A Dream Deferred...at What Price?

(NOTE: Although this blog is lengthy, it is worth reading in its entirety!)

If you’re like most people out there, you’ve got to be tired of hearing about how bad the economy is. The rising cost of gas and home heating oil as well as increases in food, air fare and goods is through the roof. There are few places one can go without seeing evidence of increasing costs. The other day I walked into a pizza parlor that had a sign apologizing up front for the increased cost of pizza due to increases in the price of flour. That 2.00 dollar slice now cost 3.00 dollars. The next thing you know, a White Castle slider would cost as much as a Big Mac. (And I remember when they were 12 cents.)

Aside from the rising cost of fast food, which I am reminded is not good for me anyway, for many of you the most obvious increase has been in college tuition. It’s bad enough that the cost of a college education has gone up, but when students are unable to obtain loans to make up the difference, there is a big problem. While many students over the years have accepted the fact that college is expensive and will require more family contributions and the added indebtedness caused by federal and private loans, being turned down for a loan greatly reduces one’s options for affording college. Now when you consider the fact that private loans have become the middle class solution for financing a private college education, any change in the availability of loans has the potential to affect millions of college bound students this Fall. Each day I talk with undergrads, adults returning to school, parents and med students who report no longer qualifying for loans although they were able to obtain them in previous years. Many students enrolled in college programs expecting to finance their education by taking loans. Many now find themselves without adequate funding to enroll in school this year. What happens to their dreams? They are further faced with a predicament: dropping out of school means immediate repayment of loans after the 6 month grace period. Taking loans intending to repay them after earning a degree is much easier than having to do so without a degree.

So what happened? How did we get to this place? Private loans have always been a higher risk for lenders. Offering loans to college students with little to no credit history based on the assumption that completion of a college degree will enable them to pay off that debt, while not flawed in thinking, is no guarantee. Unlike the Stafford and Direct loan programs guaranteed by the federal government, private loans enjoy no such guarantee. These loans are financed by banks or private loan originators in ways similar to mortgage financing. As the credit markets collapsed this Spring in response to increasing foreclosures in the sub prime market, other credit markets were inadvertently affected, driving interest rates through the roof, scaring off investors on Wall Street and bankrupting lenders who lost sources for funding loans. In addition, consolidation loans were no longer profitable to lenders and, as a result, became unavailable this Spring. Decreased profits on federally guaranteed loans as well as no liquidity in the market further reduced the number of lenders that offered loans and significantly reduced if not eliminated the borrower benefits offered to students. As a result, many banks, credit unions, private and non profit lenders have either left the business or seriously curtailed their loan offerings The lenders who remained in the space have had to become more selective by raising credit criteria to reduce risk and maximize profit. Many lenders have chosen to focus their marketing on private and large state universities rather than community colleges, proprietary schools as well as those schools with high cohort default rates. (The rate of default on college loans amongst graduate or attendees of a particular school) And if you happen to be a student attending one of those schools, a good credit rating may not help if your school is not on the approved list.

Now try explaining this to a third year med student or first year college freshman. It is a tough job! I have spent over 30 years encouraging high school students, rich, middle class and poor to pursue their dreams, to plan on attending college and now I fear that the poor kids and many of the middle class kids will think that a college education is beyond their reach. It seems like we’re undoing all of the progress gained in the last 50 years.

At one time, it was the richest and smartest individuals who could plan on attending school. It wasn’t until the late forties and fifties that a new generation of people were able to attend school on the GI Bill. The sixties added to these numbers with a growth in state funded college programs making college affordable to middle class and working students. In NYC, a student could attend CUNY for free. Whether you saw college as a means of avoiding the draft or bettering your chances in life, college was a bargain that all but the very poor were taking advantage of. As federal grants like the BEOG (what we now call PELL) and DSL loans came on the scene, the dream of a college education was one that could be shared by large numbers of students like myself entering college as first generations in the 70’s.

Now fast forward to the present. The average cost of public college can be as much as 25,000 dollars for tuition, room and board. At a private school, the cost of tuition room and board can be in excess of 40,000 dollars. While the PELL grant and Federal loan programs are still available, the average grant award and maximum loan amount is not sufficient to cover the cost of a college education. This is where private loans have played the role in bridging the gap in funding. Unless alternative resources are found to fund loans, students who rely on these loans will have few alternatives. These alternatives may not be possible: Reduce college tuition, (Highly unlikely given the growth of tuition in both public and private colleges); Find alternative ways of paying for school; or Change expectations about college and how one will obtain a degree.

