Reuters Money

Occupy colleges? How to shut down student debt

One of the more compelling issues to emerge from the Occupy Wall Street movement is subject of crushing student debt.

College financing has gotten to be too onerous and complicated, so it’s difficult for families to negotiate the process and, as a result, it’s hobbling graduates’ attempts to live normal lives. Congress has largely ignored these Americans, though, as it focuses on the national debt and the Tea Party agenda.

There’s been a sharp uptick in student loan defaults — the highest rate in a decade — as more students come out of college an average $24,000 in debt, yet can’t find jobs.

Part of the psychology embedded in a college education is that the diploma should enable you to get a living-wage job, pay off debts and live a prosperous life. That was the big selling point of a high-cost diploma. That isn’t happening now for most graduates.

When the debt bubble burst three years ago, did students and their parents really expect to be saddled with onerous debts and face a lousy job market when they signed up for expensive degrees?

If we can bail out the banks, we can certainly find long-term solutions to student debt. My colleague, Linda Stern, recently outlined some of the basic money-management approaches to reducing student debt in her weekly column. It’s all good advice on a personal level — from creative payment strategies to loan consolidation to what to do if you simply can’t pay at all.

State colleges are a bargain-hunter’s best higher-education dream

When it came time for Cassidy Rumble Meyer to choose a college, she had a range of options thanks to great SAT scores, a solid grade point average and a stellar volunteer resume.

But when it came to mulling over elite universities, Rumble looked at the bottom line, which for private four-year colleges now average over $27,000 a year in tuition and fees alone.

That helped convince the 19-year-old to attend the more modestly-priced Evergreen State College in Olympia, Washington.

“The cost difference was tremendous,” says Karen Rumble, Cassidy’s mom. “Add to that the expense of traveling back and forth, and we’re saving at least $20,000 a year compared to the Ivy Leagues. In the end, we didn’t look at anything except state schools.”

More families these days are making the same choice.

In 2011, almost 40 percent of high-income families opted for other colleges after looking at the financial aid package, up from 32 percent in 2010, according to a report by Sallie Mae on college spending.

And that’s creating a new set of problems, with public institutions that are often bursting at the seams. Maybe you’ll take state college – but will they take you?

Rich kids pushed to pay bigger share for college

Bad news for the coddled college masses who are waiting for a check from mommy and daddy: You might have to get a job. Your parents may not be willing or able to keep paying all those skyrocketing school bills.

According to a new study from Sallie Mae, in the last two years, high-income families have slashed the amount they chip in for their kids’ college education from 51 percent to 43 percent of the bill. Meanwhile, students from those families have had to pony up almost double what they used to, now covering 10 percent of total costs.

In terms of percentages, according to the Sallie Mae study, parental borrowing by high-income families is down, student borrowing is up, and the use of scholarships and grants is spiking. The inevitable conclusion: Many parents are tapped out and are saying enough is enough.

Clearly, the Bank of Mom and Dad is tapped out.

Not that there’s anything wrong with that. After all, if education includes setting your kids up for a lifetime of sound financial decisions, then having them aid in college expenses — even if just a small portion — can be a wise long-term strategy.

The new normal is thanks to a confluence of factors: Parents’ withering portfolios, relentless tuition increases, and the belief that well-heeled offspring should absorb real lessons about personal finance and responsibility. With some skin in the game, they’ll be less likely to treat college as four years of tequila-swigging and class-skipping.

“The economy is forcing even wealthy people to have a more difficult time paying for college,” says Rich Morris, founder of ROI Consulting and co-author of Kids, Wealth & Consequences. “More parents are making the case that if you really want kids to appreciate their education, then have them work and pay for at least part of it on their own.”

Is college worth it?

For recent grads like Peter Turchan, college led to some soul-searching about whether the experience was worth the whopping price tag.

Turchan graduated two years ago from Fordham University and has a good job, as a sales associate at a commercial real-estate brokerage in New York City. But the crippling financial hangover has left him dispirited. “I’m over $100,000 in debt, and find it very hard making payments,” says the 25-year-old. “I often think about whether college was worth it. Before college I was making better money, and think about what I could be doing now if I had focused on saving and furthering my career.”

If I ever suggested skipping college and going straight to work to my own parents, I would’ve been skinned alive and left to the dogs. It’s an article of faith in American society that after high school, you go to university and get at least one degree before launching into the workforce.

But with college costs continuing to spike, debt loads metastasizing, and dim economic prospects ahead, at some point you have to ask the question: How expensive does higher education have to become, before it’s just not worth the lifetime debt burden?

Have your say: 

Is the cost of a college education worth it?

Stock market troubles test college parents with fall tuition due

At 44, Mark Dinos is smart and successful, the kind of lawyer you want on your side if you’re in an insurance-related legal case. But the Chicago attorney gives himself less-than-high grades for how he prepared financially for his daughter’s college education; she starts at Northwestern University just days from now.

