Access, affordability, and outcomes are the three most important factors. But how will the government measure them?
The federal government Friday morning released what it’s calling a “framework” to rate America’s colleges on their performance in three areas: how many low-income and disadvantaged students they educate; how affordable they are; and how well their graduates do financially, in the job market, and in graduate school.
The U.S. Department of Education said it planned to issue the ratings “in time for the 2015 school year” — so, presumably, by August of 2015.
But researchers familiar with the government’s plans say that ambitious and idealistic plan will be stymied by an ugly reality: much of the information needed to rate the colleges on these factors doesn’t exist yet.
While describing the government’s plan as “thoughtful,” Terry Hartle, a spokesman for the nation’s largest association of colleges, the American Council on Education, said “It is not clear how they will get it done.” The problem, he and other researchers said, is that there is currently no easy way to mine the government’s data on citizens to find out, for example, which graduates of which colleges go on to graduate schools, how much graduates of each college earn, or how much alumni of each college are paying on their student loans.
In August of 2013, President Obama pledged to create ratings based on which colleges are “offering the best value so students” and giving taxpayers “a bigger bang for their buck.” He said he hoped the government would provide more financial aid to students at colleges that do the best job providing opportunities, educating students, and helping launch good careers.
In its announcement Friday, the Education Department asked for public comments on its plans to judge colleges by the following factors:
Access: The Education Department said it was thinking of judging colleges’ provision of opportunities to all by examining, for example, factors such as the percentage of students receiving Pell Grants, which are grants awarded only to low-income students, and the percentage of students whose parents did not attend college. It was also considering looking at the family incomes of students at each college, and giving higher ratings to colleges with more students from the lowest income groups.
Affordability: The government is considering giving poor ratings to schools that provide so little financial aid that families end up having to pay much more than the “Expected Family Contribution” (EFC) after they fill out their Free Application for Federal Student Aid (FAFSA). Financial aid is generally in such short supply that 99% of colleges fail to provide enough grants or scholarships so that every student has to pay only their EFC. But currently, colleges are not required to reveal how many students they leave with financial aid “gaps” or how large those gaps are. Additionally, the ratings may ding colleges with high “net prices,” which is the price students (and their parents) pay after all grants are subtracted. The government said it may look at either the overall average net prices, or the average net prices paid by families divided into five income groups, such as those earning up to $30,000, or those earning more than $100,000.
Outcomes: While graduation rates are a commonly used metric for judging colleges, the Education Department proposes adding other gauges such as how many new graduates find jobs quickly, and how much money they earn over the long term. In theory, the Internal Revenue Services or the Social Security Administration might be able to provide the employment and earnings information for graduates of each school, but privacy concerns have stymied efforts to gather that data in the past. The Department says it may also consider what percentage of graduates are paying their loans off, and what percent go on to graduate school. For community colleges, the Department said it may consider what percentage of students transfer to four-year colleges.
To help families gauge the affordability and value of colleges, MONEY hired Mark Schneider, a former head of the federal National Center for Education Statistics, to develop college rankings based on quality, affordability, and outcomes, using the best data currently available, including, for example, a national survey of college graduates’ earnings by Payscale.com. Our rankings of the 665 top colleges in the country were released in the summer of 2014.
This sort of thing happens pretty much every year
The news that Johns Hopkins University had mistakenly sent acceptance letters to applicants who didn’t actually make the cut was especially cruel for the nearly three hundred kids who were actually rejected. But it was not, unfortunately, uncommon. This kind of spirit-crushing mixup has become a nearly annual rite of college admissions, particularly since application processes went electronic in the early 2000s. Here’s a rundown of some of the worst offenders:
1995: Elizabeth Mikus, a 17-year-old, is among 45 early-acceptance applicants who receive a fat envelope with a form letter that says “Welcome to Cornell!” But it turns out that the envelopes were sent “due to a clerical error.” Mikus suffers a second time in April when she gets a thin envelope rejecting her again. The family threatened to sue the school over the mishap.
