MONEY College

Why Your College-Bound Kid Needs to Meet Your Financial Planner

Parents showing jars of money
Jamie Grill—Getty Images

Sheltering children from tough money choices now can lead to unhappiness later on.

When I schedule a meeting with parents to talk about college costs, I always ask if the student will be attending the consultation.

About 80% of the time, the parents say no. Their usual response: “He’s too busy,” or “We would rather not include her.”

That’s a big mistake.

What I do is help estimate the final costs that the parents will be facing, taking into consideration projected financial aid, merit awards and the family’s current resources. Those costs can vary widely, from $5,500 a year to attend a community college while living at home to over $70,000 per year to go to a private college such as New York University.

Students should be involved from the start, so they can understand the financial issues that their parents will be facing. Students need to see the great disparity in cost outcomes among the different colleges on their wish list.

When I meet with the whole family, we can narrow down the types of schools that would be affordable to the parents as well as meet the academic and social needs of the student.

That way, we can avoid a situation in which a high school student, ignorant of any financial implications, pursues whatever college he is interested in. Then, in April of his senior year, when all of the acceptances and awards arrive, his parents review the options and say, “We can’t afford any of these.”

At that point, the only choices are for the student to attend a school he’s not happy with (such as a local college commuter school), or for the parents to go into deep debt in order to finance an education they cannot afford.

So I try my best to convince the parents to invite their student. Perhaps the parents are trying to shield their finances from their children. Eventually, however, the kids will be part of the parent’s estate planning. The earlier the children know about the parent’s financial situation the better. If a family limits the college search to the types of colleges that meet all needs (financial, academic, and social), then the only outcome in senior year will be a happy one for both the parents and the student!

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Paula Bishop is a certified public accountant and an adviser on financial aid for college. She holds a BS in economics with a major in finance from the Wharton School and an MBA from the University of California at Berkeley. She is a member of the National College Advocacy Group, whose mission is to provide education and resources for college planning professionals, students and families. Her website is www.paulabishop.com.

MONEY First-Time Dad

What Millennials Want That Their Boomer Parents Hate

Luke Tepper
Luke looks around for the inflation that has yet to come Taylor Tepper

It is nine letters long, (not legal weed), and causes investors' blood to boil.

Inflation. We really want some inflation. Now, if possible.

Macroeconomic forces are not top of my mind all the time. A couple of weekends ago, for instance, my wife and I played poker and drank beer on our friend’s rooftop patio. Our son Luke, clad in his new miniature gondolier outfit, crawled between our legs as one person after another told us how cute he was. That night Luke held onto one of my fingers while I gave him his midnight feeding. Later my wife and I slipped into his room for a few moments to watch him sleep.

I can tell you that at no point during our perfect summer day did the word inflation pop into our heads. We went to sleep thinking just how lucky we were to have such a beautiful son, rather than dwelling on the fact that we face an inflationary climate that is hostile to the economics of our new family.

We aren’t strangers to what economists call “headwinds.” Mrs. Tepper and I graduated from the same really expensive private college in 2008, just as the nation was mired in the worst recession in 80 years. We attended college (and later graduate school) as state governments across the country drastically cut higher education spending, which meant higher costs, which meant that we incurred a combined six-figures student loan marker. And entering the job market in the teeth of negative economic growth means we’ll be playing catch-up for years and years.

Given all that we (and Americans, generally) have endured since 2008, it might seem strange that I would ask for higher inflation. When the prices of goods rise quickly, the Federal Reserve is apt to raise interest rates. Higher interest rates make it more expensive to purchase a house, or borrow for anything. Don’t I want to own a house? What’s wrong with me?

For a little bit of context, let’s back up and look at where inflation has been over the past six years. If you look at the core price index for personal consumption expenditures (or core PCE), inflation is rising at an annual rate of 1.5%. In fact ever since Lehman Brothers declared bankruptcy it has barely budged over 2%.

inflation...

Even if you look at a broader inflation metric, like the consumer price index, prices have risen at 2.1% or lower for almost two years.

What does this mean?

For one thing, wage growth has stagnated at around 2% since we left school, and job growth, while picking up lately, has been relatively slow. Weak job creation and small pay increases means that people have less money to spend, which means fewer jobs and the cycle goes round and round.

So more economic growth (spurred on by more borrowing and spending) would help alleviate low wage growth, and help us ramp up our weekly paychecks. But it would also do something else. It would help us pay down our student loan debts.

