Not that talk! I am referring to the kitchen table talk about going to college and how much family resources will be available.

It is important for you and your child to be on the same page financially. Ideally, there will be multiple talks starting early in your child’s high school career or even late in their junior high years.

The talk goes something like this:

“Honey, we want to do everything we can to put you on the best possible path for life. That will be involve going to college and we want to make that happen for you.”

“As you know some colleges are very expensive. Just so you know, we saved enough to pay $X per year which will cover the expenses of approximately y% of the cost of an instate college. To make this work, you will be responsible for the rest through scholarships, your savings or student loans”.

“It is important that you do everything you can to become an attractive scholarship candidate to colleges by achieving your very best in school and sports. In many cases, you will have to apply for scholarships and they are often awarded on a first come, first serve basis. Therefore, you need to be diligent and timely.”

“Again, we are on this journey together. We want to help you make your dreams come true. We would love it if you graduated with little or no student loan debt. Please keep the communication lines open with us. We can do this!”

A talk like this goes a long way to extablishing expections and making clear to your child that they have “skin in the game” (i.e., their action or inaction will directly determine the amount of student loan debt they will have upon graduation). Talks like this will also properly incentivized your child.

In terms of student loans, please be aware that the Stafford Loan (i.e., loans that the student is totally responsible) limit is “only” $31,000 (aggregate). This covers the cost of only one year’s attendance at many colleges. Then “parent loans” (i.e., PLUS Loans) are required. (Note: a $57,000 Stafford Loan limit is available if the parent does not qualify for PLUS loans due to substandard credit scores – see http://www.finaid.org/loans/studentloan.phtml).

As a parent, what should you do now? You need to uphold your end of the bargain. You need to develop an optimized college investment plan from the thousands of available of investment options from 529 Plans, Education Savings Plans (Coverdell Plans), etc. Incorporating an optimized financial aid plan is a critical component of the process.

If you need professional, independent advice, try www.401kid.com which parents and financial advisors like you use to obtain optimized, unbiased investment and financial aid advice.

Please let us know what you would like to see from 401kid!

Making your education dreams come true,
Bob Lally
401kid, Inc. COO
(father of a current college student + a recent college graduate)

401kid, Inc. provides unbiased, college financial planning advice via www.401kid.com where families and advisors can optimally fund education dreams with superior a) conflict free asset allocation and financial aid advice; b) a comprehensive ’supermarket’ of education savings investment options; c) savings discipline opportunities for building client wealth; and d) value added content with social networking.

It’s a 401(k) for Kids:

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I worked at a university counseling center for a few years in Boston. During that time, I met with many, many students presenting with a variety of issues and complaints. A constant problem students seemed to have, both undergraduate and graduate, was managing their budget, filing financial aid forms and financial aid disbursement.

I was readily able to empathize with them, as I was a doctoral student at the time. Financial aid forms are time consuming and difficult to fill out. A kid right out of high school has no idea what he’s signing. Oftentimes, parents have no idea what they’re co-signing. What’s Latin for “Co-signator beware?”

FAFSA (Free Application for Student Aid, or, as I like to call it, Forget About Financial Security Aid) forms are long, cumbersome and tedious (I believe they’re purposefully designed this way). Pair this with most young adults’ incapacity to think in terms of long-term financial consequences and you have the makings for future financial hardship. Why do you think credit card companies offer cards to unemployed 18-year olds? Same reason; most of them are the proverbial grasshopper, with no thought of the morrow. Play now; pay later.

I was fortunate in that I didn’t require financial aid until I began my doctoral program. Even though I was 24 at the time, I didn’t fully understand what I was signing. Furthermore, I thought I’d be able to find a good paying job after I graduated, after all, I’d have a doctorate, right? Wrong.

I have my share of horror stories about my program’s financial aid department. In fact, during my last year of classes, one of the F.A. workers filed a complaint against me and submitted it to my dissertation adviser. The woman provided inaccurate information regarding one of the forms causing my disbursement to be delayed by almost a month. I thought the information was inaccurate at the time and questioned her repeatedly. She assured me everything would be alright.

Sure enough, my application was rejected and returned. I had to reapply, pay a penalty fee, and the coup de grace, my school offered to grant me an “emergency loan” at a “fair” interest rate for an emergency they had caused. I very calmly thanked the F.A. woman for her “help” and suggested she might better serve humanity by flipping burgers at McDonald’s. Two weeks later, I received my copy of the complaint sent to my adviser in the mail. I saved the letter and treasure it to this day as a medal of valor.

When I worked at the university counseling center in Boston, I was asked to facilitate a training for financial aid staff on Listening Skills and Stress Management after Student Affairs received numerous and consistent complaints from parents and students. Although I had my biases, I agreed to run the 3-day workshop.

The staff spent a great deal of time complaining about students and fielding phone calls from angry parents. Granted, many college kids are irresponsible and don’t submit their forms on time, even with prompting, I was unprepared for the information disclosed.