In response to high costs, many students may consider enrolling in community colleges or seek admission to technical, vocational and on line programs that offer certificate and associate degree programs which can be completed in a shorter period of time. While this may be a good alternative, there are pros and cons to do this. Community colleges are inexpensive alternatives for career training and associate degrees. Unfortunately, many of these schools still struggle for recognition of their programs, acceptance of their degrees and courses for transfer credit for their graduates. In addition, these schools will need more funding to accommodate the growing number of applicants. This may inadvertently affect those students who may find themselves locked out of school because the school is taking the more academically prepared students, leaving less room for less competitive students.

At the same time, many of the “For Profit” schools that offer specific career prep programs charge tuition that is significantly higher than community colleges. These schools rely heavily on federal and private loans to finance their high cost. These schools have fought for recognition and accreditation by the state and DOE in order to qualify for federal education programs. Many of these schools have not been approved to participate in the federal or private loan programs because of a lack of accreditation or higher cohort default rates. Interestingly, the groups most vocal in voicing concern about the loan unavailability are community colleges and proprietary schools who are the most affected by the situation.

It is hard to convince a poor student that college is affordable when they can’t get a loan to meet the costs. Why bother? The problem is that not having a college degree in 2008 makes upward mobility far less likely than in 1960. The job landscape looked very different back then. Unions were strong, a person could feel secure in having some measure of job security and home ownership was possible for both middle and working class families. This is no longer the case. Today we are faced with an economy that has seen lay offs in all sectors of business, retail, finance, manufacturing, automobiles and service. Plant closings have devastated many towns and cities across the nation, outsourcing the remaining jobs to workers in China, India and the Philippines. The jobs left for unskilled workers may offer sub standard wages, little to no benefits, and provide few opportunity for advancement and upward mobility. In other words, if you’re lucky enough to land that job rounding up carts at Wal-Mart, that may be the best you can do without having the benefit of additional skills and training. And for the immigrant who comes to the US without the benefit of education, knowledge of the language or the legal status, the future is even gloomier. Of course there are those politicians who argue that reducing incentives to come to the US is a good thing, but the fact is that many of the people who come here come from situations so bad that leaving their home is incentive enough.

I hate to be all doom and gloom, but I also don‘t believe in fairy tales and to say that this problem will be fixed overnight is a lie. While fixing the economy is something we all have little control over, there are ways you can deal with the current situation.

First of all, “Don’t Give Up on your Dreams!” Most of us can point to having ancestors that had to overcome tremendous odds to succeed in life. Compared to the challenges they faced, finding a way to pay for college is easy. It means being creative, working harder and maybe having to sacrifice, but then we tend to appreciate those things we work harder to obtain. The fact is that eventually, the economy will correct itself and you want to be prepared to take advantage of the opportunities that will come your way. Having a college degree will be very important.

Second, there are many schools out there that you can afford if you do your homework. Attending a public college in the state where you reside, commuting to school or attending part time can all significantly lower tuition costs. Applying for financial aid early, exhausting all forms of grants and loans and applying for as many scholarships as possible goes a long way in reducing costs to you. If you are an adult returning to school, make sure that you take advantage of employee reimbursement programs to help pay for school.

If you are in high school and have a chance to take AP courses, you can earn college credits that will ultimately save you money and time in school. If you are an adult starting college, you may be able to earn college credit by taking the CLEP exam in your state.

Parents should start saving early for college and take advantage of tax savings and incentives by participating in 529 plans for college. Enlist the support of grandparents, aunts, uncles and god parents to help put money away for college. Start looking for scholarships and assistance early so that you can offer your child as much support as possible. Consult with financial advisors, personal accountants, and financial aid specialists to develop strategies for paying for college.

Be smart when researching college. Do advance planning for careers and college majors. Many students change their major several times. Unfortunately, changing majors may require additional course requirements, so plan carefully.

