I’ll be speaking at the EASFAA conference on Tuesday, May 20, 2008 at 2:15 PM ET in the Oxford Room. We’ll be discussing how new media - blogging, podcasting, and social media - impact the way the financial aid world communicates with students and families, sharing some success stories and cautionary tales.
If you’re a Financial Aid Podcast listener attending the EASFAA conference, I look forward to seeing you there. If you saw the session of the same name at the MASFAA conference in the fall, I can promise you that this session will be substantially different, especially some of the examples.
Slides will be posted after the conference - as many of you know who attend my sessions, the slides change up to the very last minute.
Student Financial Aid News
+ Inside Higher Ed: The House of Representatives voted 256-166 Thursday to support a major expansion of education benefits provided to veterans who have served since 9/11. The measure now moves to the Senate. While support is strong in both houses — and includes some Republicans — the Bush administration has backed more modest changes, and the House measure does not have a veto-proof majority.
+ Chronicle: Dozens of institutions will be forced to pay money into their depleted federal Perkins Loan funds because they expect a shortfall in award money this year, according to a national survey of 273 colleges. The findings, to be released this morning, also depict a bleak picture for the amount of money institutions will have available to lend through Perkins Loans, as 80 percent of respondents said they expected to have about one-third less money for loans.
+ A downturn in the federal government’s contributions has helped create the shortfalls institutions are seeing, the report says. That means fewer students at some institutions will be awarded Perkins Loans, and institutions may have to turn more to institutional loans.
+ Chronicle: With only about two weeks until the start of the student-lending season, the long-awaited easing of the credit crunch may finally be arriving. Nelnet (ticker: NNI), one of the nation’s largest student-loan companies, completed on Thursday a sale of more than $1.3-billion in bonds backed by student loans.
+ The sale came one week after JPMorgan Chase & Company (ticker: JPM) reported an improvement in market pricing of student-loan debt and two weeks after the Rhode Island Student Loan Authority became the first student-loan agency since September to sell its bonds.
Scholarship Update
+ College Toolkit “What I like about my college?” Scholarship
+ College Toolkit is giving away a $1,000 scholarship to a college student. We want you to hear your thoughts about the college you attend To enter, all you need to do is select the school you are attending and provide a short review of your college or university. The award is open to anyone who will be an undergraduate college student this upcoming fall. You must be attending an accredited 2-year or 4-year college and a U.S. resident to enter. The deadline to enter is August 31, 2008
+ Details at our free college scholarship search site
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This just happened to one of our employees - Sallie Mae (ticker: SLM) called her (at work, so we all got to listen in) to tell her that they are releasing her consolidation loan (she consolidated in 2002) and she is free to consolidate elsewhere; recommending the Department of Education.
Sallie Mae appears to be asking her to be someone else’s customer.
We looked in her National Student Loan Data System (NSLDS) record, and she’s got very little accrued interest and a very low fixed rate, so chances are she’s not a “profitable” customer.
When she called the Department of Education, they confirmed that yes, they would be processing and accepting other lenders’ customers as of July 1, 2008.
Have you or anyone you know received calls or letters from Sallie Mae or other lenders, asking to part ways with you as a customer? Please let me know! FinancialAidPodcast at gmail dot com or 206-350-1208!
Updated:
I have an opinion and a theory about this. This is my opinion only (see update2 below to see why I’m wrong).
Under the new legislation recently passed, a lender could sell their loans to the Department of Education. However, this will come at a penalty. The rumor is that the Department of Education will buy loans from lenders at 97 cents on the dollar, the federal loan guarantee. This is so that the new legislation is effectively cost and risk neutral to the government. Thus, any loan sold under HR 5715 is effectively a 3% loss to the lender.
Unless…
… a lender can convince the borrower to consolidate with the Department of Education themselves.
If a borrower chooses to consolidate with the Department of Education, the lender receives 100% of the face value of the loan. Not 97%, but 100%. The lender loses the loan permanently.
Sallie Mae might be sending some of their less profitable borrowers, like my coworker, to the Department, to effectively sell the loans to the Department, but at 100% value instead of 97% value - if the borrower voluntarily consolidates their loans.
Again, just opinion and theory - I have absolutely no hard proof that this is the case or reason behind what is otherwise a very unusual communication from Sallie Mae.
If this is the case, here’s the answer to the question of what it means for you:
If you are a student who is very recently graduated, and you don’t want to be a customer of Sallie Mae, this is more or less a win. Most student loan consolidation companies are offering no benefits or few benefits, so wait until July 1, 2008 to consolidate (especially if you graduate in May/June 2008) and you’ll do okay.