2002: Administrators at the University of California, Davis pick a cruel date to correct a mistake. After sending letters of acceptance to 105 high school students the previous month, the school sends follow-up emails on April Fool’s Day explaining that those letters had been sent in error.
2003: Cornell again. This time the university sends an email saying “Greetings from Cornell, your future alma mater!” to nearly 550 high school students who had already received their rejection letters in December. The school sends emails explaining the mistake a few hours later, in an era when news outlets still called them “email letters.”
2004: UC Davis has back-to-back mishaps. First, the school allows personal data from some 2,000 applicants, including SAT scores and Social Security numbers, to become viewable by other applicants. Soon after, the school acknowledges that they mistakenly sent emails telling 6,500 applicants that they had won $7,500 scholarships. It is the first year UC Davis had sent scholarship announcements by email. “Clearly, we have bugs in that system,” a school representative told the Los Angeles Times.
2006: About 100 high school students receive a congratulatory note welcoming them to the University of Georgia, only to get another letter a few days later explaining that those notes should be disregarded. Someone picked up “the wrong file,” an administrator explains, and failed to send what the students should have gotten: a letter thanking them for applying.
2006: Thousands of applicants to law school at the University of California, Berkeley are invited, and then uninvited, to an alumni-sponsored party for students who had been admitted early. “Anybody who’s made this sort of error can imagine my feelings at that point,” says the admissions director who had accidentally sent the email to the entire applicant pool. “It was a shocking kind of realization: ‘Oh my goodness, what have I done?'”
2007: More than 2,500 students are emailed a congratulatory note on their admission to the University of North Carolina at Chapel Hill — only to be told the following day that decisions about their applications had not yet been made. “I’d give anything to go back to 3 p.m. yesterday and change what happened,” the director of undergraduate admissions told WRAL.
2008: About 50 students are welcomed to Northwestern University’s renowned Kellogg School of Management, before being informed that they were actually rejected. Officials describe it as a “technological glitch” in their “automated mail-merge process.”
2009: Yet another unwelcome April Fool’s surprise. About 500 applicants to New York University’s graduate school of public service receive emails announcing their acceptance. About an hour later, they receive emails saying they had not, it turns out, been selected.
2010: Roughly 200 students who had sought early admission to George Washington University receive notes that, as the Washington Post put it, “welcomed them to the Class of 2014 — for several hours.” The mea culpa follows shortly after. The same year, 56 applicants to Vanderbilt University are mistakenly sent acceptance letters, as well as 2,500 applicants to Middlesex University in the U.K.
2011: About 2,000 students are sent acceptance letters from Virginia’s Christopher Newport University, followed by a apology (and take-backsies) about four hours later. The culprit is a database error committed by a human.
2012: Nearly 900 students are informed, wrongly, that they got into UCLA. Hundreds are told, in error, that they’re welcome to attend Ireland’s University of Ulster. And 76 students are led to believe, for 30 minutes, that they have been accepted early to Vassar College.
2013: About 2,500 early-admission applicants to Fordham University are sent financial aid notices congratulating them on their acceptance to the school, though their fates had not actually been decided. “Fordham and its undergraduate admissions staff are acutely aware of the high hopes prospective students and their families have regarding college acceptances,” the school told the New York Times. “The University deeply regrets that some applicants were misled by the financial aid notice.”
About half of student loan borrowers underestimate the amount of education debt they have.
It seems some college students need to work on their reading comprehension. Or their vocabulary. Whatever the problem is, some students aren’t grasping the concept of loans: 17% of first-year students who have federal student loans responded to a survey saying they had no student debt, according to a Brookings Institution report.
There are scores of stories and reports about the difficulty borrowers have repaying education debt, and that’s a serious issue, but the statistics about borrowers’ understanding of their loans and the cost of college are much more troubling.
The report from Brookings “Are College Students Borrowing Blindly?” cites some shocking figures, based on two data sets. The first, a survey conducted in spring 2014, included responses from first-time, full-time freshmen who applied for financial aid at their college, a “selective four-year public university in the northeastern U.S.” The second is the most recent result of the National Postsecondary Student Aid Study, a nationally representative analysis of first-year, full-time undergraduates with federal loan information available in the National Student Loan Data System.