Focus on developing strong basic skills in math, reading and writing while in high school. Not only will this contribute to better grades, but you will be better prepared to handle college courses. You don’t want to spend 5 years in college because you have to take remedial courses in your freshman year. Those courses are billed at the college rate but often don’t count towards the amount of credits you need for a degree. Take challenging courses in high school so that you will be ready for college level work from the first day of freshman year.

Research loan forgiveness programs that help you pay down college loans by working in a particular field. Take advantage of internships and cooperative educational programs that provide opportunity to gain valuable on the job experience along with college credit and a salary or stipend. Look at all of the on campus opportunities to save on tuition, room and board. If you go out of state, stay with a relative to save on room and board or look into cheaper off campus housing. Take a job as a resident advisor or campus security to save on costs.

Consider community college for the first 2 years. Rather than taking on the cost of a four year college, limit costs by completing the first 2 years at the local community college and then transfer to the school of your choice. Another option is to go to school part time and work full or part time to pay for school. It takes longer but taking courses over the summer can accelerate the process. Although it is tougher to go to school and work, if you are motivated and disciplined enough, part time college can be a good choice. Often, adults returning to school use this option because they have bills to pay and families to support.

In the final analysis, the road to obtaining your dreams, although longer and rockier, may hold just as much promise and reward for you. And nothing can replace the confidence you feel in taking charge of your life and going after your dreams. You may not have much control over the cost of a gallon of gas or a slice of pizza, but you do have control over your future…so go after it and let the politicians and banks figure out the rest.

Donna’s Monthly to Do List - April

Seniors:

• You should hear from any other colleges that you have applied to.
• Visit Open houses, alumni receptions and April Hosting programs for new admits.
• Meet with Financial Aid if you have additional concerns about your financial aid offer.
• Discuss and compare the various offers with your parents

Financial Aid Woes Revisited A Year Later

It doesn’t seem that long ago that I wrote about the lender scandal and how it affected the public and loans. Now it is a year later and although we read less in the press about the scandal, concern about the current credit crisis, difficulties on Wall Street and the looming recession have many parents of college bound students worried about how college financing is affected. Of course it doesn’t help when we read in the paper about lenders leaving the Federal Family Education Loan Program (FFELP) and the tightening of credit in response to the sub prime debacle. But what does it mean for the average person out there?

I believe that there are both long term and short term consequences to be considered which will ultimately change the landscape in terms of college finance. Although these changes will force a change in the way we do business, it isn’t a call for panic. The simple answer to many parents’ concerns about the availability of loans is that federally subsidized loans offered within the Direct Lending and FFELP Programs will continue to be available to students. These are the loans you know as Stafford, Perkins and PLUS loans. Although we’ve heard about a number of lenders leaving the market, there are over a thousand lenders - banks, origination companies, and credit unions still offering these loans. In addition, many of these companies also offer private loans, which many feel will become more expensive.

Recent changes enacted by Congress reduced the subsidies lenders were receiving. In addition, the cost of participating in the FFELP program increased and significantly impacted on the profit margins. As a result, most lenders, in particular small lenders, have not been able to remain competitive in this market because they have had to pass on to the consumer fees that at one point they covered. Because many lenders have dropped out in response, the competition is shrinking and unfortunately, we know that it is competition which keeps prices low. When that goes away, the consumer suffers. While many people point to the Direct Lending Program as a solution, they forget that it was the option of more choice in lenders, improved service and competition by reducing or offering no fees that drove many schools to leave Direct Lending and participate in FFELP. (At the present time, 80% of the colleges and universities participate in the FFELP program.) This problem is further exacerbated by threats to financing these loans caused by a “frozen” auction rate securities system. With a disruption in this process, lenders find themselves unable to sell loans and therefore cannot finance new loans. While the larger banks have the ability to carry these loans on their books while financing new loans, smaller lenders who rely on the sale of their loans have found few takers in today’s market, hence putting many companies out of business. While this largely affects the lending industry, as discussed earlier, reducing competition leaves the public with limited choice in what was once a highly competitive market.

On the private loan side, the tightening of credit caused by the failure in the sub prime market has driven underwriters to tighten credit requirements and look more closely at schools that have struggled with higher cohort default rates. This affects many technical and proprietary schools as well as some community colleges. For individuals with low credit scores or students enrolled in the aforementioned schools, obtaining private loans will be more difficult.