If you are a student who has been repaying your loans already for several years, consolidating with the Department of Education could cause you to lose borrower benefits you have already earned. This is especially true if you consolidated with Sallie Mae in 2004 or 2005 - chances are, you have some borrower benefits and reconsolidating would terminate those.
If you are a student who is more than halfway through your loan repayment term, reconsolidating will reset the clock. Your payments would be lower afterwards, but if you were, say, 8 years into a 15 year consolidation, the clock would be reset to 15 years again.
Hat tip to Norm Huelsman for asking “which is better for students?”.
Update2: Larry Zaglaniczny of NASFAA wrote to say that HR 5715 doesn’t pan out in this case because the Department of Education doesn’t have the authority to purchase consolidation loans:
Upon a determination by the Secretary that there is an inadequate availability of loan capital to meet the demand for loans under sections 428, 428B, or 428H, whether as a result of inadequate liquidity for such loans or for other reasons, the Secretary, in consultation with the Secretary of the Treasury, is authorized to purchase, or enter into forward commitments to purchase, from any eligible lender, as defined by section 435(d)(1), loans first disbursed under sections 428, 428B, or 428H on or after October 1, 2003, and before July 1, 2009, on such terms as the Secretary, the Secretary of the Treasury, and the Director of the Office of Management and Budget jointly determine are in the best interest of the United States, except that any purchase under this section shall not result in any net cost to the Federal Government (including the cost of servicing the loans purchased), as determined jointly by the Secretary, the Secretary of the Treasury, and the Director of the Office of Management and Budget.
ONLY 428, 428B, 428H loans can be sold (subsidized Stafford, PLUS and unsub Stafford. No authority to sell 428C loans (consolidation loans).
So in this case, it’s Sallie Mae clearing up their balance sheet, not related to HR 5715. Thanks, Larry, for the assistance!
Student Financial Aid News
+ Consumerist: Citi tightens down student loans. Citibank (ticker: C) is adopting the zero-tolerance approach to late payments favored by the credit card industry—miss a payment due date and you’ll lose any interest rate discount(s) you currently enjoy.
+ We are writing to inform you about important changes to the terms of your student loan. To retain your borrower benefits with us, you must make and have your payments posted to your account no later than the scheduled due date. Any payment posted after the due date will result in the termination of such benefit. Interest rate reductions and other benefits do not apply during periods of deferment and/or forbearance and automatically terminate for payments returned for insufficient funds, loan delinquency, default, and/or the purchase of your loan by a guarantor.
+ Had a story yesterday on the blog about our friends Sallie Mae (ticker: SLM) from the Post Gazette. The AP picked it up from the Post as well: Because of a computer error at Sallie Mae, thousands of people with student loans from the company had their credit scores decimated. The problem was fixed Tuesday night, the company said Wednesday.
+ Sallie Mae, the nation’s largest student lender, reported erroneous delinquencies for thousands of its customers to credit-reporting agencies. The company erroneously reported graduated or extended repayment plans for student loans as arrangements for partial payment, causing the Equifax agency to falsely code some borrowers’ accounts as delinquent.
+ iTunesU has really beefed up!
Scholarship Update
+ “Where do I want to go to college?” Scholarship
+ College Toolkit is giving away a $1,000 scholarship to a high school student. We want you to share with us what colleges you are most interested in.
+ To enter, all you need to do is pick at least 3 colleges you are considering, and rank them in order of preference.
+ The award is open to anyone who will be a high school student this upcoming fall. You must be 14 years of age or older and a U.S. resident to enter.
+ The deadline to enter is August 31, 2008
+ Details at our free college scholarship search site
JobCast
+ Today we release the sneak preview of the How to Write a Killer Cover Letter eBook. It’s a simpler version of last Thursday’s JobCast.
+ How to become a more established authority
+ Your chances of getting hired for any kind of job increase the more recognition you have
+ How do you get started? The usual tools - blogs, writing articles, etc.
+ Publish some eBooks or white papers in whatever your vertical is, whatever your specialty is
+ Find conference speaking opportunities - PodCamps, BarCamps, etc. - that let you get some public speaking experience - Toastmasters is good as well
+ Find out who in your local media covers that beat
+ Sign up for sites like HelpAReporter.com and send stories to reporters as appropriate
+ Find local PR firms who need outside talking heads for clients they’re working with
+ You are essentially becoming your own PR department, using public relations methods to increase your visibility
+ The ideal? Being able to say you’ve been published in various outlets, etc. that you can add to your resume
+ Which would be more impactful, sending someone a paper resume, or your TV appearance?
