Last week, Education Finance Partners, the fourth-largest private lender, announced that they are getting out of the business of student loans. Yet another symptom of the last-year's government assault on this industry.
I just stumbled across a good audio piece from the the National Public Radio (NPR). The subject is one that I speak to frequently with parents: the most selective colleges are flooded with applicants and the decision process is becoming more and more subjective.
The issue is this: with the number of high school graduates peaking this year or next (estimates vary) at 2.9 million students, the acceptance rates at the elite colleges (note that I did not say, "best colleges") is at all-time lows. This sellers' market is causing all kinds of 2nd and 3rd order effects, such as students applying for 20 or more schools. That in turn causes the school admissions officers to look beyond the numbers and the resume to such things as demonstrated leadership, cultural development and extraordinary accomplishments.
This NPR audio file is a little over 4 minutes long. It's well worth the time. Enjoy. And send me your comments.
As Cuts in Subsidies to Banks Eat Into Benefits for Students, Schools Start
to Migrate to Federal Direct Loan Program
Whoa. Student loans are SO out of control... The federal subsidies are gone. Thank you Attorney General Andrew M. Cuomo. In the interest of "cleaning up" the world of greedy private lenders, he killed them off. Now, the federal government will have to fill the void. More government control, more government spending.
This is a huge win for Senator Kennedy, Schummer, and others who want more government control of... just about everything. Yuck. Double yuck. This is extremely alarming.
Those who know me understand my disgust towards the Attorney General of New York and the havoc his campaign of political correctness towards commercial student loan companies and their business practices with college financial aid officers. It has essentially destroyed the industry, making it harder for families to obtain funding for colleges with low-cost loans.
Now the government will have to step in to fill the void with - you guessed it - federal tax dollars. Another subtle way to get more and more government in our lives, in my opinion.
lenders are backing out of the federal program, the result of the
credit crunch and government subsidy cuts that have made the business
of lending to students increasingly unprofitable," The Wall Street Journal
"Big banks, such as Citigroup Inc. and Wells Fargo & Co.,
might be reluctant to pick up the slack as other lenders exit, because
they are already stretched by the credit crisis. The government,
already a big student lender, could step in to shore up the system,
although that would be complicated.
For Wells Fargo, "student loans are
not a profit-making business," said Michael DeVito, executive vice
president of education financial services for Wells Fargo, which ranks
fourth in annual origination. "We are here to meet the demand and the
need of our customers," he added, but "in terms of trying to use this
as an opportunity to take market share, that's not our strategy."
Citigroup, which is the nation's second-largest student lender, also
has no plans to aggressively expand its current FFEL lending
operations, said a person familiar with the situation, noting the weak markets for securing the loans.
Cleveland's KeyCorp, a top-50 lender, says it
isn't looking to grow into "new places we've never been before," says
Richard Vonk, president of Key Education Resources."
Whoa. Seems like class warfare is alive and well in our country. Maybe it's because we're in the political season. This article is about the Federal need-based financial aid that is distributed to college-bound families and how the complicated process, driven by the filing of the Free Application for Federal Student Aid (FAFSA), favors the "rich."
The author is focused on how families that own a small business, and are aware of how the financial aid process works, maximize their need-based aid by making certain that their assets are in their small business of under 100 employees. With the help of a financial consultant in Pennsylvania, the author implies that this "loophole" is somehow a travesty, that it is yet another example of how the "rich" beat the system. He even states that the exemption is "too large."
What the author doesn't include in the article is that the need-based aid awarded is a function of both assets and income. And it's harder to hide income. You can't leave income in S corporation, a partnership or a sole proprietorship. And if you do that in a C corporation, the IRS will come knocking on your door.
Small business people work extremely hard to build their businesses. They don't have the security of a paycheck - they have the stress of knowing that if they don't produce every day, they won't be putting food on their table. It's absurd to suggest that small business owners as a monolithic group are rich. Surely some are doing well. More often, they are just getting by.