We have also read about the continued increase in college tuition and the number of private schools that have announced changes in their financial aid offerings including the reduction or elimination of student loans. While this is a wonderful effort on their part, the number of colleges that have been able to do so is small and impacts a small percentage of students. For most students, there is little to no relief promised at the present time, other than threats to publish a list of the highest priced schools. Interestingly, applications and enrollment in these schools have not decreased in spite of this.

I advise parents to use this time to think strategically about college, the cost of college and the debt incurred. It is clear to me that in general, college tuition is going to continue to grow. The demand for an educated, highly trained workforce that will enable the US to maintain its economic advantage is critical. Therefore, a college education is requisite for most if not all young adults. With the demand for enrollment at state public colleges/universities increasing, tuition will continue to climb in order to accommodate growing numbers of students enrolling, as well as the updating and funding of new classroom and research facilities, and attracting and hiring faculty.

To meet this cost, the public must become savvy and strategic in looking at ways to finance college. There are several approaches that one can take. First, more and more students are saving on tuition by completing the first two years of their education in community colleges. The cost of tuition is significantly lower at these schools and allows them to save on the overall cost of a Bachelors Degree. This is especially appealing to students who may need to take remedial courses in their first term before enrolling in college level, credit bearing courses.

Some students are looking at part time or full time work along with college enrollment. This enables them to “pay as they go”, thereby reducing or eliminating college debt. While there are strong financial reasons for doing this, the evidence indicates that students doing this are less likely to complete their education on time, have more problems academically and become less involved in campus life.

Many people are concerned about increasing debt that many students incur to attend undergraduate and graduate school, often extending their payments out to 20 years post graduation. The public may need to start looking at ways of either reducing the amount they borrow or looking at ways they can shorten repayment of that debt. Congress has discussed possible ways of addressing this and has promised to consider loan forgiveness and income based repayment programs.

The one factor we are all faced with is how quickly the economic landscape can change and how it impacts on our daily lives. It also affects our decision making and is at the core of our values. In the coming months with a recession looming and fear that many of us can no longer take for granted the jobs or investment returns we enjoyed over the past years, we will all have to make tough decisions. The decision to go to college is an easy one; the way to pay for it will remain an uncertainty.

Donna’s Monthly to Do List - March

Seniors:

• Other than making sure you’ve submitted grant and financial aid forms before the deadlines, sit back and relax, You’re in the final stretch!

Juniors:

• You should be compiling a list of schools that you will visit over the summer as well as send for applications.
• Plan to attend spring college fairs
• Meet with your guidance counselor to discuss options
• Get a copy of your transcript to review your grades and course work

Donna’s Monthly to Do List - February

Seniors:

• Make sure that you have submitted appropriate forms for state grants, pay attention to deadlines

Juniors:

• Start researching scholarships
• Register for the SAT and any SAT II’s
• Start researching colleges
• Register for an SAT prep courseResearch summer academic programs

The Competition for College: Out of Control

Just a few weeks ago I was participating in a college fair sponsored by a large company in New York. I was scheduled to speak to parents about “Applying to College” and had been told that the audience would consist of parents with college bound students. Following the session, I stayed around to answer the questions of many of the participants. One parent came up to me and apologized for monopolizing my time, but she had real concerns and wanted to ask me about what plans she should be making for her 3 year old.

This came to me as no surprise because over the last few years I have found a growing number of parents of elementary age children seeking information and suggestions on how to help their child prepare for college. Anecdotes abound about parents who race to enroll their kids on waiting lists for prestigious private schools months after the child’s birth. Parents compare the most effective strategies for giving their child an advantage and some have gone so far as to hold their child back from entering kindergarten to ensure this. They explain that a more mentally and physically developed child can have an advantage not only in the classroom, but also in athletic competition. If Junior is competing with other 1st graders in soccer, but is older, he has an advantage that wouldn’t be there if he was competing against 2nd graders. I have had parents describe in detail the extensive research they put into college athletic programs and scholarships to determine where the funding is and the sports where they believe their child will have a better chance of competing. Football is out while fencing is in. Even the requisite piano lesson now includes performances not just at the local nursing home, but at Carnegie Hall to underscore “real” talent. Dance classes abound with ambitious stage mothers who all insist their child must be on point by age 7. The under riding drive to ensure that one’s child stands out seems to be fueled by parents’ anxiety about the growing competition for college admissions and scholarships and a fear that their children will be left out or in some way be disadvantaged by programs that they believe favor other kids. And as their fears heighten, the steps parents will take to ensure their child’s place grows out of control.