Ask him how he’ll manage $59,000-plus in tuition, room and board and Dinos (pictured) replies with a self-deprecating laugh: “Prayer. Fortunately I’ve had a very good year and can accommodate some of that. But Northwestern is only allowing my daughter to borrow $5,500 at the student rate. (That is actually the maximum amount that freshman are allowed to borrow in the Federal Stafford Loan program.) She got a $5,000 grant, so Mom and Dad are responsible for the other $49,000. And now I have to go borrow money at the dumb parent rate, 8.6 percent.”

Yet as Dinos braves one financial roller coaster, many college parents who thought themselves prepared now find themselves riding another. For investors with college funds in stocks or stock-based 529 plans, the recent market gyrations are making stomachs churn.

And while financial experts and wealth managers differ on the best way to ride out the wild market, they agree that parents don’t have to sit back passively and watch that hard-earned wealth melt away.

“The problem is that nobody knows when the falling will stop,” says Matthew Tuttle, principal of Tuttle Wealth Management in Stamford, Connecticut. “Imagine it’s the summer of 2008 and the market has gone down, but hasn’t gotten crushed. You decide to push off taking money out of your 529 plan until March 2009, (which was the low of the market).  Murphy’s law of investing says that if you leave the money in, it will go down — and if you take it out it would have gone up.”

Tuttle’s conclusion? “You might as well take it if you need it.”

Try telling that to Eve Kaplan, principal of Kaplan Financial Advisors, LLC in Berkeley Heights, New Jersey. “It never pays to sell investments at relatively low levels unless cash flow issues obligate the 529 plan owner to do so,” Kaplan says. Her clients typically pay tuition, then request refunds from 529s, meaning they can delay repaying themselves in down markets. There’s a catch, though: You need the short-term cash flow to pull it off.

Families taking bottom-line approach to college: Sallie Mae

You’d have no reason to think that Terry and Laura Truax of Chicago are in any way atypical college parents. Their son Sumner, 22, attends Lawrence University in Appleton, Wisconsin, where he’s double majoring in saxophone performance and music education.

Sumner (pictured) is a talented jazz player in the Lux Quartet, but he didn’t have to land any college scholarships to pay his way through school, nor did his parents apply for any financial aid. Terry, an attorney, and Laura, a pastor, saved for college ever since their son was a toddler, meaning the $42,000 in annual tuition has been manageable — even as two more Truax teenagers plan to start college in the next two years. Terry is a partner at Jenner & Block LLC; Laura is senior pastor at LaSalle Street Church.

“Sumner has the gift to study and practice without the burden of earning to live,” Laura Truax says. “We also had the distinct blessing of not dealing with changing employment situations. Terry’s been in the same job since graduating law school. In a real sense we’ve been blessed in unexplainable ways.”

Yet in many aspects, the Truax family may represent a vanishing breed. A report released Tuesday by Sallie Mae, “How America Pays for College,” shows students attend college for increasingly practical reasons: better jobs and earning more money. The national study of 1,600 college students, now in its fourth year, also reveals that 90 percent of students strongly agree that college “is an investment in the future.” That’s up from 84 percent in 2010.

This comes as more families are filing the Free Application for Federal Student Aid (FAFSA), jumping from 72 percent in the 2010 report to 80 percent in the 2011 report. Most of the increase came from middle- and high-income families.

“For the first time we see parents and students are spending less; they’re being smart consumers,” says Sarah Ducich, senior vice president for public policy at Sallie Mae, which services government and private student loans and college savings plans. ”They paid 9 percent less for college than the year before.” In fact, virtually all families in the survey reported taking cost-savings measures, such as attending lower-cost colleges, living at home or going to school part time.

The bottom-line approach to higher education appears rooted in how the sour economy has forced families to rejigger their finances, says Clifford Young, managing director of Ipsos Public Affairs and a lead author of the study.

Study up on these 5 ways to save on college textbooks

College textbook publishers apparently haven’t heard there’s a recession going on.

The average college student spends $1,137 a year for textbooks and other course materials, up from $988 three years ago according to collegeboard.org.

There are some cases where students just can’t avoid buying new books, especially if the new edition comes “bundled” with a CD or online access code for supplemental materials. These are often stripped or damaged with rented or used books, and if you buy them separately you could end up paying as much or more than you would for a new book with everything intact.

The only bonus of buying new is that you can make some money selling books back after you’re done using them. My daughter, a college junior, tells me her college bookstore pays a small fraction of a book’s original cost when she brings it in for resale. Because she’s a science major, her books are updated so frequently that they often don’t take them back at all. Her experience with college bookstore stinginess when it comes to buying back books is not unusual. Get a better price by selling books yourself through web sites such as half.com, BetterWorldBooks.com orvalorebooks.com.

The drawback? It takes some time and effort, but nobody is going to cry for a college student about that.

When you can avoid buying new, however, it’s going to save money, and today’s c0-eds have plenty of options. Here are ways for new and returning students to slash textbook costs by one-third or more as they head to school over the next few weeks:

What the CFPB should be doing with private education lenders

The following is a guest contribution from Mark Kantrowitz, founder and publisher of finaid.org and fastweb.com. The opinions expressed are his own.