The data reveals that students are generally clueless about the costs of higher education and how they’re paying for it. Nearly half of students underestimated their debt loads by at least $1,000, with 25% of students underestimating their debt by $5,000 or more.
I’m in Debt? Really?
There are a lot of reasons students may not fully understand their student loan debt: Students may be confused about the different kinds of loans (like federal or private), their parents may have taken charge of figuring out their education expenses, they’re simply not keeping track of their finances, or they really don’t understand the fact that borrowed money must be repaid. There’s not really a good excuse, considering the students had to sign paperwork saying they’ll repay the loan as agreed.
The gap between perceived and actual student debt is potentially more troubling than the growing student debt load itself. Failing to understand the costs of college and how you’re paying for it sets students up for an unpleasant reality check and regret if they can’t afford the debt they incurred along their chosen career path.
Student loans are rarely discharged in bankruptcy, and failing to repay them has serious consequences on the rest of your financial life. Missing loan payments is one of the worst things you can do to your credit, and if you default on student loans, you may face wage garnishment and calls from debt collectors.
Consequently, a low credit score can leave you unable to secure other forms of credit at affordable interest rates, not to mention rent an apartment or get a job. To see how student loans and your other financial behaviors affect your credit score, you can review two of your credit scores for free every 30 days on Credit.com.
Ideally, you’re well prepared to handle your student loans when you enter repayment, but if you think your loan payments will be unaffordable, you have a few options. If you have federal student loans, you may qualify for a variety of student loan repayment and forgiveness options. If you have private loans, you may be able to refinance. At the very least, you should reach out to your student loan servicer to see if there’s any way to avoid defaulting on your education debt.
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Helping out your kids financially can help you, too. But you have to act by December 31.+ READ ARTICLE
In between your holiday shopping and New Year's plans, make time for these time-sensitive tax moves.
You know that the window to finish your holiday shopping is closing fast. Well, so is the time you have to cut your 2014 tax bill. Before you pop open the champagne on New Year’s Eve, make sure you’ve ticked off these valuable tax tasks.
1. Be Charitable Now
Individual Americans donate some $250 billion dollars to charity every year, according to the annual Giving USA report, and December is high season for giving.
Then you simply need to get a check in the mail by Dec. 31. Or put the gift on a credit card before year-end and pay the bill in January. Make sure you have a receipt, be it a cancelled check or your credit-card statement. But if you donate $250 or more, you must get a written record from the charity.
If you give away clothes or stuff from around the house, you’ll be able to deduct the fair market value, as long as the goods are in good condition or better.
“The end of the year is a great time to donate some items to charity,” says financial planner Trent Porter. “Your good deed will be rewarded with a bigger tax refund and a clean closet”
2. Be Charitable Later
If you’re in search of a big deduction in 2014, but you’re not ready to support a single charity now, here’s a good option. With as little as $5,000, you can set up a donor advised fund with a brokerage of fund company such as Fidelity or Schwab. You get the upfront tax savings, the money is invested, and you can then donate a portion of the fund to the charities of your choice for years to come.
“These accounts make it easy to use appreciated securities and other assets to fund your philanthropy, thus avoiding paying capital gains tax on the appreciation,” says financial planner Eric Lewis.
3. Invest in Education
A year of tuition and fees at even a public college will cost you more than $23,000 today. You need all the tax breaks you can get.
If you’re saving for school in a 529 college savings plan, that money grows tax-free, and withdrawals are tax-free as long as the money goes toward higher ed.
You can’t deduct those contributions on your federal return. But in 34 states and the District of Columbia, you can qualify for at least a partial deduction or a credit on your state tax return, as long as you fund the account by Dec. 31. Look up your state’s rules at savingforcollege.com.
4. Speed Up Deductions
A popular strategy for cutting your tax bill is to move up as many deductible expenses as you can. This is especially smart if your income will be high this year—say you cashed out winning investments or sold property.
One simple way is to donate more to charity. You can also make your January mortgage payment in December, which will give you extra interest to deduct. You could also prepay your property taxes, or send in estimated state and local taxes that you would otherwise pay in January. Or pay next year’s professional dues and subscriptions to trade publications.