+ Ideally, in your vertical, in whatever industry you choose to specialize, your personal brand might become so well known that should you change jobs, you won’t even need a resume
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I was surfing through the iTunes Store at lunch today and wandered back into iTunesU, a collection of academic lectures and things that Apple began gathering a while ago.
My, how things have changed. You can now get the same academic quality of an Ivy League education (at least course content) on your iPod. Take your pick - Yale, Stanford, UC Berkeley, MIT - the best schools in the nation are sharing their lectures, guest speakers, concerts, and more.
Here’s the mindblowing part: it’s free.
$40,000 a year to attend a top tier school? Or free on your iPod?
Of course, iTunesU isn’t a substitute for a full education, but if you’re going to go to college and try to save money, you can supplement your education wherever you attend with top courses, instructors, and materials from the best schools in the nation.
As many as 1 million student loan borrowers from Sallie Mae (ticker: SLM) may have found that their credit scores plunged after the loan company erroneously reported they were delinquent in their payments.
Tom Joyce, senior vice president of corporate communications for Sallie Mae, said yesterday that the lender discovered Friday that a recent download of account information to one of the credit bureaus, Equifax, included a computer code that caused some accounts to be considered delinquent when they were not.
Those affected have graduated loan repayment schedules. In an online forum about FICO, the scoring agency, some reported sudden drops of more than 100 points in their credit score.
Those who think they may be affected may contact Sallie Mae’s customer service line at 1-888-2-sallie.
Another good reason to check your credit from time to time!
Disclosure: I am not a certified financial planner or a CPA. Please consult a qualified professional before making any major financial changes.
The single most important thing you can do is to start saving sooner rather than later. A qualified CPA or CFA will be able to advise you better (read: they have certifications, I don’t) about the specific balance of retirement and saving for your child, but commit to saving first and foremost. Every dollar you can save is a dollar neither you nor your child will have to borrow.
What savings vehicle should you choose? Most financial planners agree that in terms of least tax liability and least impact on financial aid eligibility, a 529 savings plan is a great idea. Here’s where things can get tricky. There are two kinds of 529 plans.
Type 1 is called a prepaid tuition plan. Pay tuition now to the state of your choice, and as long as your child goes to a school in that state, you’re paying tuition at today’s rates for tomorrow’s education.
Type 2 is called a savings plan, but really, it’s an investment plan, similar to how mutual funds and retirement plans like 401ks work. For this show, we’re going to focus on this second type of plan. You invest money into these plans, where it sits and earns interest for however long, before you withdraw the money. What makes a 529 savings plan different than, say, a regular mutual fund, is that you are not taxed on interest at any time as long as you use the money solely for qualified educational expenses - meaning tuition.
If for some reason your child chooses not to go to college, you can withdraw the money with a 10% penalty on interest earned, which is not a bad deal, all things considered. Where this can really shine is if you have more than one child - you can designate the other child as a beneficiary and have no penalties.
When’s the best time to start saving? Right now. Today. Saving for college is all about leveraging the time value of money - the longer you can save, the more interest you’ll earn. That said, even saving a year before college in a 529 isn’t a bad idea, because again, every dollar you save is a dollar that you and your child doesn’t need to borrow. Here’s an idea of how the savings can rack up. If you start to save $10 a week when a child is born, after 18 years at 8%, you’ll have close to $21,000. If your child is 8 years old and you can put aside $25 a week, you’ll have saved nearly $20,000 in just 10 years. If you’ve only got 5 years until school, if you can squeeze $50 a week out of your budget, you’ll still have nearly $16,000 saved.
How do you choose a plan? Shop around. Each state has 529 investment plans, and you don’t have to be a resident of that state to enroll in that state’s plans. Make sure you take a look at your state’s plan first, though - 33 states offer state tax benefits for investing in state plans.
Here’s a key phrase for you to remember: no load. There are a number of brokerages and advising firms that charge what’s called a front end load - and that can shave 5% or more off your investment as a commission to the brokerage for effectively no work, since 529 plans are managed by the states that administer them. It’s about as close to a scam as you can get without actually legally being a scam. Another version of no-load is direct-sold.
Here’s a second secret: be very careful about fees. Look for plans that have fees under 1% - there are a lot of them out there, whereas other plans can have fees as high as 2.5% annually, which again is close to being a scam.
