Tag: college-planning

Last year at this time we had just finished up with college application season, and were starting to deal with the craziness that is college financial aid applications. I mention this because a few days ago, a little bell went off in my head regarding this, saying (in effect), “Hey, you haven’t heard from College Planning Advisors (also here) in a while? Shouldn’t they be contacting you regarding the FAFSA?”. So I dropped them a note.

Their reply, essentially, was that I had only paid them for the freshman year; if I want their help for future years, it’s $497 per year, buddy. They sent me a copy of the contract to remind me. Of course, they were right; I’ll do the FAFSA on my own from now on.

However, this interchange reminded me of one of the few bad decisions I have made: to pay for and use College Planning Advisors (CPA) to help with the college application and financial process. Way back when my daughter was in 10th grade we contracted with these folks for just under $2500. Our hope was that they would help us navigate the college financial aid process, and hopefully make college more affordable. Did this happen? Well, our daughter ended up at UC Berkeley with no financial aid, which I think answers the question.

I think organizations such as this may be useful if you have unmotivated students who aren’t on top of the application process. Students that need help getting applications polished and done; students that need guidance to make themselves look stronger on paper. Organizations such as this are also useful if you have lots of assets (but still want to get financial aid); in such cases you have the liberty to play with hiding money in annuities and insurance policies that are viewed as retirement funds.

But when you are a family that is squarely middle class (for Los Angeles, which is upper middle class anywhere else), with a motivated student, there is little these folks can do. Part of this is due to the rising problems of private and public college costs. I’ve noted before that this puts you in the situation where you make too much to get any need-based aid, and you make too little (and housing is too expensive) to be able to pay without worry or being able to easily play with funds. Ah, but you say, there is “merit based” aid. My experience is that merit-based aid really isn’t; merit-based aid is a way to get some aid to the middle-class while not calling it need based. If it was truly merit-based, then every private college wouldn’t have given almost exactly the same amount of “merit” based aid, nor would merit-based aid be reduced if you got additional scholarships. In our case, we applied to a load of private schools, and most offered about the same amount, which brought a $60K bill down to about $45K (almost exactly in all cases). This meant that a UC education, even at full ride, was cheaper.

So how is the system gamed? In short, most of the financial aid profiles exclude retirement funds, so if there is a way to find an investment that is considered a locked-in retirement fund, but is actually liquid, you’re golden. Hence, annuities and insurance policies. The problem is that I didn’t trust the liquidity of these options — I couldn’t find it in writing — in fact, what I found in writing often contradicted what I was told. Other people may be more comfortable with these approaches, a word, and a handshake. But I’ve been in the skepticism and “prove it to me” business for too long (my mom was from Missouri, and consider the work I do at “the ranch”), so unless I can independently confirm it, I don’t believe it.

So, the financial advice that CPA provided (and the financial options they offered) didn’t end up that useful — the main service we got from them was filling out the financial forms. Adding to the problems was the fact that CPA did not (and still does not, based on their latest mail to me) understand privacy protection. This is something I’m well aware of because of what I do for a living (and those five letters after my name, CISSP). They were having clients submit financial information (such as scans of tax returns) unencrypted to them via email (something I never did — I always delivered paper copies). They were equally cavalier in their emails (when they sent me a copy of my contract yesterday, for example, it still plainly had my credit card number on it (which luckily has both expired and been changed).

On financial aid, their focus was the financial aid provided through the FAFSA and CSS profiles. They didn’t help find other external scholarships for which she might have been eligible after she didn’t get enough from the schools. They seemed to be of the impression that applying for those would actually hurt in the long run. Of course, none of this was made clear back in 2009 when we signed up.

So they didn’t help on the financial end. They also didn’t help on the college selection end. My daughter ended up picking which colleges she wanted — they forced her to add some to the list that supposedly had easier admission requirements (which added to the application cost), but those weren’t necessarily realistic choices. They were not able to actually advise on particular colleges and their strengths, other than the financial aid aspects and likelihood of admission aspects. They actually didn’t want Berkeley on the list (too hard to get into, and she already had too many “hard to get into” colleges); they were happy with UC Santa Barbara and UC Santa Cruz on the list to satisfy them (and she added Berkeley when she submitted the application just to see if she could get in).

So, looking back, I think what we spent for them was money mostly wasted. They supposedly had a guarantee that they would get you more than you could have gotten without using them, but try to prove what “could” have happened. I think they might work for some families — and do, based on their testimonials. But for us… looking back: given my nature as a skeptic and our daughter’s drive, combined with the specific nature of our finances — they weren’t worth it. But it is a sunk cost for us — money that I won’t get back. I wanted to write this for the other parents out there — parents looking into services such as this. They may not be worth it. Look at your situation carefully — how you are, how your child is, and how much you want to play the games — before you plunk down the money.

In the end, I think we ended up OK despite using CPA. Our daughter is at a great school that is ending up to be perfect for her — the diversity and the challenge is far better than she would have gotten at a more homogenous private liberal arts college. She’ll make connections that will be useful, and in time she’ll get used to the size of the campus. Of her experience to date, she has written, “My academic experience at Berkeley has been nothing but superb, it’s more than I could ask for.” As for price, it is what it is. At least we are state residents, so it is somewhat more affordable (and the passage of Prop. 30 helps with things). She’s certainly getting to go to one of the best state universities in the country without the price tag of a discounted private university.