Don’t employ this strategy, however, if you expect to be in a higher tax bracket in 2015. In that case, the deductions will be more valuable to you next year.
5. Top Off Retirement Plans
In 2014, you can save $17,500 in a 401(k) plan, or $23,000 if you’re 50 or older. If you haven’t saved that much, see if your employer will let you make an extra lump-sum contribution before Dec. 31. If you can’t, make sure you hit the max next year by raising your contribution rate now. The limit will rise to $18,000 in 2015, or $24,000 if you’re 50 or older.
You have until next April 15 to fund a traditional or Roth IRA for 2014, but the sooner you save the more time you’ll have to get the benefit of tax-deferred growth. What’s more, planning ahead might make for better investment choices. A recent Vanguard study found that last-minute IRA investors are more likely to simply park the money in cash and leave it there.
You can contribute $5,500 dollars to an IRA in 2014, or $6,500 if you’re 50 or older.
If you run your own business and want to save in a solo 401(k), you must open that plan by Dec. 31, though you can still fund it through next April 15.
6. Look for Losers
Nearly six years into this bull market, long-term stock investors are sitting on big gains. Maybe you cashed in a profitable stock or mutual fund this year. Or you trimmed back your winners when you rebalanced your portfolio. Unless you sold within a retirement account, you’ll face a tax bill come April. And the best way to cut that is to offset your investment gains with investment losses.
By pairing gains with losses, you can avoid paying capital gains taxes. If you have more losses than gains, you can use up to $3,000 worth to offset your ordinary income, and then save the rest of the losses for future years.
However, don’t let tax avoidance get in the way of sound investing. You should sell a stock or fund before year-end because it doesn’t fit with your investing strategy, not just because you have a loss.
If you want to buy the investment back, you must wait 31 days. Do so sooner, and the IRS will disallow the write-off (what’s called the “wash sale” rule).
7. Part With Big Winners
If you donate winning stocks, bonds, or mutual funds directly to a charity, you can enjoy two tax breaks. You won’t owe any taxes on your capital gains. And you can deduct the full market value of the investment on your 2014 return.
8. Tap Your IRA
With a tax-deferred plan like an IRA, once you hit age 70 1/2 you must take out some money every year. You have to take your first distribution by April 1 the year after you turn 70 1/2. Then the annual deadline for your required minimum distribution, or RMD, is Dec. 31.
This rule doesn’t apply to Roth IRAs, and if you have a 401(k) plan and you’re still working, you can usually wait until you do retire to start withdrawing money.
The IRS minimum is based on your account balance at the end of last year and your current life expectancy. Your broker or adviser can help you with the calculation, but you’re responsible for making the withdrawal. If you fail to do so, you’ll owe a 50% penalty on the amount you should have withdrawn.
You can also donate your RMD directly to charity and avoid paying income taxes on the withdrawal. In mid-December, Congress extended that rule, which had expired, for at least one more year.
9. Spread the Wealth
Making outright gifts is a smart move tax-wise, says Ann Arbor financial planner Mo Vidwans. Your heirs are less likely to face estate taxes down the road—and you can help out your kids or grandchildren when they need it the most. In 2014, you can give as many people as you want up to $14,000 tax-free. If both you and your spouse both make gifts, that’s $28,000.
If you’re funding 529 plan, you can frontload five years worth of gifts and put $70,000 into a child’s account now.
10. Pay Taxes Now and Never Again
With a traditional individual retirement account, your contributions are tax deductible, but you’ll owe income taxes on your withdrawals. A Roth IRA is the opposite: You invest after-tax money, but your withdrawals are 100% tax free.
Before year-end, you can convert a traditional IRA to a Roth. You’ll have to pay taxes on the conversion in 2014. But then you’ll never owe taxes on that money again.
Converting to a Roth is an especially smart move if your income was down this year and you’re in a low tax bracket. “If you have a low-income year, do a Roth conversion,” says New York City financial planner Annette Clearwaters. “Whenever I see a tax return with negative taxable income I cringe, because it’s such a wasted opportunity.”