Super low inflation is bad for people who have debt. Right now Americans owe more than $1.1 trillion in student loan debt. That means people our age are receiving raises that aren’t that high and have to confront a record level of debt before their careers really get going. With so much of our take-home pay earmarked for debt service, no wonder housing isn’t a priority, or affordable, for millennials (or the Teppers).

Of course, this kind of talk scares our parents (and rich people), who own bonds and other assets designed to preserve wealth instead of create it. Having already endured years of low interest rates, they really don’t want their bond portfolio to be hit by an inflation jump.

To which I say, tough. Many boomers entered the job market as the economy was expanding and college was affordable. Their children did not.

Luke has this one toy that he loves. It’s a sort-of picture book for infants consisting of a crinkly material, and he loves nothing more than smashing the thing between his hands and feet. In 17 years, he’ll want a car—and then four years of college.

I realize that the costs of these things will rise—prices always rise. It would just be nice if our salaries rose enough to pay for them.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

 

MONEY Debt

Have You Conquered Debt? Tell Us Your Story

Have you gotten rid of a big IOU on your balance sheet, or at least made significant progress toward that end? MONEY wants to hear your digging-out-of-debt stories, to share with and inspire our readers who might be in similar situations.

Use the confidential form below to tell us about it. What kind of debt did you have, and how much? How did you erase it—or what are you currently doing? What advice do you have for other people in your situation? We’re interested in stories about all kinds of debt, from student loans to credit cards to car loans to mortgages.

Please also let us know where you’re from, what you do for a living, and how old you are. We won’t use your story unless we speak with you first.

TIME Education

Elizabeth Warren Slams Mitch McConnell on Student Loans

Yellen Testifies on Monetary Policy
Senator Elizabeth Warren (Democrat of Massachusetts) listens to testimony from Janet L. Yellen on "The Semiannual Monetary Policy Report to the Congress." on Capitol Hill in Washington on July 15, 2014. Ron Sachs—Corbis

Massachusetts Democrat accuses GOP leader of asking students to “dream a little smaller”

Massachusetts Senator Elizabeth Warren publicly took Senate minority leader Mitch McConnell to task Wednesday on her bill to lower interest rates for government student loans, which failed the Senate last month just two votes shy of breaking a Republican filibuster.

“Last week Mitch McConnell was asked about the student loan bill,” Warren told an obviously friendly crowd of 1,000 young progressives gathered in Washington for the Center for American Progress’s Make Progress Summit. “Mitch McConnell actually suggested that the solution for college affordability is for young people to lower their expectations and become more cost conscious, because he said not everyone needs to go to Yale.”

McConnell made the remarks in a town hall meeting last week, when explaining his support of proprietary education—or for-profit schools—as, he said, it increases competition with traditional colleges:

…I think the best short-term solution is for parents to be very cost-conscious in shopping around for higher education alternatives. Not everybody needs to go to Yale. I don’t know about you guys, but I went to a regular ol’ Kentucky college. And some people would say I’ve done okay.

Warren then asked everyone in the room who had student loans and didn’t go to Yale to raise their hands—and the vast majority did. “His vision for America is that no one reaches higher than they can already afford,” Warren scoffed. “Mitch McConnell may think that the solution to the exploding student loan debt is to dream a little smaller. Well, he is wrong… We are going to build a better country than the one Mitch McConnell envisioned.”

Request for comment from McConnell’s campaign wasn’t immediately answered.

Warren then said the only way to fix the situation was to convince two senators to change their minds, an endeavor she asked the students in the room to help with. Because it’s either change their minds, or elect those that don’t “hire armies of lobbyists and lawyers,” she told the roaring crowd, who gave her an ovation.

The Massachusetts Democrat’s remarks came two weeks after she campaigned for Alison Grimes, McConnell’s Democratic challenger in this November’s elections.

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MONEY Related Stories

Two New Proposals Would Make College Free Nationwide

140715_HO_FreeCollege_1.jpg
Michael Burrell / Alamy

With student loan debt crippling students, education advocates are suggesting ways to change how federal financial aid money is distributed.

Adele Williams often hears her friends from high school talking about their struggles to afford college.

But she can’t relate—she doesn’t pay any tuition at all. At the school she attends, Alice Lloyd College in Kentucky, students attend for free in exchange for working.

Her friends at other schools, she says, “are mostly jealous.”

At a time when the cost of attending many private colleges exceeds the national median household income, the idea of paying no tuition at all seems so unrealistic that one higher-education economist refers to it as “la-la land.” But there are a handful of schools—such as Alice Lloyd and others—that don’t charge students a penny. Meanwhile, Tennessee will make all of its community colleges free for state residents beginning next year, and Oregon is moving forward with a study considering the same thing.