With no relief in sight, parents struggle to keep up with the Jones, Johnsons and Smiths. Beleaguered parents find their weekday afternoons spent chauffeuring their children from soccer practice, Girl Scouts, Pee Wee football, dance class, piano lessons and a variety of enrichment programs, before returning home to wolf down dinner and finish homework. Everyone has a tutor or is enrolled in some type of learning center for homework help. Time spent watching Saturday morning cartoons has been supplanted by a schedule of Math and Science classes, athletic practice and competitions and, if you’re lucky, a trip to the museum or hands on science exhibit.

Now don’t get me wrong, many of these activities are important. They teach our children team work, reinforcing the values of hard work and sacrifice, and help our children build strong bodies and minds. The problem is that these activities are not prompted by interest or curiosity on the child’s part, but rather based on parents’ notions of what their child needs to be successful. The national curiosity and interest of childhood is not allowed to unfold based on the individual child’s development, but rather subject to the aspirations and expectations of the parent. Every minute of every day is scheduled and planned, to the extent that most children find little time to be a kid. They fail to learn how to amuse themselves outside of organized activities and often burn out before they reach adolescence. For every Tiger Wood, Mary Lou Retton or David Beckham, there are hundreds of kids who suffer stress related injuries due to athletics started too early. And while the stage parent may be ostracized for seeking personal glory in living vicariously through their child, we are okay with justifying that same behavior as it applies to college.

The problem does not just manifest itself in athletics and extracurricular activities. The community service requirement many schools have adopted to encourage students to look beyond their own need often ends up becoming another strategy for padding resumes. Many parents actively research unique and high profile opportunities that will make their child stand out. Very often, the work is completed by the parent who “steps in” to help out when the student finds him/herself overcommitted. Parents will often use their influence to convince others to arrange a position or vouch for service hours not completed. In effect, they are cheating, but all is fair in love and academics, right? The defending argument is, “It looks good on the college application and everyone else is doing it and it’s not like a real course that they are cheating on…” But if we compare that child to another child who takes time each week to help out at a local soup kitchen or clean up a park or visit the elderly, isn’t it cheating?

And the competition doesn’t end when Junior grows up. I know several parents in my own social circle who regularly respond to the inquiry, “How are you doing?” with a long list of each adult child’s accomplishments. They recount efforts to obtain valued internships, pass along resumes and use influence to find highly valued job and training opportunities and then brag that this was accomplished solely by their child’s own efforts. I am not arguing here that this is inherently unfair, after all nepotism has been around since...forever but lets not kid ourselves into believing that there is a level playing field for all. Some of the harshest critics of Affirmative Action will staunchly defend college legacy preferences. Is that a true meritocracy? Aside from the fact that this makes for rather boring cocktail conversations, the real problem is that the competition for college has gone off the deep end. Parents eager to keep up with the competition are doling out thousands and thousands of dollars to engage “experts” who guarantee admission to college. The degree that this assistance can go to ranges from strategizing about which colleges are good matches to assisting in the completion of application materials including suggesting topics, editing grammar and writing content for college essays. Again, advising a student about college may be perfectly legal, but providing content and assistance in the writing of a college essay is paramount to cheating when you think of what is at stake - scholarship dollars and college admission. And for many parents, “The ends justifies the means”…after all many of us have come to believe that getting into the right college is the most important goal to be achieved.

This value or lack thereof has serious ramifications for how our children approach competition and in part has contributed to grade inflation, as well as a rise in cheating and plagiarism at the high school and college level. Parents confront teachers and professors if their children don’t receive high grades and the standards for excellence often vary depending on who you are and what you look like. Parents not only flex their weight in the classroom and guidance office but in Admissions as well. Many parents see alumni involvement and financial contributions to their alma mater as a way of insuring a place for their child when they apply. Now don’t get me wrong, many alumni start out donating their time and money generously to the college out of loyalty and high regard for their education, but for some, it is part of a long term strategy to ensure a place for their child. This is especially evident when that same generosity stops if the child is not admitted.