And if you later change your mind, you have until the extended tax-filing deadline next October to switch back to a traditional IRA. Clearwaters recommends undoing any conversion that puts you above the 15% federal tax bracket.
Update: This post was updated to reflect Congress’s extension of the rule allowing for direct charitable donations of RMDs.
The parents of a 21-year-old New Jersey woman have been ordered to pay $16,000 a year in college fees for her, even though they haven’t had a relationship with her in two years.
But don’t expect them to pay up anytime soon.
“They can hold me in contempt of court. They can do whatever they want. I’m not going to pay,” Caitlyn Ricci’s father, Michael Ricci, tells WPVI-TV. “I’m not going to give them any money until my daughter has a relationship with me and we start to heal our family.”
The standoff – which recalls a similar New Jersey case earlier this year, in which 18-year-old Rachel Canning sued her parents – came to a head in November, when a judge ruled for Caitlyn and told her parents to help fund her out-of-state tuition at Temple University.
The family was back in court this week, with Caitlyn filing a motion to hold her parents in contempt of court after refusing to pay.
“It is nice to see that she is alive and doing well, but it is hurtful because she wouldn’t look at us,” Caitlyn’s mother, Maura McGarvey, says. “When I got emotional in the courtroom and when Michael got emotional in the courtoom, she doesn’t have any emotion.”
Caitlyn has been estranged from her divorced parents for almost two years. They claim she moved out voluntarily after they clashed when she refused to follow the rules. Caitlyn has been living with her grandmother, who funded the lawsuit.
“A lot of people call her a spoiled brat because she wants her parents to pay 100 percent of her college. And in fact, she is not asking for that, never has been,” Caitlyn’s attorney said.
Fix this essay, don't answer that question, and don't think the college application process is over when you hit "submit."
Time is running out: As you no doubt know if you’re a college senior (or related to one), college application deadlines are fast approaching. And what you do in the next several weeks could still tip the scales in your favor.
Right now, you’re probably worried that your dream school won’t want you. So maybe it’ll make you feel better to know that schools will soon start worrying about whether you really want them. To tip this balance of power in your favor, you need to think carefully about how to present yourself to each school.
Happily, that’s not as hard as it sounds. Read on for seven application strategies that will make your applications rise to the top of the pile.
1) Find out what your favorite schools care about most.
You’ve heard the debates: The college essay is more important than ever before. No, it really doesn’t matter; it’s all about numbers. A low SAT score isn’t a deal-breaker. Except when it can be. The college admissions process is a total crapshoot. Actually, strategy does matter and isn’t that hard to execute.
The truth is, none of this conventional wisdom is true or false across the board because various institutions use a wide range of criteria and weigh them in different ways.
The good news: You can just look up how your favorite schools do it.
Lynn O’Shaughnessy, nationally-recognized college expert of The College Solution, recommends checking each school’s “common data set.” There, schools assemble a wealth of information about demographics, academic offerings, student life, tuition—and how they weigh different admissions criteria.
Many schools post their common data set on their websites; search for it and then check section C7, “Relative Importance of Common Academic and Non-Academic Admission Criteria.” Or check collegedata.com to compare different schools, O’Shaughnessy says.
2) Narrow your personal essay topic.
“A lot of students do a miserable job of writing their college essay,” O’Shaughnessy says. “This is one of the ways to let a school know more about you, and students often do a very generic or very boring essay.”
The most common mistake? Trying to jam the essay with too much information. “The best essays are highly focused,” O’Shaughnessy says. For example, instead of writing about your love of music, O’Shaughnessy suggests focusing on just one event, like how you overcame stage fright at your senior recital.
Peter Van Buskirk, former dean of admission at Franklin and Marshall College and current president of Best College Fit, an advocacy group in support of students and parents in the college application process, agrees that it’s a mistake to just repeat what’s already in your resume.
“Take me to some part of your life experience I cannot find anywhere else in the application,” Van Buskirk says. “Get people to see the invisible you.”
3) Write shorter paragraphs—with more dashes.
