MONEY College

Students Are Totally Clueless About Financial Aid and It’s Costing Them a Lot of Money

Text books and money
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A new report says better outreach and simpler financial aid information would help students choose the right college and know how to pay for it.

Planning for the unknown is hard. But when the “unknown” is how much college will cost and how to pay for it, experts say some students become so discouraged they never even apply.

That’s why the findings in a report out today from the New America Foundation are concerning: Nearly a quarter of prospective students surveyed said they were unsure whether they’d receive financial aid, even though nearly nine out of 10 said the cost of college or availability of aid were important factors in deciding which school to attend.

The report, “Familiarity with Financial Aid,” is part of a series of papers based on a survey that looked at various aspects of college decision making, including how students choose a school and pay for their education.

RELATED: MONEY’S Best Colleges

The survey found that students were most familiar with scholarships they receive from a college (82%), student loans (79%), and state scholarships or grants (61%). Less than half, however, knew much about Pell Grants—the federal grant worth $5,775 this year that’s given to low- and moderate-income students—and only about a third knew other ways to make college costs more affordable, including tax deductions and federal work-study.

Of the undergraduates who filed for federal financial aid, 92% with family adjusted gross incomes of less than $50,000 were awarded a Pell Grant, according to data from the U.S. Department of Education. Yet in this survey, 48% of students in the same income bracket weren’t familiar with the Pell Grant, including more than a quarter who’d never heard of it.

Knowing about the “free money” that’s available to them could change where low- and moderate-income students apply to college or whether they apply at all, said Rachel Fishman, a senior policy analyst at New America and the paper’s author. Pell Grant status also is used as a qualifier for many state and school aid programs, so receiving a Pell Grant often opens the door to a lot more money for school.

The paper supports allowing families to use older tax information when applying for financial aid, a policy proposal that’s gained significant support among college access advocates and some lawmakers in the past year. That change would make it possible for families to complete the Free Application for Federal Student Aid (FAFSA) earlier.

Other initiatives that Fishman says could improve students’ familiarity with financial aid include early commitment programs, which would tell students what type of aid they’d qualify for as early as 8th grade, and an improved system of net price calculators to give them an estimate of how much they’d have to pay at a particular college based on their family income.

Only 14% of students said they’d used a net price calculator, and half of survey respondents said they’d never heard of the calculators before. While the Education Department has net price data on its College Navigator website, Fishman said it would be more helpful to provide a more personalized formula, rather than the broad income brackets that the federal information is based on now. Likewise, colleges are required to publish a net price calculator, but finding it often requires digging through multiple pages of a website. Fishman suggested creating a single website where students could submit their financial information once and then see cost estimates from all the colleges they’re interested in.

“For lot of these resources, students have to have to the savvy to go out and find them,” Fishman said.

Interestingly, while the majority of students in the survey said that they’d found high-quality information regarding financial aid, 63% of respondents also reported feeling lost at some point during their research.

Fishman thinks that’s indicative of how complex financing higher education has become, with grants, different types of loans, and seven loan repayment plans.

A simple web search will return a ton of information, Fishman said, but “students still leave confused because it’s such a complex, confusing system.”

For help navigating that system, check out MONEY’s College Planner, which has news and advice about applying to and paying for college.

MONEY College

Will a Trust Fund Mess Up Our Financial Aid?

Ask the Expert - Family Finance illustration
Robert A. Di Ieso, Jr.

Q: My father has put money into a trust for my daughter; she gets access to it in November 2015, when she will be a senior in high school. How will this affect her financial aid for college in 2016? Should we put the money into our name? — Sheila B., Maryland

A: Trust funds must be reported as an asset on the FAFSA; as a result, this will likely hurt your daughter’s financial aid eligibility.

That’s because financial assets belonging to a student have a far greater impact on financial aid than parent-owned assets do, says financial adviser Fred Amrein, author of Financial Aid and Beyond: Secrets to College Affordability. Colleges expect a family to use 20% of a dependent child’s funds each year to pay for college, Amreim says, while parents are only expected to use 5.6% of their own assets to pay for college expenses. So for example: If your daughter is the sole beneficiary and the total amount held in the trust is $25,000, her aid eligibility would be reduced by $5,000.