Another important point: 529 plans are, for the most part, not insured in any way by the FDIC or NCUA, which means that theoretically, if the market were to crash hard, you could lose it all. This is true of all investments except savings accounts up to $100,000 per account and US Treasury bonds. It’s worth thinking about. Statistically, things tend to grow over time, but that’s no guarantee that your plan won’t lose money at some point.
As with all forms of investing, diversification might not be a bad idea. Take a look at various savings and investment opportunities. Putting some money aside in FDIC insured CDs or US treasury bonds, as well as investing in non-529 investment options, may make sense. You’ll definitely want to consult an independent financial advisor for more information - and be sure the advisor does NOT earn any fees or money from recommending any financial services products. A good advisor will disclose any conflicts of interest, or better yet, will be paid entirely for services rendered by you.
Finally, there’s always the issue of having money of any kind to put into a plan in the first place, whether it’s for college, retirement, or other financial needs. Take a sharp look at entrepreneurial opportunities like affiliate programs online, such as Commission Junction and other programs. If you can create a small, home-based side business that can bring in $50 a month or $100 a month extra, you can devote that to savings exclusively and do pretty well.
Even better, start the search for scholarships for your child as early as possible. Encourage them to pursue activities, hobbies, sports, and other things they genuinely enjoy, and look for scholarships and contests relating to those activities early on. We’ve profiled a number of scholarships on the podcast with a minimum entry age of 13, and scholarships earned can be deposited into 529 plans to earn additional interest on top of the savings you put aside.
If all of this sounds confusing, don’t worry too much about it - remember that many community banks and credit unions offer no-fee, no-load financial planners that can help you more accurately plan your finances and save for the future. The fundamental lesson I want you to take away from this episode is:
Every dollar you can save is a dollar neither you nor your child will have to borrow.
Did you enjoy today’s show? If so, please consider subscribing for free to get it delivered to you. Subscribing for free means you don’t have to remember to download it every day.
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Student Financial Aid News
+ SignOnSanDiego: Ivy League and other elite colleges may soon be cheaper for some of the state’s top students than California’s public universities. The governing boards for the California State University and University of California systems will consider increasing fees tomorrow for the sixth time in seven years. The increases come as top-tier private universities such as Harvard, Stanford and the Massachusetts Institute of Technology are dangling unprecedented tuition breaks to low-and middle-income families.
+ Total of 17% increase in fees brings the UC system cost up to $24K/year - for a public university
+ A student from a middle income family might pay 100% of the UC fees but at the Ivies would pay… nothing. This will significantly impact the makeup and demographics of the UC system - basically, it becomes a second bench school, where wealthy but not academically talented students go, instead of an academic powerhouse
+ What does this mean for you? You need to very carefully research what colleges you will apply to - the old saw of public schools being cheaper than private schools may not apply any more
+ State university students may need to boost the amount they borrow - even with the new Stafford Loan limits announced for July 1, 2008, there will still be a gap that needs to be filled by scholarships and potentially private student loans
Scholarship Update
+ Bank of America ADA Scholarship
+ This scholarship is for disabled students within one of the 22 states that Bank or America is located. The award money is contingent upon each winner’s acceptance to, or continuation in, an accredited college, university, technical college or vocational training school in the Finance, Business or Computer Sciences Program.
+ The award money will be applied to tuition, room and board, books, fees, and other related educational expenses. In addition, funds may be allocated for expenses directly related to a student’s disability. Scholarships will be awarded in an amount up to $5,000 annually. No checks will be issued without a copy of the recipient’s transcript with grades and a cumulative GPA posted through the latest fall semester. CSA will contact the college to have enrollment certified. However, if the college fails to certify enrollment it will be the responsibility of the recipient to provide CSA with a copy of their bill.
+ All information must contain the name of the college, the name of the student and the social security number of the student. Checks will be issued directly to the college upon receipt of the required information. The award amount will be divided equally between semesters/quarters. Unused funds will be returned to the Bank of America ADA Scholarship Program.
+ Details at our free college scholarship search site
+ At the end of this month, we’re giving away the GradLoans.com $1,000 scholarship. If you want a shot at it, register today for free.
Mail Bag
+ Vanessa writes in: We keep hearing about the need to give students a choice about the lender, why are so many colleges feeling justified in going to Direct Lending? Where is the choice in that?
+ There is no choice in Direct Lending. You have one and only one lender choice, and that’s the Department of Education. If you want additional choice, you pretty much have to go to a different school.