You’ve got your winning topic. Now make sure the admissions officer will actually read your essay.
“The mistake that kids make is they don’t think creatively about their presentation,” Van Buskirk says. “This is a creative process. It’s not an academic process. If they have any level of creativity within them, they need to let it show.”
Start by forgetting what your English teacher may have taught you about writing. A lot of applicants submit personal essays with an ploddingly academic, five-paragraph format, Van Buskirk says. “It won’t hurt, but it doesn’t help,” he adds.
Instead, break up your paragraphs. Try using dashes, italics… even ellipses. Experiment with tone and style.
“What kids need to remember is their applications will be read by tired eyes,” Van Buskirk says. “When a set of tired eyes comes across an essay with three or four paragraphs, 150 words each, that’s dense stuff. Tired eyes wander away from it. It’s important to establish a flow.”
4) Rewrite your response to this question.
Many schools ask some version of the question, “Why do you want to go to this school?” If you could sub in the name of any other school and it would still make sense, throw out the essay and start over. Really.
“Kids tend to just do a boilerplate answer to all of them, like, ‘The academics are great, you’re located in a city, you have great faculty,'” O’Shaughnessy says. “That could describe any number of schools. [Admissions officers] will pick that up immediately.”
Van Buskirk says what the school is really asking with this question is “If we admit you to this institution, what do we get? What do you, the student, have to offer us that is different than the next guy?”
Be very specific and do some research. For example, don’t just say you want to major in neuroscience. Talk about how your volunteer work with disabled children has inspired you to pursue that field and how a particular academic program at the university could help you develop your expertise, Van Buskirk says.
The key is to demonstrate that you have thought about how this particular institution is uniquely able to help you achieve your goals.
5) Either skip this question, or double down.
Some schools, and some financial aid forms, will ask you to list other schools that you’re applying to. This question poses some risk, so tread carefully.
Most schools aim to maximize their “yield,” i.e. the percentage of students admitted who actually attend. So you could gain an edge if a school believes it’s one of your top choices. But if admissions officers have reason to think you’ll go elsewhere—if you reveal a preference for other comparably competitive schools, for example—they may turn you down even if you otherwise meet their criteria.
If your heart is absolutely set on a particular school, you may want to rank it at the top of these lists even at the risk of alienating other institutions. It also can help when it comes to aid because your second or third choices may try to lure you with money. Scott Bierman, president of Beloit College, recently told MONEY’s Kim Clark that his school’s best merit aid offers go to top students who have also ranked Beloit in their top three picks. (That’s why it’s helpful to check that “common data set” and see how much a school considers the “level of applicant’s interest.”)
On the other hand, some experts think ranking a school high on these lists can hurt you even when it comes to merit aid. “The No. 1 choice school will say, ‘They really want to go here, so we don’t have to give them money,'” O’Shaughnessy says.
The upshot? “There is no good that can come to the student in providing that information,” argues Van Buskirk. “My advice to the student, when the school asks, is to leave it blank.”
Sometimes, of course, you have no choice. The Free Application for Federal Student Aid (FAFSA) asks for a list of schools. In that case, you just have to realize that you might be showing your hand. You can try to maintain your poker face by putting the schools in alphabetical order. Just know that admissions officers may still draw inferences about your list.
6) Explain any weaknesses.
Maybe your grades dipped one semester. Maybe you didn’t do as well on the SAT as you had expected. Maybe you got into some trouble at school. Providing an explanation can make a big difference.
“Students need to understand admissions officers are cynics by nature,” Van Buskirk says. “In many applications, the student has an opportunity to complete an optional essay. I strongly recommend the students do that. They don’t want to put the reader in the position of having to piece it together themselves.”
The optional essay is an opportunity to disclose a learning disability, explain other medical or family issues that have impacted your performance, or talk about what you’ve done to make amends after a disciplinary issue, O’Shaughnessy says. Make the essay about “how you’ve overcome the challenges other kids don’t have,” O’Shaughnessy says. “Those are things that can help you get in.”
7) Don’t think you’re done when you hit “submit.”