Some of the F.A. staff revealed that they purposely misled students regarding the forms and/or did not return phone messages and e-mails in a timely fashion. Reasons given included: they didn’t like the particular student, the university made money on penalty fees and “emergency loans,” and they enjoyed the power of being able to wreak havoc in the lives of students they considered “entitled.” This occurred at one of the largest universities in Boston. I was appalled.

There were also genuinely caring F.A. staff persons who enjoyed assisting students. They were overshadowed by those who gleefully engaged in malicious practices. Navigating the world of financial aid is tricky enough without having people, who are paid to help students, deliberately sabotage the process.

When dealing with financial aid workers, try to remember, they’re people too. Don’t take an attitude with them (because they control access to the purse strings) and adhere to the deadlines. If you don’t understand the forms, schedule an appointment with them long before the deadline date and have them explain it to you. It’s their job and one of the reasons universities and colleges charge such outrageous tuition. Final bit of advice: Avoid the sharks (word gets around who to avoid on campus) and find yourself a sherpa.

Be sure to check out 401Kid’s College Financial Aid Guide.

Written by: Dr. Tara J. Palmatier

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Those of you who are homeowners are familiar with the term “buyer’s remorse.” That resounding pang of anxiety you experience as you sign the $150,000 mortgage and wonder, “What if something happens to me? What if I lose my job? What will happen?”

Buyer’s remorse is applicable to all big ticket purchases, including a college education. Although, most people don’t yet think of the expense of a college degree in this way; I predict it won’t be much longer before they do. On average, students today spend anywhere between $75,000 and $150,000 on a Bachelors degree (we’re not even going to mention grad school).

At some point, parents and students should ask themselves similar questions: “Will I be able to find a good paying job? How long will it take me to pay my loans? How long will it take me to pay my loans once I figure in living expenses? What are the projected earnings from my chosen profession and how does that affect the time it will take to pay my loans? What about interest rates?”

Hindsight is 20/20. There’s much I know now I wish I’d known when signing my loans without so much as blinking an eye a decade ago. Many are related to the questions above and impact my present quality of life. Everyone’s entitled to a college education, but at what cost? Insurmountable debt? I think I was one of the few individuals who actually hoped computer systems would crash during the Y2K hysteria. I particularly hoped the data base containing my student loan records would crash into a smoldering heap; no such luck.

Traditionally, a college education was the means to securing a better life for oneself. Just talk to some recent and not so recent grads about the quality of their lives once deferment days are a bygone halcyon memory. If your job is paying you $37,000/year before taxes, factor in living expenses and the minimum monthly payment you’re capable of making to a lender, does that seem better than a debt free life? Forget about owning a home and making a mortgage payment on top of it. Not to mention, many of today’s students are in extreme credit card debt by the time they graduate. Factor this into student loan debt and it’s enough to give anyone pause.

I’m not suggesting people shouldn’t attend college. I’m explicitly stating the system by which people save, plan and pay for college needs to dramatically change. I’m disgusted by what most institutions of higher learning have become: BIG BUSINESS. The selection of major and career development needs to be considered in conjunction with the cost and payment of education. Ideally, one should be able to pursue a field of interest, but what if that field of interest won’t afford you the ability to pay off student loans and live comfortably?

Guidance counselors, student advisers, financial advisers and financial aide officers need to have a working knowledge of these issues. The playing field has changed dramatically from just 15 years ago. It’s wonderful an organization like 401Kid exists to help families facing these issues. I strongly encourage you to do your homework before signing on the dotted line and ask yourself, “Is it worth it?”

Written by: Dr. Tara J. Palmatier

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As we previously noted in ‘Be a GREAT high school student: The best strategy for lowering higher education costs, Ivy League insitutions continue replace grant aid for loans for Low-Income Students’. The latest Ivy to do so is Columbia University.

Columbia announced today that it will replace loans with grants for undergraduates from families that earn less than $50,000 a year, beginning with the academic year 2007-08. Other Ivy League universities that have replaced loans with grants for low-income students in recent years include Harvard, Penn, Princeton and Yale. Stanford also implemented a similar policy.

Lee C. Bollinger, Columbia’s president, said in a statement, “While full tuition and fees only cover about half the real cost of providing this kind of excellent academic experience, we understand that the price remains dauntingly high to most families.” Columbia officials said that even though the campus already has the most socio-economically diverse student body in the Ivy League, the move to replace loans with grants for low-income students will enhance that diversity further.

Want a great education at no or little cost, be a GREAT student. Get admitted to schools like the ones above which are committed to satisfying 100% of financial need with GRANTS. Even for families with incomes great than $50,000, academic achievement will lead to more mert aid irrespective of financial need. Plus, you will have more options and schools from which to choose.