And there’s a double whammy: Annual income from the account must also be reported as part of your daughter’s income on the FASFA form. This could reduce her aid eligibility by as much as 50% of the amount of income.

If your daughter cannot access the funds within the trust until a later date — when she is 30, for instance, or after her grandfather passes away — Amrein says you can make an argument to the financial aid office that those unavailable trust assets should not be factored into the aid equation. But there is no guarantee this will work, because each college’s aid office uses its own discretion.

As for whether to move the funds into your name: It may not even be possible, depending on the type of trust and the wording of the documents. But even before you go through the hassle of attempting it, Amreim suggests, calculate your Expected Family Contribution to see if your income and assets as a parent are already too great to qualify for financial need. (You’ll also need to know the cost of the schools your daughter will be applying to.)

If so, it won’t matter what assets are in the child’s name, he says.

For more information on how your assets will impact your financial aid, see our Saving for College guide.

MONEY

Student Aid Company Fined for Its Sales Practices

Graduates with $$ on their caps
Mark Scott—Getty Images

The company allegedly earned money from 200,000 charges to customers who were no longer using their financial aid services.

A company that charged families for help in filling out the Free Application for Federal Student Aid (FAFSA) engaged in deceptive sales and billing practices, according to a complaint filed today by the federal Consumer Financial Protection Bureau (CFPB).

The bureau says that Student Financial Aid Services, Inc. used its websites—FAFSA.com and SFAS.com—to lure customers with misleading information about the cost of its services and then it charged them automatic, recurring annual fees. Under the CFPB’s order, the company would be fined $14.5 million for the alleged violations. Full payment will be suspended if the company meets certain obligations, including paying $5.2 million in refunds.

FASFA is the U.S. Department of Education’s form to apply for financial aid, and it’s also used by many states and colleges to determine students’ eligibility for aid. The official website, FASFA.ed.gov, is run by the government. But the similarly named FAFSA.com was owned by Student Financial Aid Services, Inc. from at least July 2011 until earlier this month, when the web domain was turned over to the Education Department.

On its website, SFAS offered paid FAFSA preparation that included access to an experienced financial aid adviser who would answer questions about the financial aid process, according to the CFPB complaint. The company charged consumers up to $80 for online FAFSA preparation and as much as $100 for help over the phone.

Two of the company’s programs put customers on a renewal plan that charged their accounts for subsequent years, regardless of whether they continued to use SFAS’s services. But those terms weren’t clear to consumers when they signed up for the services, according to the CFPB.

In its five years of operation, SFAS collected money from about 206,000 accounts of customers who didn’t use the company to file a FAFSA that year. The recurring fees ranged from $67 to $85 and were charged to consumers’ cards or bank accounts for up to four years, unless they actively asked to be taken out of the program.

To take effect, the CFPB’s order needs to by approved by a U.S. District Court judge in California, where the complaint was filed.

In an emailed statement, SFAS denied any illegal activity or wrongdoing, saying that the CFPB hasn’t provided evidence to support its claims and that it settled with the bureau to avoid drawn out legal action.

“SFAS is not aware of a single consumer complaint to the CFPB about its services,” the statement reads.

The move against SFAS marks the second CFPB action in the student financial aid industry in as many days. On Wednesday, the bureau announced an $18.5 million payment from Discover Bank to settle allegations that its student loan servicing and debt collection practices were illegal. The bureau said Discover overstated the minimum amount due on borrowers’ statements, misrepresented information about tax benefits available to borrowers, and called borrowers, sometimes excessively, in the early mornings and late at night. Of the fine, $16 million will go toward refunds to the borrowers.

For MONEY’s advice on paying for college and our latest college rankings, check out the new MONEY College Planner.

 

 

 

 

TIME College

Parents Are Shelling Out More Money For Kids to Attend College

Proposed Budget Cuts Threaten Funding For California Universities
David McNew—Getty Images Students go about their business at University of California, Los Angeles (UCLA).

More financing from the Bank of Mom and Dad

Parents opened their wallets more generously in the 2014-2015 school year, a report shows, reclaiming their place as the primary source of college funding for the first time since 2010.