Now two new proposals go even farther, both aiming to make no-cost college a nationwide standard. A report from the Lumina Foundation recommends that the first two years of public universities and colleges be free, and a new nonprofit called Redeeming America’s Promise has come out with a proposal to give every lower- and middle-class student a full ride.

“The rising millennial generation has been so deeply affected by student debt that they’re driving a conversation about this challenge,” says Morley Winograd, the president of Redeeming America’s Promise, who worked as an advisor to Vice President Al Gore during the Clinton Administration. She added that “well-meaning but what I would call Band-Aid solutions” aren’t enough to fix the problem.

Existing financial aid was created to help the lowest-income students at a time when middle-class and wealthier families had little trouble paying for college on their own, notes University of Wisconsin-Madison sociologist and higher-education policy expert Sara Goldrick-Rab, who co-authored the other proposal. “But the people who are struggling to pay for college today go way beyond poor people,” she says. “There’s a need for a universal program.”

The Full Ride Proposal

Redeeming America’s Promise proposes redirecting existing federal and state financial aid and tuition tax breaks to give full tuition scholarships in specified amounts. It says the amount of money the government already spends for those purposes is enough to provide $2,500 per academic year for community college and $8,500 for four-year universities to every student from a family earning $180,000 a year or less.

That would just about cover the entire average advertised full cost of public college and university tuitions for everyone, the organization says.

Under the plan, which is backed by several Republican and Democratic former governors, Cabinet members, and members of Congress, the students could take out loans to cover their living expenses and repay them based on their incomes after graduation.

The scholarships would be limited to two years for an associate’s degree and four years for a bachelor’s degree to encourage students to graduate on time—which only a fifth of those at four-year institutions currently do and 4% at two-year schools.

Colleges and universities generally wouldn’t be allowed to raise their prices higher than the scholarship amounts, forcing them to control their costs.

The 50% Plan

Goldrick-Rab and her colleague, Nancy Kendall urge in their report that the billions of dollars in federal financial aid money and some state money be redirected to make tuition, fees, books, and supplies free for the first two years of any two- or four-year public university or college and that students be given stipends and jobs to help them pay their living expenses.

Goldrick-Rab and Kendall call this the free two-year college option, or F2CO.

The Reality Check

The Redeeming America’s Promise scholarships would cover the full cost of tuition at public universities and colleges not private ones, the influential lobbies of which are likely to oppose the idea on the grounds that it would divert students from them.

But public institutions might oppose as well, on the basis that the plan would be a form of price control or that they wouldn’t be able to handle, at the amount they are allowed to charge, the flood of students projected to descend on them. Tennessee universities opposed making community colleges free in that state, for example, until lawmakers agreed to make some changes in funding for them.

“We had four-year schools that were going, ‘Wow, it’s going to be hard for us to compete with free,’” said Tennessee Governor Bill Haslam.

And the sweeping, dramatic changes suggested in either proposal would face an uphill battle in a divided government that has been challenged to make even marginal policy decisions.

“It’s very difficult to separate the politics from the economics,” said David Breneman, a professor in the economics of education at the University of Virginia.

Breneman pronounced both free-college proposals “not realistic,” especially at four-year institutions (“That’s just La-La Land”), though he said they might stir up a helpful conversation about untangling the way the government helps students pay for college.

“When you look at what a mess we’ve made of student aid and how complicated it’s gotten and the loan craziness, it’s not surprising that people look back at those days when we just had low tuition,” he said.

Even the free-college crusaders are not optimistic about these plans being adopted in the immediate future.

“No way is it happening today,” said Goldrick Rab. “To me the question is, will enough groundwork be laid today that it becomes something groups are working on for the next 10 to 12 years, and that eventually becomes a litmus test for people we elect.”

Winograd said more states could make public colleges and universities free sooner than that, mostly without federal involvement. Advocates in some already have proposed it, and many states are watching the free-college experiment in Tennessee, where the $34 million-a-year cost is to be underwritten by a $300 million endowment paid for from lottery proceeds. (In Oregon, the annual cost is estimated at $100 million to $200 million.)

“The political will to do it does exist, not necessarily in Washington, but throughout the country,” Winograd said.

__________

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University.

Related stories:

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Just as it wants students to speed up, government won’t pay for summer courses

MONEY Student Loans

WATCH: Why Illinois is Suing Over Student Loans

Illinois is suing debt consolidation companies for allegedly fraudulent student loan practices.

