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Does college pay?

April 17, 2013 by

Does college pay? A new web site called College Risk Report asks the collegebound to enter their prospective college or university and their major, then estimates how long it would take a graduate to pay for a bachelor’s degree and graphs lifetime earnings for a bachelor’s, associate degree and a high school diploma.

A proposed New University of California would award credits and degrees to people who prove their mastery of subject matter by passing exams, regardless of whether they attended a class, studied online, learned on the job or read a bunch of books.

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Financial ed doesn’t work

April 16, 2013 by

“Financial literacy” training doesn’t help people make better decisions, reports The Economist.

Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102? And would an investor who received 1% interest when inflation was 2% see his spending power rise, fall or stay the same?

Only half of Americans aged over 50 gave the correct answers. In another study, 21 percent of those surveyed said their best retirement strategy was winning the lottery.

Financial education doesn’t help, the Federal Reserve Bank of Cleveland concludes.  “Unfortunately, we do not find conclusive evidence that, in general, financial education programs do lead to greater financial knowledge and ultimately to better financial behaviour.”

U.S. students who’d taken personal finance or money management courses weren’t more financially savvy than those who hadn’t, according to a study by the Jump$tart Coalition for Personal Financial Literacy.

In another study, students “who had not taken a financial course were more likely to pay their credit card in full every month (avoiding fees and charges)” than those who’d studied the subject, reports The Economist.

Cleveland Fed researchers recommended teaching financial literacy to adults trying to buy a house or pay of credit card debts.

But . . . consumer enthusiasm for learning about finance is limited. When a free online financial-literacy course was offered to struggling credit-card borrowers, only 0.4% logged on to the website and just 0.03% completed the course. Those who choose to be educated about finance may be those who are already interested and relatively well-informed about it.

Nearly every proposal for rethinking student aid calls for doing a better job of informing students and parents about what they’re getting into when they take out college loans. But it’s not easy. Is college tuition an investment in productivity? A lifestyle expense? It depends on the student.

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Obama plan uncaps student loan rates

April 12, 2013 by

Student groups aren’t happy with President Obama’s proposed change to student loan interest rates. Linking the rate to the government’s cost of borrowing means today’s college students would pay very little, but future students could pay much higher rates. That’s assuming the economy improves.

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It takes a degree to be a file clerk

February 21, 2013 by

“The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job,” reports the New York Times.

At an Atlanta law firm, all the support staff are four-year graduates from paralegals, admins and file clerks to the $10-an-hour courier.

“College graduates are just more career-oriented,” said Adam Slipakoff, the firm’s managing partner. “Going to college means they are making a real commitment to their futures. They’re not just looking for a paycheck.”

Maybe they’re looking for a miracle. The law firm’s receptionist, who earns $37,000 a year, graduated from the Art Institute of Atlanta in 2011 with a degree in fashion and retail management. “I am over $100,000 in student loan debt right now,” said Megan Parker.

“Degree inflation” is increasing, reports the Times. Many “jobs that didn’t used to require a diploma — positions like dental hygienists, cargo agents, clerks and claims adjusters — are increasingly requiring one,” according to Burning Glass, a company that analyzes job ads.

Requiring a bachelor’s degree is a handy way to cut down on the huge pile of applications for every job, a recruiter tells the Times.

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Redesigning college aid — without spending more

January 30, 2013 by

A “more understandable effective and fair” student aid system doesn’t need to cost taxpayers more money, concludes a new report that calls for shifting funding and incentives to help needy students and encourage speedy completion of degrees.

Federal grants to college students should be replaced with grants to states, which would have to match the money, recommends another report.

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Another day older and deeper in debt

January 20, 2013 by

Federal student loans aren’t based on students’ ability to repay — and many will not.

Arrested for a credit union hold-up in Madison, Wisconsin, 49-year-old Randall H. Hubatch said he owes $250,000 in student loans and wants a long prison sentence. Hubatch earned a bachelor’s in English in 1998 at University of Wisconsin, Madison. He added a law degree in 2004. He works at the university as a custodian. He wore a hat with UW’s mascot — Bucky Badger — for the robbery and was wearing it when arrested.