Parental income and savings now cover 32% of college costs, surpassing scholarships and grants as the largest share of college funding, according to the How American Pays for College 2015 survey, released by Sallie Mae. The percentage of college funding contributed by parents’ savings and income had hovered at and below 30% since it nosedived from 37% in 2010.

Parents are paying more for college in part because it’s costing more. The amount that families spent on college rose to an average of $24,164 this year — a 16% gain from $20,882 in 2014.

But the increased wallet-opening isn’t just linked to rising tuition. Parents are less worried about a volatile economy impacting their ability to pay for college. Only 17% of parents reported extreme concern that losing a job would impact their income, compared to 23% in 2014. In 2015, 62% of families eliminated potential colleges because of the cost, down from 68% in 2014 and the lowest percentage since 2009. The financial worries of parents — which were at record levels in 2010 as loan rates rose and the value of savings diminished — had eased significantly by 2015. Whereas a quarter of parents in 2010 recorded “extreme worry” about college costs because they were concerned about the value of their homes, only 6% said the same in 2015.

In addition to parental income and savings, 30% of college funding, on average, came from grants and scholarships in 2015, while 16% came from student borrowing, 11% from student income and savings, 6% from parental borrowing, and 5% from friends and family.

Despite the widespread coverage of student loan burdens, the majority of families did not take out loans to pay for college. When they did, the students were the ones who signed the dotted line three-quarters of the time. Families with students enrolled at private four-year colleges were far more likely to borrow (with 56% taking out loans) than those in four-year, or two-year public schools, where 43% and 22% of families took out loans, respectively.

MONEY Best colleges

Get College Money by Playing Video Games

This university offers video game scholarships to some of its students. Really.

Chicago’s Robert Morris University is the first college to offer video gaming scholarships for students. The program is part of the school’s athletic department, and students are required to attend practices and competitions just like any other student athlete. The team plays League of Legends, a popular computer game in which players work in teams of five to destroy the opposing side’s home base. School officials say rather than distracting from the academic curriculum, students’ involvement with the e-gaming team helps students build teamwork and communication skills.

See the entire list of MONEY’s Best Colleges here.

MONEY College

How to Go to College for Free

At one of MONEY's Best Colleges, students are graduating with zero debt.

Instead of paying tuition, students at College of the Ozarks in Point Lookout, Mo., work at one of over 100 different on-campus jobs. The 1,000-acre campus has dairy, hog, and beef farms; a hotel; a fine dining restaurant; a farmers market; and much more. The cost to educate a student is approximately $18,000 a year, which is defrayed by students’ work, grants, scholarships, and donations and endowments to the school. The school doesn’t accept private or federal loans. In addition to a diploma, students graduate from college with a strong work ethic and real-world skills desirable to employers.

Read next: Check out MONEY’s 2015-16 Best Colleges rankings

MONEY Student Loans

What Could Happen if You’re Caught Lying on the FAFSA

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Troels Graugaard—Getty Images

A third of all FAFSA applications are selected for verification by the Department of Education.

College is expensive, and it’s especially shocking to some parents and students when they start the financing process to learn that one form — the FAFSA — may largely determine their financial fate when it comes to federal student aid. It may be tempting to fudge the numbers on the FAFSA to get more money to help pay for your child’s education, but getting caught could spell big trouble. Unfortunately, federal student loan fraud is a growing trend:

  • One commenter in the College Confidential forums said her parents were planning to claim to be separated in order to try to maximize their chances of financial aid: “I was definitely NOT on board with this but they refuse to listen to anything I’m saying,” the student wrote.
  • In 2014, the Boston Globe reported that a father of a former Harvard student pleaded guilty to charges of falsifying income information to get more than $160,000 in financial aid. (He apparently filed false tax returns, which likely carries additional penalties.)
  • A college professor and counselor was charged with fraud after he allegedly falsified applications for students he said he was just trying to help.
  • A mother and daughter pleaded guilty in 2014 to making false statements to federal agents in connection with an investigation of student aid fraud. The mother reported no income for a time period during which she reportedly received over $521,000 in income.

If you’re thinking of falsifying your FAFSA, just don’t. Under the Higher Education Act of 1965, penalties include a fine of up to $20,000 and/or up to five years in prison. Plus, you’d have to return any aid you had received.

