate to hold down costs, especially state schools, may try to shunt students into cheap, low-quality online courses that will do more harm than good.

“A more expensive course might be a better value in the long run,” says Jaggars, if it helps more people pass and go on to graduate. She adds that the students who most need lower-cost options often don’t have reliable computers or broadband Internet access.

On the other side, the new technology could help universities hold down some teaching costs, keeping high-quality, brick-and-mortar college affordable for more people. (For example, a professor might leave lecturing to a MOOC to free up more time with students.) Or it could cut students’ costs by letting them pare frills or finish a degree faster.

“In the medieval period, the university was a citadel, walled off and separate,” says Jeremy Adelman, the Princeton professor who taught history’s first history MOOC. “We are post-citadel. It is wires, not spires, that define a university now.”

MONEY College

Get Your Kid to Graduate in 4 Years

Taking five years to earn a B.A. is common—and costly. Here's how to get out in four.

Stressing out about how you’ll pay for four years of college? You should be so lucky. Most students take five to six years to earn an undergraduate degree, the Department of Education reports. That adds about $35,000 to the sticker price of attending a typical in-state public university and much more to the cost of most private colleges. These moves will help your child get to the finish line in four years.

Pick a Supportive School

Colleges with much-better-than-average graduation rates — look for 50% and up at public colleges, 70% at private schools — often have adopted strategies to help students finish in four years, says Tom Sugar of Complete College America, which works to boost the number of Americans with degrees. Among them: capping graduation requirements for most majors at 120 credit hours; making sure students aren’t crowded out of required courses; and identifying kids in danger of falling behind early on and assigning advisers to help them. Still unproved are the graduation “guarantees” that a growing number of schools offer—essentially, if your kid doesn’t earn a degree in four years, the remaining tuition is on us. Be skeptical, Sugar says. To identify schools with superior track records, search for your target college’s four-year grad rate at collegeresults.org. Then hit the “similar colleges” tab to find competitors with better outcomes.

Don’t Lighten the Load

Your student’s first college math lesson: Divide the 120 credits typically required for graduation into eight academic semesters, and he’ll see that he needs to take at least 15 credits per semester, not the minimum 12 usually allowed. To make sure Junior has plenty of time for academics, have him limit jobs to 12 hours or less a week. Changing majors, which can involve a new set of required courses, may also set a student back. A possible solution: Go with a related major that will accept many of his existing credits.

Get Back on Track Cheaply

If a change of major or overcrowded courses threaten to delay graduation, your child may be able to fulfill requirements by taking summer or community college classes or a growing number of accredited online tests and courses. Hundreds of colleges give credit for passing grades on the College Board’s 33 College Level Examination Program (CLEP) tests or the competing DSST’s 38 exams. Cost: $80 per test. Traditional colleges have been slow to grant credit for online or alternative tests or courses, so students should check with their registrar and department head before committing time or money to an off-campus class.

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