I am encouraged when I speak with parents who elect to not join in the competition, although they worry about whether their noble choices will prove harmful when it is time for their child to go to college. As I return to college for Alumni days and reunions, I find two growing camps of alumni - those with legacy admits and those whose kids have gone elsewhere. “Poor So and So’s child didn’t quite make the grade.” And it’s hard not to wonder whether being the rebel is somehow a measure of having failed as a parent. Is that what it means to be successful? Getting your child into the right school, gaining the best job, making the most money? I think as parents we need to take a close look at what we want for our children. In the crazy world we live in, helping your child to become an adult who is healthy, honest, responsible, happy, educated, and free of life-crippling addictions to alcohol and drugs, seems like a lot. Must they be highly educated and wealthy too?

In the coming months it is not just the high school senior who sits with baited breath waiting for that letter to come from the college of choice: A nice fat envelope that says “Mom and Dad, you did a great job!” For parents, it will be a couple of tough months until the answer comes. Often it is the parent nervously watching the mail or checking on line for information on acceptance and rejection rates.
Even scarier is how those same parents will deal with their disappointment and manage their child’s feelings of rejection if the offer letter doesn’t come.

I suggest that parents use this time to really figure out what they believe in, whether they have communicated those beliefs to their child and will those values be helpful to them as they advance through life. If the message has always been about success, what will you say when they finally face failure? If you’ve told them that winning trumps everything else, what laws or ethics will they trample later in life? And if they fail in spite of all the strings you pull, how will they approach competition in the future?

At some point, things will have to change. They have to, because the world is changing and as much as we all want to hold onto the slice of the pie that we feel entitled to, that slice is getting smaller as more people demand a space at the table. Will our kids be able to live and compete in that world? Or will they contrive new and better ways to hold onto what they believe is theirs by birthright? Maybe we should stop telling our kids that the world is their oyster. Maybe the message should be that life is tough and full of both success and failure and that they will experience both. Maybe we should also let them know that they are loved and valued for who they are and not what they become and that happiness is not contingent upon success, fame or popularity, but a state of mind that only they can define. Maybe we should start valuing all people, poor and rich, young and old, educated and illiterate and stop making distinctions among the groups. How much easier would our jobs be as parents and how much happier would our kids be. We have turned high school graduation, an achievement in its own right, into a high pressured, stressful year-long event, full of anxiety, competition and disappointment. Instead of celebrating our children’s achieving their majority, their opportunity to venture out into the world to pursue higher education or careers, we cripple them with self doubt, fear of inadequacy, and a lack of confidence to make sound decisions and take responsibility for them. They in fact are being defined by the schools they get into rather than the achievements of the last 12 years. How many of us still remember that letter saying we just weren’t smart enough to be selected? How much did that hurt? I hear that in many parents’ voices when they discuss their dreams for their child to attend the school they failed to be admitted to. A rejection letter says nothing about the student, their talents, dreams, ability or potential. At best it is a measure of how much they stood out or failed to stand out in an applicant pool the size of a small town. At worst it was an arbitrary decision based on factors beyond the student’s control. And it is a process that does not serve to build character and confidence in our children. In the coming months, as parents of seniors, juniors or younger, let’s think about the messages we send them. After all, when we buy into this competition today, we do our children a disservice in the long run.

Parents waiting to hear from college admissions offices take heart. The fact is that getting in to that one special school says little to nothing about ability or success. The fact that the competition has become a foot race between parents who can use enormous financial resources to gain an advantage is unfair. But the fact is that schools are wising up to this and beginning to scrutinize applications more. While the number of kids competing for a limited number of highly popular and selective schools continues to rise, many students are becoming savvy and opting to apply and look elsewhere and in the process discovering that there are many diamonds waiting to be discovered. Ultimately, this competition will have to burn itself out as tuitions increase and parents opt out of the competition. Ultimately those kids will graduate and have to compete in a world where connections and influence can only carry so much weight. Without the experience of sacrifice, hard work and the experience of failure and disappointment, they will be less prepared to compete for the bigger stakes.

Donna’s Monthly to Do List - January

Seniors:

• FAFSA can be submitted on line any time after January 1.
• Complete any additional financial aid applications with the colleges including the CSS profile.
• If required arrange to have first semester grade sent.