And don’t think you can’t get caught. “College financial aid administrators are more skilled and experienced at detecting lies than families are at perpetrating them,” warns Mark Kantrowitz senior vice president and publisher of Edvisors.com which publishes a variety of FAFSA tip sheets.

What about the commenter whose parents want to pretend to be separated? It’s not an uncommon scenario says Kantrowitz, but “if it’s a informal separation, it’s only acceptable if the parents don’t live together,” he says. “They may ask for evidence that the parents don’t live at the same address.” And there are ways to find out they aren’t telling the truth. The college could “call the home of the custodial parent and ask for the other parent. If that parent picks up the phone then it’s very likely they live together,” he says, by way of example.

A more common scenario, he says, is when parents are separated or divorced and lie about which parent has custody in order to maximize the chances of getting aid. But there are ways of finding that out, too. For example, the school can match up the custodial parent’s address with the address of the high school from which the student graduated. If they don’t match? It may be fraud.

“You would be surprised how often the student blabs,” says Kantrowitz. “When a school has credible information about fraud, they are required to investigate it.”

A college education is expensive and parents and students who want to avoid student loan debt may be tempted to fudge facts. But it’s not worth it. Here’s a guide to paying for college without a mountain of debt — and without lying on your financial aid applications.

If federal student loans aren’t enough to cover your total student loan bill, you have other options. Private student loans are available for students and parents, but private loans (unlike federal student loans) will most likely require a credit check to determine your interest rate, and a co-signer if the borrower has a limited or non-existent credit history. If you have great credit, private student loans may even get you a better interest rate than Parent PLUS loans, so doing your research, improving your credit and monitoring your progress are key.

Read next: The 50 Most Affordable Private Colleges

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MONEY retirement planning

Retiring? Redefine Yourself

senior golfing
iStock

The happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Far more than merely an economic event, retirement is a life redefining milestone. Leaving work and transitioning to a different way to spend your time and money can change your identity. One trick: an open mind regarding leisure, learning, family and, believe it or not, even more work.

Many unhappy retirees have enough money. They simply failed to come up with a new idea of who they are and what they do after the working years ended. Planning finances to understand how you can afford to live — and how long you can support the lifestyle you want — looms large. You needn’t retire just because you reach a certain age or a certain dollar amount of savings.

Retire because preparation for the next phase of life leaves you eager for new pursuits.

Such reinventing takes many forms. Children and grandkids can fill more of your calendar. You may become a nearly full-time volunteer. The golf course may call you or you may further develop a long-lost hobby.

Maybe you’ll return to formal learning, a great way to keep your mind active and expand your knowledge or skills. Especially given the mushrooming of online education, you can audit classes, watch the lectures via the Web or participate in research, homework and earn credits. You may even qualify for financial aid.

Couples face special considerations about retiring. Do you each intend to retire at the same time? Do your individual visions of retirement include the same or very different pastimes?

Frankly, don’t rely on your spouse to share all your interests — or to want to spend all day every day with you. I once heard a colleague, talking about retirement plans, share this perspective from his wife: “I married you for better or worse, but not for lunch.” Get out of the house and find something to occupy your time.

Planning remains as important in retirement as before it. You can travel, depending on your financial situation, yet even heavy travelers wind up filling a lot of at-home days. Catching up on that stack of books on your nightstand or your long-overdue garden project may initially occupy your golden years. Beware eventual bouts of boredom.

One option: Don’t fully retire. Simply cutting back on work may be in order, more vacation, part-time hours and a slow transition rather than you on the job one day and retired the next. Try a month of vacation, living as if retired to see how it suits you.

Of course, you might not get to pick your retirement date: Job loss, health problems or other unexpected troubles can end your career before you expect. If this happens to you, a ready plan in place can help give you a sense of your options financially and occupationally.

Plan for different stages of retirement; your first retired decade may differ a lot from the following 10 years. In general, I find that the happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Staying engaged in life and socially connected can help keep you from worrying about finances – suddenly the least interesting topic in your newly defined life.

Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Tacoma, Wash. Read more at his blog The Money Architects.