MONEY

First State Sues Over Student Loan Fraud

The most frustrating part: Legitimate debt relief similar to that offered by bogus debt consolidators is usually available at no cost to borrowers.

+ READ ARTICLE

On Monday, Illinois became the first state to sue so-called debt settlement companies for fraudulent student loan practices. The New York Times reports that two companies, Broadsword Student Advantage and First American Tax Defense, were sued for charging customers for debt assistance they never received.

Debt settlement companies, which consumers pay for help consolidating their loans and decreasing their monthly payments, have long had a reputation for taking advantage of desperate borrowers eager for a quick fix. With Americans now holding $1.2 trillion in outstanding student loans, college grads appear to be an increasingly attractive target.

According to court documents, the typical scam involves offering debtors a variety of services—some non-existent, some that are already offered free through federal programs—in exchange for money up front. First American even made up fake government relief initiatives—like the “Obama Forgiveness Program”— to entice customers, and feigned affiliation with the Department of Education. Rick Cibelli, an Illinois caregiver, told the Times he payed First American $175 over the phone to help pay down his $10,000 of student debt before learning the company’s purported federal connections were false.

The most frustrating part of debt relief fraud is that a legitimate version of the services offered by scammers are usually available at no cost to borrowers. Common student loan scams include offering to consolidate student loan payments (putting multiple loans under one lower monthly fee), debt forgiveness, or lower monthly payments. All of these services are offered free of charge by the Department of Education to eligible borrowers.

Persis Yu, a staff attorney at the National Consumer Law Center’s Loan Borrower Assistance Project, says she’s never seen a loan assistance company offer anything that isn’t already offered by the federal government. “The bottom line is they’re charging you for information you can get for free,” says Yu. In a 2013 report, the National Consumer Law Center found some student loan relief agencies charged up to $1,600, or $20 to $50 a month, for what amounts to filling out a few forms.

Yu believes that the primary cause of student loan relief fraud is a failure to educate the public about current government options. “There is an information vacuum, which I think is one of the reason why these companies have been successful,” laments Yu. Mark Kantrowitz, publisher of Edvisors.com, agrees. He advocates legislation that would require debt settlement agencies to clearly and conspicuously disclose that the services they offer can be also be obtained for free. “There’s nothing illegal about charging a fee for a free service,” said Kantrowitz “but when it strays into the realm of being misleading about what you’re charging a fee for, that becomes problematic.” Similar legislation already exists for companies that help families file the Free Application for Federal Student Aid (FAFSA).

Luckily, careful borrowers can avoid a scam. Yu says that anyone looking for student loan assistance should contact the servicer of their loan directly to discuss their available options. Any program not referred to them by the loan servicer should be considered highly suspect. Those with older loans granted under the Federal Family Education Loan program should also be careful when speaking to their lender about consolidation because these lenders are not required to disclose government consolidation options.

Unfortunately, outside of your current lender, there are precious few reliable resources for those with student debt. “We have had instances where borrowers who do contact their services don’t get the best information, so it’s incumbent on borrowers to get the best information,” Yu said.

One good resource is the NCLC’s own website, StudentLoanBorrowerAssistance.org, which offers trustworthy advice on loan repayment options, as does Edvisors.com. The Department of Education also offers excellent online materials, like a fact sheet on loan consolidation, including how to apply for a consolidated loan. The same site also explains various term-extension options, including a calculator that will use your income, loan amount, and interest payment to estimate how much you would pay per month and in total under various repayment plans. The Department of Educations also maintains a toll-free number, 1-800-4-FEDAID, that offers loan information.

Public sector workers, or those who meet various other conditions, may be eligible for forgiveness, cancellation, or discharge of their loan. This page explains the various requirements and how to take advantage of any programs you qualify for.

There are also a number of private refinancing options that can lower long-term interest payments. Matt Krupnick of the Hechinger Report writes that companies like Pave and CommonBond offer certain graduates advantages like flexible loans or low-interest payments. Kantrowitz says these loans can be great options for graduates who have good jobs and high credit scores, but are generally unavailable to borrowers struggling to meet their current payments.

Yu also cautions that while private refinancing can mean lower rates, it also means losing many federal protections, like forgiveness in the case of disability or death, or government income-based repayment plans. “If someone is going to consider refinancing, they need to know they will lose their rights under a federal loan,” said Yu. “That will have to be a cost-benefit analysis.”

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