Via Glenn Reynolds, author of The Higher Education Bubble.

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U of Phoenix partners with community colleges

December 19, 2012 by

The University of Phoenix will roll out more than 100 new partnerships with community colleges in the coming year. The nation’s largest for-profit university will offer bachelor’s degree programs to two-year graduates, gaining students who are more likely to graduate and repay their student loans.

Under increasing regulatory scrutiny, the University of Phoenix has seen enrollment drop precipitously from a peak near 500,000 to 320,000.

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37 million college dropouts

December 12, 2012 by

Some 37 million Americans have “some college” but no credential. What would help more reach their goals — and boost the economy?

Financial aid should be redesigned to help needy students, says the National College Access Network.  That means dumping subsidized loans and tax credits for families earning $100,000 or more. The savings could fund Pell Grants for low- and moderate-income students.

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Parents struggle to pay kids’ college debts

November 15, 2012 by

College loans are bankrupting parents, reports the New York Times. Colleges encourage parents to take out Parent PLUS loans, which have more than doubled since 2000, to pay their children’s tuition. Others co-sign private student loans. If parents are hit by health problems, layoffs or divorce, there’s no repayment flexibility.

“You don’t want your children, much less your neighbors and friends, knowing that even though you’re living in a nice house, and you’ve been able to hold onto your job, your retirement money’s gone, you can’t pay your debts,” said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.

People over 60, the fastest growing group of debtors,owe $43 billion, up from $8 billion seven years ago. More are defaulting. The government garnishes Social Security benefits to collect on unpaid student debt.

“It makes you feel like a failure as a parent, to be unable to help your children and to have all your hard work end in a pile of debt,” said one New Jersey man, who took out a second mortgage of $280,000 to help cover his children’s college costs. “I sent my older kids to private colleges, and I was happy to do it because it’s how you help them get started off. But I can’t do it for the youngest, and I haven’t even been able to start the conversation with him.”

Start talking, Dad.

A 27-year man about to complete his second bachelor’s degree — this one’s in Russian literature — tells the Times he doesn’t know how much he and his mother owe for his years in college.

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‘Repayment’ plan = loan forgiveness

November 10, 2012 by

President Obama’s more generous plan for income-based repayment of student loans means “typical undergraduate borrowers will not repay their loans,” writes Andrew Gillen, now research director at Education Sector.

Using the New America Foundation’s IBR calculator, Gillen looks at repayment for average student borrowers, who run up $26,600 in debt, and starts work at $27,000 with 3 percent salary growth per year.

To pay off the debt in the standard (10 year) plan, their monthly payment would be $307. But under IBR, their monthly payment in the first year drops to $63, which doesn’t even cover the interest on the loans (meaning their balance is growing over time). Over the 20 year life of the loan, they will repay less than what they borrowed (<$23,000), and will have over $40,000 of debt forgiven (paid by taxpayers).

Even if their starting salary is $35,000, they will still end up having $20,000 of debt forgiven. Moreover, borrowers who become parents during their loan repayment will find their monthly payments are reduced drastically. If the $35,000 starting salary graduate has children 5 and 7 years into repayment, they will repay much less than the principal of the loan (total payments <$18,000) and will have more than $45,000 of debt forgiven (paid by taxpayers).

Many borrowers won’t repay the principal, let alone the interest.

The priorities are skewed, Gillen writes. While low-income students will get $22,000 in Pell Grants to attend community college, upper-middle-class students will get a (delayed) grant of $40,000 or more, a gift from the taxpayers.

Big borrowers — those who’ve chosen a high-cost private college or earned a professional degree — get the best deal, notes the New America Foundation in Safety Net or Windfall?

. . .  contrary to benefitting low-income borrowers, the pending changes to IBR will actually provide generous benefits to borrowers with higher federal loan balances – those with graduate or professional degrees. A borrower with an MBA or a law degree can easily have a six-figure loan balance forgiven, even if his income exceeds $100,000 for much of his repayment term.

IBR treats the symptom (high college debt) rather than the disease (high college costs), Gillen writes on Minding the Campus. He favors income-contingent lending (ICL), which actually requires repaying loans.

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