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MONEY college savings

Six Misconceptions That Are Costing You Free Money for College

college students listening to professor in lecture hall
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In honor of 5/29 College Savings Day, MONEY answers parents' most common questions and concerns about 529 accounts.

Despite being promoted for more than a decade as the best way to save for college, 529 plans are a mystery to almost two-thirds of American families. Which means they’re losing out on what is essentially free money for college.

Part of the problem, of course, is that many Americans feel they don’t have any extra money to save for any reason, college included, one recent survey found.

But today—5/29 (get it?)—is a great day to take a closer look at how these college savings plans work. For one thing, so-called “529 Day” comes with cash bonuses. Many hospitals, for example, will give babies born on this day $529 toward college savings. The state of California will kick in $50 in matching contributions made to its 529 accounts today. And Virginia is giving anyone who opens a new college savings account this month a chance to win $10,000.

These short-term promotions are designed to draw attention to the more permanent advantages of the 529 plan. Thirty-four states offer state tax breaks or scholarships to residents who invest in college savings accounts that add, on average, the equivalent of 8.7% to your contributions. And earnings on any 529 investment can be used tax-free to pay for your child’s college expenses, which boosts the net value of your college savings over what you would earn in a regular investment account.

Unfortunately, many parents who can afford to save don’t do so, often because they have misconceptions about the costs and benefits of 529 plans. Here’s the truth behind six of the most common false assumptions that experts say they hear.

It will impact financial aid. Some parents who have saved for college fear that their nest egg could turn into a financial hand grenade when their student applies for financial aid, says Lynn O’Shaughnessy, author of The College Solution. And, in fact, every $1,000 you’ve saved in a college savings account can reduce need-based aid offers by up to $56. But many families don’t see that much of a reduction. And even those who do are still wealthier and far more able to pay for college than they would have been without saving, O’Shaughnessy says.

I can’t afford the contribution minimums: A lot of families get paralyzed by the idea that they can’t put a large sum aside, and so they don’t save anything at all, says Betty Lochner, Director of the Guaranteed Education Tuition plan in the state of Washington. “They think it’s too steep a hill to climb, and it’s not,” she says. At least 33 states allow you to open accounts with deposits of $25 or less, according to the College Savings Plans Network’s tool to compare plans.

The investments are too risky. Many parents are naturally afraid to put money in investments they don’t understand or trust. But most states offer low-cost, professionally managed plans specifically designed for parents who don’t want to have to worry about the ups and downs of the market, says Joe Hurley, an expert on 529 plans and founder of Savingforcollege.com. For example, the increasingly popular age-based portfolios, many of which are managed by well-respected firms such as Vanguard, Fidelity, or T. Rowe Price, will manage the risk of stock markets by moving money to more conservative portfolios as students get closer to college age.

There are also several independent guides to help you pick a good plan. Savingforcollege.com compiles a quarterly list of the top performing plans, and Morningstar publishes an annual research analysis.

It limits college choices: Although most 529 plans are sponsored by a state, the funds can be used at any accredited college in any state, says Lochner, who is also chairwoman of the College Savings Plans Network, a consortium of state plan administrators.

But my kid’s going to get a full ride! Time for a reality check: The idea that bright students can easily earn full-ride scholarships is a myth, says O’Shaughnessy. Only .3% — that’s less than one third of 1% — of college students receive true full rides, according to research by Mark Kantrowitz, publisher of Edvisors and author of “Secrets to Winning a Scholarship.” Even if your child gets a scholarship to cover tuition, there’s still room and board and books to pay for, both of which qualify as educational expenses for 529 accounts. (Congress is considering a proposal that would expand what qualifies to include computers, software, and internet access.)

Any additional money left over in a 529 can be easily transferred to a college savings account for yourself, or for a sibling, cousin, or future grandchild. Alternatively, you can withdraw 529 money from an account and spend it on anything you want—you’ll just have to pay taxes on the gains (as you would have done for funds from a regular investment account), and there will be a 10% additional tax penalty on those gains. If you are spending money left over in a 529 because your child won scholarships, however, the tax penalty is waived, Lochner says.

My kid will blow the money on video games. Having a nightmare about your daughter going through a rebellious teenage phase and cashing out the college savings plan to finance a backpacking trip across Europe? Not going to happen. Parents remain in control of the account even after a child turns 18.