At competitive schools, your make-or-break moment might not be the day you submit your application, or the day an admissions officer first reads your application, or the day you get moved to the admit list. It might be a moment during the last two weeks of March, called the “move down weeks,” Van Buskirk says.
That’s the moment when enrollment managers often realize they have too many applicants on their admit lists, and they risk overspending their financial aid budgets. Representatives for each geographical region might be instructed to move a certain number of students in their area from the admit list to the waitlist, and the college might reduce the amount of aid it had planned to offer certain students.
“It is at this point when the little things can make a difference,” Van Buskirk says.
Here’s how Van Buskirk says you can stay off the waitlist: First, keep your grades up. Second, keep in touch. If you receive email surveys and other communications that prompt a response, respond. If you have the option of interviewing with an alum, sign up. If you can visit, pack your bag. If you have a question about the school that you can’t answer with some Googling, send your regional recruiter an email.
“A big mistake is the students assume that once the application is submitted, they don’t have to manage it anymore,” Van Buskirk says. “The whole business of predicting who will enroll has become really big business. Kids need to make sure they continue to be alert.”
- Check out Money’s Best Colleges to find the right school for you, at the right price.
- Looking to add more schools to your list? Here are 25 of Money’s Best Colleges that you can actually get into.
- Forget debt: Here are 22 colleges where you can earn a degree for free.
A student loan expert explains why there's hope for a parent saddled with student loan debt from two kids.
Brent Strine, 65, sent a blog comment to us describing what he thought was probably an impossible situation, and he despaired of ever being able to get out of debt. He wasn’t asking for help so much as describing a sense of hopelessness. Here’s what he told us:
I have 45k in parent loans from two children who cannot help me pay on them. Every time I defer them it costs over 1k added to the principal. I am 65, our (total household income) is 28k . . . (We have) no savings, no retirement plans or funds. Seems the only way out of debt is through the grave.
When we contacted him, he quickly noted that he feels grateful for his home and family, “and I am not in any way a ‘victim.’” He had deferred the loans when his wife was hospitalized after a serious car accident and when he had cancer surgery. He continues to work full time as a custodial supervisor, though he plans to retire in May 2015 because of some physical limitations. At that point, he wants to find part-time work. He was clearly worried about his debt, though.
He gave us the balances of his loans, down to the penny. And though he knew exactly how much he owes, he hadn’t a clue about how he could possibly repay it. He wondered if there’s some way he can get lower interest rates — he has several loans, $37K total, with rates of 8% or 8.5%. (The rest of the loans have much lower interest rates.)
We spoke with Joshua Cohen, “The Student Loan Lawyer,” on Strine’s behalf. The good news is Strine probably need not worry about unaffordable payments or high interest rates. Because he has federal Parent PLUS loans, he — and not his children — is on the hook for the debts, Cohen noted. And although Strine won’t be able to get lower interest rates, it won’t matter, said Cohen.
That’s because Strine’s $28K income should make him eligible for a repayment plan based on the borrower’s income. Cohen said a family of two with an adjusted gross income (reported on federal tax return) of $28K would have a monthly payment of $205. However, when we reached out to Strine, he told us his most recent tax return had an AGI well under $20K. That would result in a payment of just $71 per month, and possibly even less, Cohen said.
“The plan I’m talking about is called Income-Contingent Repayment (ICR) — the only income-based plan allowed for Parent PLUS loans,” Cohen wrote in an email. He had more good news for Strine: “It comes with 25-year forgiveness, which means if you live to 90, your loans will be forgiven. If you pass away before then, the loan goes with you — it will not attach to your estate.
“Bottom line, you can survive this loan,” Cohen said. “It would have been nice if the servicer gave you this information. After all, that’s what us taxpayers are paying for — to help borrowers stay out of default and continue paying.”
Student loans have an impact on your credit, for better or worse. Making arrangements with the servicer for payments you can afford can help you stay afloat financially, as well as help your credit standing — by making the payments on time and as agreed. You can see how your student loans are affecting your credit for free on Credit.com, where you can get two free scores updated monthly.
More from Credit.com
- Can You Get Your Student Loans Forgiven?
