by Lynn O’Shaughnessy, link here

What schools offer the best college financial aid?

Last month, I wrote this post: 51 Colleges with the Best Student Financial Aid.

Please take a look at the list because it includes schools with awesome financial aid policies that will reduce your stress about how you will pay for college. Researchers from the University of Pennsylvania and Amherst College assembled the names of colleges and universities that offered financial aid packages that didn’t include student loans.

You can also find a list of schools with great college financial aid at ProjectOnStudentDebt.org.

But here’s a problem: The list of colleges with the best student financial aid is in flux. The days of no-loan financial aid programs could be ending for many middle-income and affluent families. In fact, at least two colleges on the list of the 51 Colleges with the Best Student Financial Aid, wouldn’t even qualify anymore.

Last week Williams College announced that it was reducing the eligibility for its gold-plated college financial aid help.  Dartmouth College announced yesterday that it was ending its no-loan student financial aid policy. From now on families with incomes above $75,000 will have to borrow some of the tab.

I suspect the announcements will keep coming.

It was hardly a surprise that elite colleges, which traditionally offer the best financial aid, would start rolling back their cushy financial aid programs. You see these colleges launched these aid programs back in late 2007 and early 2008 –  right before the stock market collapsed and endowments started tanking.

When the no-loan financial aid policies first began in 2007, elite institutions didn’t want to be left behind so within a breathtakingly short period many super selective colleges and universities piled on. Now that Williams and Dartmouth have made their moves, I wouldn’t be surprised if many more colleges become stingier.

Lynn O’Shaughnessy is the author of The College Solution, an Amazon bestseller, and she writes a college blog for CBSMoneyWatch. Follow her on Twitter.

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Next Webinar is…

Tuesday, December 8th, 2009 at 7pm Central Time

Register Below

College Finances 101 has now come to the web. Attendees have been praising this ground breaking presentation for years; now you can participate in the comfort of your own home or at work.

In 90 minutes, I will cover the most important aspects of minimizing your students’ costs for college. You will learn…

• How parents can often send their children to expensive private colleges for less money than a state school.
• How to fix lost money caused by popular college savings plans.
• How to identify schools that give you more free money.
• The great myths and misconceptions about college funding that can cost you thousands of dollars.
• What assets are penalized 4 times higher than others when applying for help.
• Why waiting one year can cost you as much as $5,000.

“The information Mr. Anderson shared was
incredibly eye opening.” — Tricia Christiansen, Guidance Counselor,
Hampton-Dumont HS, Hampton, Iowa

“What an eye opener! We wish we had
attended this seminar sooner. This seminar has given us ideas and
information but also hope…” — Dave & Maria Sullivan, Rock
Island, Illinois

“He has provided our families with
invaluable information. Scott does an excellent job…” — Linda
Cutler, Guidance Counselor, Rockridge High School, Taylor Ridge,
Illinois

“Listening to all the options available
to pay for college encouraged us that we don’t have to sacrifice a
quality education because of a lack of money.” Pastor Scott & Tonya
Culley, Silvis, Illinois

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Bank of America announced within the last week that they are suspending all federal student loan originations.  This really isn’t anything new.  Throughout 2009, banks and other lenders have been abandoning the federal loan programs administered through the Federal Family Education Loan Program (FFELP) en mass.

The reason for this wholesale action is The Student Aid and Fiscal Responsibility Act of 2009.  The Act has cleared the House of Representatives, and will in all likelihood be through the Senate by the end of the year.  The major effect of this new law is to remove all private lenders from participation in the federal student loan programs.  Previously, federal student loans were divided in two programs, the FFELP and the Direct Loans.  This new act eliminates the FFELP.

What is the real impact to you the student or family wanting to borrow money for a college education?  Well… the only real difference is that from now on, your federal loan will be serviced by a government beauraucrat, rather than a bank representative.  Previous loans will still be administered by the company you borrowed from, or the company they sold the paper to.  Student loans will not be any harder to obtain because of this change.  There is still plenty of money available to help pay for college.

These new changes apply only to Stafford and PLUS loans.  This does not have any impact on Perkins or private education loans.

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Kiplinger recently published an article comparing the average student debt and average income, state by state.  Obviously this is not a definitive comparison, but it does give more insight into college finances.

Although some of their college costs don’t add up (which is not unusual for many college rating sites), I did find many interesting results in their analysis.  Here are just a few…

The University of North Carolina at Chapel Hill is one of the most highly respected public universities in the country.  It is also one of the most affordable in-state and out-of-state.

The three states with the lowest percentage of college graduates with debt are:

• Hawaii – 35%
• Utah – 42%
• Tennessee – 47%

The three states with the highest percentage of college graduates with debt are:

• South Dakota – 81%
• North Dakota – 80%
• Iowa – 74%

The three states with the lowest average student debt are:

• Utah – $13,299
• Hawaii – $15,199
• Wyoming – $16,005

The three states with the highest average student debt are:

• Iowa – $26,210
• Arizona – $25,628
• New Hampshire – $25,466

Below is the summary map, produced by Kiplinger.  Click on the map to enlarge.