The Consumer Financial Protection Bureau, which starts operating on Thursday, has oversight and enforcement authority over private education loans and most private education lenders.

The Private Education Loan Ombudsman within the CFPB will respond to complaints about private education loans by students and their families and will help mediate borrower disputes with education lenders on an informal basis. Here are my recommendations to improve the private loan process.

The Private Education Loan Ombudsman should create a centralized clearinghouse for tracking complaints about private education loans. The complaints should be tracked according to type of complaint, characteristics of the loan – such as the loan amount, term and interest rates – lender and borrower and the type of college. This will allow the CFPB to identify patterns of abuse and other trends for possible enforcement actions, new regulations or other remediation.

The ombudsman should also track other data about private education loans. Currently there is very little publicly-available accurate data concerning private education loans, such as annual new loan volume, total debt outstanding and loan interest rates and fees. It would also be helpful to publish data by education level and individual college in addition to aggregate totals. This data can potentially inform public policy concerning private education loans.

The CFPB should proactively monitor lender advertising, instead of waiting for borrowers to complain, to identify and respond to abusive and problematic practices. Students are a vulnerable population, especially students who do not have any prior experience with debt. The CFPB should watch out for misrepresentation of loan terms, especially those that relate to loan costs, and misleading comparisons with lower-cost federal education loans. It is just as important to monitor for the omission of material information. For example, a lender might present a comparison chart on the monthly loan payments for several loans without also listing the total payments over the life of the loan, making one loan appear more affordable even though the lower monthly payment is due only to a longer repayment term.

The CFPB should consider requiring all private education loans to be school-certified. With a school-certified loan, as opposed to a direct-to-consumer loan, the lender confirms enrollment with the college and seeks approval of the loan amount from the college’s financial aid administrator before disbursing the loan. This gives the college the opportunity to teach the student about smart borrowing, such as the benefits of borrowing federal first. It helps students minimize the cost of their loans and avoid over-borrowing. It also helps the lenders by reducing the opportunities for fraud. The Dodd-Frank Act stopped short of requiring all private education loans to be school-certified, but the CFPB could establish such a requirement as part of it’s regulatory oversight authority.

Six-figure student loans? Credit medicine for MDs

By year’s end, Stephanie Bourque will owe approximately $165,000 in federal student loans. It’s an especially daunting debt load for the first-year University of Colorado pediatric resident whose annual income will likely fall between $40,000 and $50,000 during her three-year residency.

“I think it’s going to take a lot of effort and a lot of budgeting,” she says. “Even if my take-home salary increases, I still have a lot of educational debt to pay back.”

Debt-laden and highly educated, doctors face unique challenges when it’s time to start repaying their loans: they’re often older graduates — some with dependents — facing six-figure loans with the prospect of years of reduced income while in residency. And while they excel in book smarts, they often don’t make the grade when it comes to financial prowess, failing to access professional help and repayment resources.

Bourque has seemingly done everything right. She has no student debt from her undergraduate days and chose a state medical school to decrease her tuition costs — she’s a recent graduate from LSU’s medical school in New Orleans. She was awarded scholarships on academic merit and others based on financial need. She even participated in federal financial loan counseling sessions and attended repayment presentations, yet still lacks confidence about her financial future.

“You really have to take it upon yourself to understand what your loan means and what your repayment options are; understand what it means for yourself and your family long term. I wouldn’t say advice was handed to us in an easy-to-read, accessible manner,” she says.

Bourque is not alone. Last year, student debt surpassed credit card debt for the first time in history. America’s student loan debt is growing at a rate of $2,853.88 per second, meaning total debt owed in this country will likely surpass the $1 trillion mark later this year, according to finaid.org.

Medical school students who graduated in 2006 owed $130,000 on average, according to the Association of American Medical Colleges, and the American Medical Association estimates 87.6 percent of medical school students graduated with an average debt load of $155,000 in 2008.

Is the American Dream dead?

The American Dream lures people from all over the world, and it’s because of this possibility: If you come here and work hard, your kids will have a better life than you.

What if that weren’t true anymore?

Record debt, persistent joblessness, millions of underwater mortgages and a stock market that hasn’t gone anywhere in 10 years: For today’s kids who are entering the job market, it’s hardly a recipe for future success.

For parents who only want the best for their children, those prospects are like a wrenching pit in our stomachs. When such a central pillar of the American story is falling apart, frantic moms and dads hardly know what to think.

“My husband and I are terrified for our sons,” says Saideh Browne, a 40-year-old mom of two who heads up a speaker’s agency in New York City. “When they were born, we figured as long as we saved for college, they would be okay.

“But now, we can’t just tell them to go to school, get a good job, and retire at 65. We’ve had to rethink parenting, and it hasn’t been easy. We’re encouraging them to learn a trade, and hope it all works out before the economy tanks further.”

Browne is hardly alone in fretting about her children’s future. According to a new survey from Ipsos, sponsored by New York Life, only 41 percent of parents surveyed think that kids will have a better standard of living. It’s a major tectonic shift in our national belief system, but given the events of the past decade, it’s not that shocking.