+ Annie wrote in: My dad past away in August 2007 and my mom is having a terrible time trying to keep things going. It’s three of us in college. My dad was the sole provider but now he’s not there to help. What do you recommend my mom do at this point. My balance for this end of semester is 3000.00 and we need some subjestion on what to do.
+ Talk to your school’s financial aid officer right away. At the very least, the school can probably work out a payment plan for you, and present you with remaining options for financial aid. Grab a copy of our scholarship eBook and start applying for scholarships everywhere - if you earn over the cost of education for the coming year, you can apply excess scholarship funds to loans you’ve already taken you.
+ Also ask for a professional judgement override on future income
Did you enjoy today’s show? If so, please consider subscribing for free to get it delivered to you. Subscribing for free means you don’t have to remember to download it every day.
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Student Financial Aid News
+ NASFAA: “Citigroup Inc (ticker: C), hard hit by the global credit crunch, is expected to present plans to sell roughly $400 billion of extraneous assets when it meets with investors and analysts on Friday, people familiar with the situation said,” The Washington Post reports. “Newly-installed Chief Executive Vikram Pandit, scrambling to slash Citi’s costs and get past credit market problems, also intends to reaffirm his promise to cut annual expenses at the largest U.S. bank by roughly 20 percent, one of the sources told Reuters on Thursday. Citi’s U.S. student loan business may make sense to sell, after recent legislative changes and turmoil in the securitization market have made the business less profitable, an analyst said.”
+ Boston Globe: Massachusetts lawmakers desperate for additional revenue are eyeing the endowments of deep-pocketed private colleges to bolster the state’s coffers by more than $1 billion a year, asserting that the schools’ rising fortunes undercut their nonprofit status.
+ Legislators have asked state finance officials to study a plan that would impose a 2.5 percent annual assessment on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions. The proposal, which higher education specialists believe is the first of its kind across the country, drew surprising support at a debate on the State House budget last week and is attracting attention in higher education circles nationally.
+ A lesson from government interference - Canadian non-profits faced a disbursement quota, and ended up spending a lot of money on silly stuff just to remain in compliance with the law, such as building new buildings they didn’t need
+ Gas prices hit a fifth straight record - $3.73 here in Boston.
+ Check out our April 16, 2006 episode on how to save more money on gasoline - remember the good old days when gas was only $2.80 a gallon?
Scholarship Update
+ Scholarship Experts Education Matters Scholarship
+ In 2008, ScholarshipExperts.com is offering the “Education Matters” $5K Scholarship. One scholarship recipient will be chosen to receive a $5,000 scholarship. Applicants must: Be thirteen (13) years of age or older at the time of application Be legal residents of the fifty (50) United States or the District of Columbia Be currently enrolled (or enroll no later than the fall of 2014) in an accredited post-secondary institution of higher education Complete an online scholarship search profile at ScholarshipExperts.com Submit an online short written response (250 words or less) for the question: “What would you say to someone who thinks education doesn’t matter, or that college is a waste of time and money?” Application deadline is October 31, 2008 at 11:59pm Eastern Standard Time
+ Details at our free college scholarship search site
Financial Aid 101
+ Talking on Twitter with Ricky Mondello about writing scholarship thank you letters
+ Really important, especially if the scholarship is a recurring one
+ Go above and beyond the traditional quick thank you note
+ Remember what the organization is about and customize the letter to the organization’s mission
+ If you got a scholarship from a cancer foundation, make sure you mention how the scholarship will eventually help you to contribute towards cancer work
+ Be SURE to use the names of the folks on the awarding committee if you know it - check correspondence
+ Remember that you are still selling you - in addition to future scholarship opportunities, you’ll want to stay in touch with the scholarship committee members for potential career or internship opportunities later on down the road
+ Consider setting a timer or alarm on your calendar for mid-semester to send a quick followup email detailing how school is going for you, and how your scholarship was pivotal in your experience at school
+ Want to go over the top? Post up a video of you saying thanks - I guarantee most scholarship committees have never gotten a video thank you
Promo
+ Listen to today’s show for more information about getting a sneak preview of my new eBook, how to write a killer cover letter.
Did you enjoy today’s show? If so, please consider subscribing for free to get it delivered to you. Subscribing for free means you don’t have to remember to download it every day.
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I’ll be speaking at the EASFAA conference on Tuesday, May 20, 2008 at 2:15 PM ET in the Oxford Room. We’ll be discussing how new media - blogging, podcasting, and social media - impact the way the financial aid world communicates with students and families, sharing some success stories and cautionary tales.