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I still remember a few years ago when in an online discussion a student asked, “is a hundred thousand dollars a lot of money to borrow?”  The question nearly knocked me out of my chair.  I know I’ve become desensitized when the question now is “is $250,000 a lot of money to borrow?”, but I only shake my head.  Students in particular need to get an understanding of what is reasonable debt, and what is a life-killing nightmare.

A good place to start is a college debt calculator like the one at Collegeboard.com. Calculators like these give students and parents a much clearer picture of just what their student loans are going to cost them over the long term.

Let’s look at an example…  According to the National Association of Colleges and Employers (NACE), the average 2008 starting salary for a college graduate (B.S. in Business Management) is around $43,800.  Typical monthly take home pay for that level annual income would be about $2,823.

If a student took out only the Stafford loans (typical loans included in the financial aid package) and graduated after four years with $27,000 in debt, then his or her monthly payments on those loans would be $311 per month.  That’s just about 11% of the graduate’s total monthly take home income.  11% is considered pretty reasonable by most experts.

Now what if the student borrows that $100,000 as I mentioned in the first paragraph?  We’ll be generous and assume they can get the additional $73,000 at the same interest rate as the Staffords (in reality, the interest rate will be higher).  The graduate’s monthly payment is now $1,151 every month.  That payment represents over 40% of their monthly take home income.  That kind of payment is insane.  There is no way a newly minted college graduate is going to be able pay for those students loans and cover the cost of their rent, their car, their utilities, their groceries.  It’s just financial suicide.

Before you decide that you just can’t live without the degree from a college that is going to put you in the hole above you neck, you better get a handle on what the real cost of that debt will be.

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Last week, I got on my College Financial Watch soapbox and blasted the lack of financial literacy in this country as a prime contributor to the problem of student debt.  Later in the week, I was part of an online discussion again discussing what is reasonable for a student to borrow for college.  I recommended that the student get a copy of Rich Dad, Poor Dad by Robert Kiyosaki and improve his financial literacy.  I never knew that recommending someone beef up their financial knowledge would be so vehemently criticized, but it was.

In January of 2008, President Bush formed the Advisory Council on Financial Literacy.  In May 2008, the council conducted a nationwide youth financial literacy contest on the web.  Over 46,000 high school students participated.  The students had to answer 35 basic questions about money, banking, and financial products.  The average score was 56%.  Did you follow that?  As a whole, our students are failing financial literacy.  And we wonder why there is such a high level of student debt.

Do you want to know what is even more tragic.  The online discussion I mentioned above was at a website dedicated to helping students get into college and provide answers for financial aid questions.  There are people out there who are acting like they understand finances, but are actively trying to keep students in the dark.  Now the action is likely out of ignorance, but the motivation does not matter a hill of beans to the outcome.

We have to face facts.  The majority of students and adults as well in this country are woefully undereducated when it comes to personal finance.  Before you start complaining about student debt, you need to get yourself and your student educated on the matter.  That is why I am now including two books from Robert Kiyosaki in my Recommended section at www.RealCollegeSavings.com

Rich Dad, Poor Dad

and

Rich Dad, Poor Dad for Teens

Go get these now.

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Students graduating with college debt is the topic of “A Steep Climb for Indebted College Grads” in the most recent issue of Business Week magazine.  It tells of the horror stories of students graduating with mountains of college debt… $50,000; $75,000; $100,000 in debt before they ever get a job.  This is insane!

Towards the end of the article, there is a story of one young woman who graduated with $160,000 in private loans alone… just for her bachelor’s degree.  I assume she probably has at least another $15,000 in public loans on top of that.  This has got to stop!  At least she had the maturity to say “I have to deal with the consequences.”

There are two demons to blame for this astronomical rise in student debt.

First… students really have no understanding of debt and what it does to you.  A few years ago, I was in a conversation with a student who asked me if $100,000 is a lot of money to borrow.  I had to do a double take at the question alone.  We need to better educate students on the nature of money.  Honestly, I think Rich Dad, Poor Dad by Robert Kiyosaki should be required reading in every high school.  I would be in far better shape if that book was available to me 25 years ago.

Second… the ideal of the “Best” college is killing our kids.  Students and parents alike have this perverse idea that there is only one “best” school for them, or only a handful.  Typically, this handful of schools comes out of some beauty pageant list, such as the “Best Colleges” issue of US News and World Report.  Students have got the idea that if they don’t get into one of only a small selection of colleges, then their future is shot.  Then when they do get into that one college, they put the rest of their life in hock to pay for it.

NEWSFLASH — There is no “Best” college.  There is only the best colleges for you.  Notice that colleges is plural, not singular.

This expectation of only one or two schools are the right schools is absurd and must come to an end.  There are over 3,000 colleges and universities in the United States.  It is a very easy process to find 6 to 10 very good fit schools for any student at a bare minimum.  And these schools will not break the bank when the student graduates.

I challenge all of the parents, students, guidance counselors and teachers reading this post to take a stand against these two pervasive problems.

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