- How Student Loans Can Impact Your Credit
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This article originally appeared on Credit.com.
Daycare can be just as expensive as higher ed—if not more so, a new Child Care Aware America report finds.
New parents may live in fear of what they’ll pay for their child to attend college—but a nearer-term expense may have an even bigger impact on their wallets, a new survey finds.
Child Care Aware of America’s 2014 report on child care costs found that, in 30 states plus Washington, D.C., the average annual cost of enrolling an infant in a center-based daycare program is more than a year’s worth of tuition and fees at a public college in that state.
If that’s not daunting enough, the report released Thursday also notes that infant center-based child care costs twice as much as the average amount families across the country spend on food, and exceeds transportation costs in almost every region in the United States. And for those with two kids, child care costs in 23 states and D.C. exceed the average housing costs for homeowners with a mortgage.
The report notes that the average cost for child care varies widely according to state. But if you live in the Northeast ($22,513), Midwest ($17,258) or South ($15,409), expect childcare to be the highest single household expense on your budget. Though still expensive in the West ($17,941), childcare there comes in second behind housing.
When the costs were compared to median income for a married couple, New York topped the list for least affordable center-based care across three different age groups: infant care (16% of income), four year olds (13%) and before/after school care for school-aged kids (12%).
Most parents aren’t prepared for these costs, a separate study from Care.com released this April found. Three quarters of families surveyed in that poll were surprised or overwhelmed by the costs of childcare, and 42% don’t budget for it.
So what can a parent or parent-to-be do to get ready for this overwhelming expense? We reached out to Donna Levin, co-founder of Care.com, and Carmen Rita Wong, financial contributor for Babycenter.com, for tips.
Start Budgeting Early
The moment you know you’re expecting is the time to start saving and budgeting, Levin said.
But before you can do that, you’ll need to determine the type of care that best suits your family’s needs and resources. Options range from family-based daycare in someone’s home on the cheapest end ($127 a week on average, according to Care.com) to nannies ($472 a week). Online resources can help you navigate the pros and cons.
Another option that parents-to-be often consider is having one person cut back his or her work hours or take time off. That may save on childcare expenses in the short term, but you need to consider the ramifications in the long-term, warns Wong. Working parents have to weigh the opportunity cost of leaving the workforce—e.g. how much knowledge will you lose? How much potential income growth will you lose? How tough will it be to break back in?
Take Advantage of Tax Breaks
Depending on your circumstances, you might qualify for the Child and Dependent Care Tax Credit. The total credit can be up to 35% of up to $3,000 in qualifying expenses paid to care for a child under 13 while you’re working (or $6,000 for two children), but the exact amount is based on adjusted gross income.
“Many folks land on the cusp of qualifying year after year,” Wong says. “It’s important to realize just how close you are as you may be able to find deductions that can get you under the limit and save you more.”
Also check in with your HR department to see if your company offers a dependent-care flexible spending account. This allows you to set aside up to $5,000 pretax toward qualifying expenses like daycare, preschool and some summer day camps.
(While you’re at it, see if they offer any other child care help, says Levin. “A lot of great employers are providing child care subsidies or discounts to childcare centers.”)
Share in Care
They say it takes a village to raise a child—and as a mom, Wong can attest to the money-saving benefits of establishing a strong social network in your local area. “Though you may save $1,000 a year with all the tax credits, you can save another $1,000 by utilizing neighborhood networks,” she says.
You might be able to find a parenting group in your area on platforms like The Big Tent Network and Meetup. Such sites allow moms and dads to find play dates or learning opportunities, and also let parents establish relationships that can become helpful when looking for child care resources.
Nanny shares are one good example. With this kind of arrangement, multiple families pay for one nanny, therefore reducing the cost of care. Often, nannies will watch the kids at the same time, but families can also establish schedules that are based around each family’s individual need.
Additionally, establishing a connection with parent group is a great resource if the nanny gets sick or is unavailable.
When parents can say, “If you watch my kids while I do errands, I’ll watch yours after school,” it can be really beneficial for all parties involved, Levin says. Kids also love it, because in the long run “they’re just one big play date.”