Should students and their families still save? ABSOLUTELY! Savings is a backup for not gaining admissions into these schools. Further, tax free withdrawls are available when a beneficiary earns a scholarship. Finally, The beneficiary can be changed to another family member or the savings can be applied to graduate school.

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If Congress approves President George W. Bush’s 2007 budget proposal, approximately 3,100 undergraduate and graduate students at Cornell – and about 62,000 college students in the state of New York – will lose thousands of dollars in federally funded student loans.

The budget calls for the elimination of Perkins loans, which annually supply up to $4,000 for undergraduate and $6,000 for graduate students from lower-income families. Perkins loans have a set interest rate of five percent, which does not accumulate while students are in school; the program operates through institutional revolving funds. College financial aid offices determine who is eligible to receive the loan and calculate the amount on an individual basis.

The proposal also calls for the freezing of Pell Grants at $4,050 for the fifth consecutive year. Pell Grants are also given to lower-income students.

Cornell distributes $8.9 million in Perkins loans per year to 2,800 undergraduate and 300 graduate students, according to Thomas Keane, director of financial aid for scholarships and policy analysis.

”If the program were to be eliminated completely, we would have almost a $9 million gap in our financial aid programs,” Keane said. “We would have to identify another loan program to help fill the gap. Cornell does not have a $9 million program poised to take over.”

Keane said that until this academic year, Cornell annually received $700,000 in Federal Capital Contribution funds to help finance the program. While not a sizeable fraction of the University’s total funding amount, its withdrawal still “meant a hit to the program.”

Now, money will be even tighter.

Most likely, Cornell will encourage students to take out loans from private lenders, Keane said. But, he added, the interest rate runs higher on such loans and would build up while students are still in school.

Moreover, Perkins loans can be forgiven if the borrower enters a public service profession; private loans would have no such provision.

In 2005-2006, tuition increased at an average rate of 7.1 percent for public institutions, where the average cost is $12,000, and 5.9 percent at private ones, where the average cost is $29,000.

Such tuition hikes have occurred in the face of Congress’s recent Budget Reconciliation Bill, which will raise interest rates for Stafford loans from 4.7 percent to 6.5 percent starting July 1^st and for the Parent Loans for Undergraduate Student (PLUS) program from 6.1 percent to 8.5 percent.

The rising premium on a college education and tuition increases suggest that more and more students will be relying on student loans. Federal education loans comprise almost half of student aid.

Keane jettisoned the notion that such budget cuts would affect the number of students who apply to Cornell.

”[But] I think it will affect people’s decision to come,” he said.

Keane felt that the elimination of Perkins loans would have a weightier impact than the interest rate increases for Stafford and PLUS loans.

Given the hefty cost of attending Cornell, a few thousand dollars seems almost paltry. Students at Cornell’s endowed colleges pay $31,300, New York residents in Cornell’s contract colleges pay $17,200,and out-of-state students in contract colleges pay between $29,000 and $30,200, depending on their year.

Yet the amount of money offered through a Perkins loan can mean the difference between working long hours at a campus job versus devoting more time to schoolwork and other activities that enhance students’ college experience, according to Keane.

”Every little bit helps for me,” said Diane Embrey ”˜07, who receives an annual Perkins loan of $1,350.

Embrey, who is from Maryland, could have attended the University of Maryland for free through a number of state scholarships. She said she was able to attend Cornell because her financial aid package made it feasible.

”I know people who take it week by week here,” said Tim Lim ”˜06, president of the Student Assembly. “Four thousand dollars may not sound like a lot but I know people who pretty much need every bit of assistance they can get ? when you cut programs like that you’re sending the wrong message

Lim felt that the elimination of Perkins loans could preclude some students from aiming for the best education possible.

In other words, financial constraints resulting from future students resorting to higher-interest private loans would limit their options for college.

”At this point, there are higher priorities on the national agenda, and you have to make cuts somewhere,” said Paul Ibrahim ”˜06, president of the College Republicans and Sun columnist.

Ibrahim does not believe that the higher education cuts would have a highly negative impact.

”The government is not the full source of money for these students; there are other sources they can draw on for education?it would be nice [to keep Perkins loans] but it’s not the government’s job to ensure that. Education is still a market, and the better the product, the more you have to pay,” said Ibrahim.

Senator Charles Schumer (D-N.Y.) denounced the president’s initiatives as “the largest cuts to higher education in our history” and promised to attempt restoration of the funding, in a press release on his website.

According to a study by Schumer, 8,827 students at New York’s Southern Tier colleges – which include Cornell University and Ithaca College – took out Perkins loans in the 2003-2004 school year. Cornell had the most Perkins loans recipients. Out of 21,852 Pell grant recipients in the Southern Tier, 2,340 – the third highest number – attended Cornell.

New York has 268 higher education institutions, 6.5 percent of the nation’s total.

Cornell Daily Sun: Proposed Budget Cuts Student Loan Funds
By Maya Rao – Sun Staff Writer

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