To learn more about 529 plans and get help figuring out which 529 plan is right for you, check out MONEY’s guide.

MONEY College

Why an Out-of-Stater May Be Taking Your Kid’s Seat at State U.

Getty Images/David McNew UCLA, like many state schools, has been increasing the number of out-of-state students to make up for reductions in funding.

Study says public universities' need for revenue and desire for reputation means they’re increasingly giving grants to wealthy, smart, out-of-staters.

State universities historically served the public good, offering a college degree to a broad swath of residents and paving a path to the middle class for low-income families.

But a paper out today from New America says the nature of state universities is changing—for the worse.

Driven by a desire for dollars and higher rankings, public colleges are increasingly using their financial awards to recruit affluent out-of-staters instead of helping needy state residents attend college, the report charges.

As a result, writes author Stephen Burd, public colleges are losing sight of their public mission.

An analysis of non-need-based aid at 424 public four-year colleges found that schools that provide large amounts of merit aid have seen a greater drop in enrollment of in-state freshmen since 2000 than colleges that don’t award much merit aid.

Those colleges also tend to enroll fewer students with Pell Grants and charge low-income students a higher average net price. (In this case, merit aid is defined as any aid that’s awarded to students who don’t meet federal guidelines for need-based financial aid.)

Burd identifies several factors driving the trend. Some colleges, especially after seeing their state allocations cut during the economic recession, need the higher tuition that out-of-state students provide to meet their bottom line.

At the University of South Carolina, for example, the state has cut its annual funding to the university by 50% since 2007. This year, out-of-state students had a sticker tuition price of $29,372, compared with $11,128 for in-state students. Offering an out-of-state student a $10,000 tuition discount still generates more tuition revenue for the university than it would get by giving that seat to a state resident.

“Now we’re becoming more like the private schools in the way we approach admissions,” said Scott Verzyl, an associate vice president for enrollment management, who was quoted in the report. “We’re more in the mode of hustling for business and trying to find new markets.”

Nonresidents now compose 45% the University of South Carolina’s freshman class—more than double what it was in 2000.

Other universities use institutional aid to recruit high-achieving students to help it climb up college rankings lists, or to offset the decline in the number of high school graduates in some parts of the country. In some states, such as Missouri, colleges started directing their aid money to high-achieving in-state students to keep them from being poached by other states, the report notes.

Competition has grown so aggressive that even small, regional universities that once filled their seats with students from a limited geographic area are feeling the pressure. “Everyone’s territory appears to be becoming everyone else’s territory, to the point that we don’t have a territory, really,” said Thomas J. Calhoun Jr., a vice president for enrollment management at the University of North Alabama, in the report. “It has created the need for us to redefine what our region is.”

Almost one in five public colleges gives merit aid to at least 20% of freshmen, and nearly half provide merit aid to at least 10% of freshmen, the analysis found.

The idea of an “aid arms race” isn’t new to higher education insiders, and the paper cites other media reports and policy studies that have examined the issue at the university level.

The problem is there’s little incentive for any one institution to unilaterally stop the practice. And so colleges have continued increasing the dollar value of their awards to meet their goals, creating a self-perpetuating cycle.

An Inside Higher Ed report on a recent analysis from Moody’s captures the pressure public universities are under: “Universities that have greater flexibility to adjust revenue, such as through tuition increases and growth in out-of-state enrollment” stand the best chance of outperforming their peers in a particularly tough higher education market.

One could argue that filling up seats with nonresidents who still pay a significant amount of tuition produces revenue that could then help subsidize the cost for low-income students.

But the New America report notes that there are concerning trends linking merit aid and low-income enrollment, even if there isn’t enough data to prove an increase in merit aid is directly responsible for freezing out low-income students.

For example, Pell Grant recipients made up about 32% of the student body at schools that provide a lot of merit aid, compared with 42% of the student body at low merit aid schools.

Likewise, at schools where merit aid is given to at least a quarter of incoming students, the freshman class is made up of about 28% out-of-state students. But at schools that don’t award much merit aid, nonresidents comprise just 10% of the freshman class.

 

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