(even if UCLA is better 🙂 )

I’m running scared. Why, you may ask. The answer is simple: My daughter is going off to college in a few months. She graduates in two weeks. That means there is one thing, and only one thing, on my mind: How the hell am I going to pay for college?

This is the reason that a number of articles today related to student loans and college costs have caught my eye. First, there was a long article from MSNBC on how soaring college costs have hobbled a decade. The essence of this article is that the next loan bubble to “pop” will be the student loan bubble, and that college costs have gotten out of control. Another article from USA Today talks about how student’s lament the total amount of debt, while Congress fiddles debates how to address the problem. Then there’s the article in the LA Times about the student loan blues, about how students lament taking on so many loans for college. Lastly, Friday’s Planet Money (which I haven’t listened to yet) is on the subject of figuring out the real cost of college: the “sticker price” is often not what families pay. (and of course, for those attending state colleges, this all ties into the state budget woes I’ve previously written about).

So, as this week’s bills are paid, it is time for another rant.

College costs have gotten to be ridiculous, but even more ridiculous is our system of “financial aid”. From the point of view of someone who is solidly middle class, this system seems to be designed to provide little help. If you really can’t afford college — that is, you have true financial need with nothing saved — you’ll get loads of need-based aid. College will be cheap. If you are truly rich, you don’t care what college costs. If you are middle-class? If you are in the position of having a good salary, but a large mortgage and not enough saved? Many private universities offer what are referred to as “merit” scholarships — supposedly academic, based on essays and such. Are they? It is odd that all the colleges seem to offer just about the same amount of “merit” aid. Further, that “merit” aid is reduced if you get other scholarships. I’ve come to a belief that this “merit” aid is just a fancy coupon: a way of reducing the sticker costs for those that take the effort to apply for it.

The financial aid letters don’t help. They convince a parent that college is all paid for! But when you read the letters, you see that the bulk of that payment is expected to be student loans… and even more expensive parent loans. This is the loan bubble. Colleges push the loans, and students taken them on and parents take them on. Student loans are unique among loans: there no requirement to have the ability to pay (unlike a car loan, where if you don’t have the income, you can’t buy that $300K car).  There needs to be some form of caps on the loans, based on the intended career of the student, so they don’t get into a position where they owe more than they could make in a reasonable time.

Am I arguing that student loans shouldn’t exist? No. Low-interest and interest deferred loans for students are reasonable, with caps. I’m inclined to use those for Erin, even if we pay them off for her. Helps her credit rating, and if they approve the 3.x% interest rates, the pricing is reasonable. If one doesn’t overextend, possibly using HELOC (home equity loans) may make sense as well, especially if combined with a refinance, as the interest is deductable. But normal parent loans at 7+% are ridiculous, as are private student loans at equally high rates. Further, as I noted above, there needs to be a cap on student loans based on the expected career annual earnings five years after eventual graduation with the final degree. You shouldn’t be able to borrow more than you can reasonably pay back. That’s what created the housing bubble; that’s what’s creating the scholarship bubble.

We also need to address the pricing side of the issue. I think colleges have gotten off track with their pricing, and need to learn to have “everyday low prices”. Much as one complains about the high costs of public colleges, for the middle class, often a UC education at full ride is cheaper than a private education with scholarships. We need to use the money we’re setting aside for scholarships to lower the price for everyone, and make “merit” and “need-based” scholarships in place for the truly merited and truly needy.

We also need to simplify the private scholarship process. Just as we’ve gone to a combined financial aid application, there should be a combined scholarship application where you indicate all the relevant aspects (ethinicity, club membership, and all the other special factors), submit standard letters of rec, submit a standard essay, submit transcripts to one place and it farms it out to all the applicable organizations… who can then follow up with additional questions after doing their triage. It would help them award money to qualified candidates, and help candidates find organizations.

We also need to fix the community college problem. Community colleges can be a great choice to save money. There are, however, two problems (which are related). First, there is the peer problem: all your friends are going to prestigious universities, and you are going to Podunk Community College. The pressure (and the college counselors) force you to apply to the more expensive school for the earlier years. There’s also the problem that there’s no guarantee of transferring into a prestiguous college from a community college. The answer is to having a binding transfer program: a joint application to 4-year institution and a community college, where there is clear coordination and agreement that if a particular program plan is met with appropriate grades, the student can transfer after the general education portion (first two years) is satisfied and can complete at the 4-year institution. This doesn’t exist yet, and would go a long way to reducing education costs.

With respect to general education, colleges also need to pool resources to eliminate redundancy. Again, community colleges can work as a resource here. There’s no reason that general education courses should not be combined across universities that are close to each other. This is what industry does when it does time sharing, and it maximizes effectiveness.

Of course, I haven’t addressed the question of whether most students that go to college belong in college. That’s because I do believe college is important. It teaches critical thinking; it provides a skill base that will serve the student well in the future. Although college is no guarantee of success, surveys have shown that having an AA or BS degree does make someone more likely to be employed than someone lacking a degree, and to be employed in a job that will pay better. The question is: does the increase in pay offset the cost of the education? I think the jury is still out on that one, and the answer changes as college costs rise.

I know I’ve been ranty this morning. One of the reasons I love blogging is that it allows me to work out issues by writing about them, and to share my concerns (which reduces my stress). I thank you for reading, and welcome your opinions.

Music: Emotion (Barbra Streisand): Time Machine