But the article misses a bigger point: federal need-based financial aid is not very lucrative. It consists of Loans (Stafford and PLUS for parents), works study (part-time work on campus), and small grants. Grants are terrific, but loans? Loans are useful, but they are not free money - you have to pay them back. The grants are allocated to those with very low incomes - very low incomes.
Merit-based financial aid is the plum worth targeting for families - all families, with good students. I'll describe this in more detail in another post.
Smart people learn the rules of the game and plan accordingly. They make decisions that maximize their economic position within the rules that are written. I'd say the rules make good sense for today's small business owners. But hey, I am a capitalist.
Here is a good article in USA Today yesterday that reinforces an important fact about preparing for college: families shouldn't ignore the potential for significant financial aid from the colleges they like.
But if you know me, you've heard me say this many times. Families in the Silicon Valley area frequently assume that they make too much money to obtain financial aid. And that assumption gets reinforced at the soccer fields and high school events when parents talk among each other, sharing tidbits of "facts" they have heard or read. And that is a real shame.
The truth is, the financial aid system is WAY too complex. But hey, that's the government and the educational bureaucracies that have grown through the years. They must get lots of courses on form design in their education. Their forms are amazingly complicated. Maybe they got their training at the IRS!
This article in USA Today does a good job describing some of the critical reasons to fill out the financial aid forms. The ground is shifting at the elite colleges and many are now using their large endowments to help middle-income families afford their schools. In recent years, with commercial loans relatively cheap and very abundant from many private lenders, the schools let the families take on huge debt. But when the Attorney General of New York turned the private lending industry upside down in 2007, the money became harder to find and more expensive. The schools quickly realized that something had to be done. And now they are doing it.
Deadlines are looming, by the way. Parents of seniors have to get moving fast. For the public California colleges, the deadline that is most common is March 2. For many of the private schools, the deadlines are as early as last night (USC), February 1st (Santa Clara and many others), February 15th (Stanford and others). The school's financial aid websites provide the dates due, so be sure to visit and take note!
Here are some truths and myths taken from the book, The Truth About Getting In, by Katherine Cohen:
MYTH: A straight-A student should have no trouble getting a 1600 on the SAT I.
TRUTH: Your classroom ability does not necessarily correlate to your standardized test-taking ability. It is helpful to prepare for the SAT I by taking practice tests eight to ten times prior to the actual test date.
MYTH: You should keep preparing for and keep tracking the SAT I until you are happy with your score.
TRUTH: Studies have shown that a student's SAT I scores tend to plateau after the third time, so there is little reason to go beyond that. In addition, too many attempts at the SAT I will look desperate to an admissions board.
MYTH: A high score on the SAT I guarantees you a spot in one of the nation's top colleges.
TRUTH: There are no guarantees when it comes to college admissions; and a high SAT I score is NOT your ticket in. Your transcript is more important than your SAT I score. The truth is, your application is comprised of both your academic and personal records, and your SAT I score is just one piece of the whole pie.
MYTH: Even if a school does not require the SAT I, you should take it anyway, as a sign that you are committed to learning
TRUTH: If a school doesn't require the SAT I, only send your scores if they are excellent and/or better than the grades on your transcript would predict.
MYTH: Take as many SAT II exams as possible-it's the quantity of your test results that counts.
TRUTH: Take the required SAT II exams and then only take any extra exams in those areas in which you excel. In addition, you should take the SAT II's right after you've completed course work in that subject. You can repeat these tests using score choice, and choose your best score in these subjects to send to the colleges of our choice.
It is important to mention the danger of Senioritis as we approach the final semester of the senior year. Many students think they can neglect their studies as their high school years come to an end and they start to embark on their college years.
It is important to note that colleges may make admission dependent on continued academic performance. Many look at senior-year course loads and grades to be sure the student is capable of performing college level work. For some ideas of how to combat senioritis take a look at this interesting article in Time Magazine on the subject.