Financial Aid

The front page of today's Boston Globe has a story about how July is just around the corner, but "a startling number of incoming freshmen are still torn over their college plans," and "some waitlisted students still hold out hope they will get into their top-choice school, while others who have already been accepted are not sure they can afford theirs." Multiple deposits are alive and well, no doubt.

As painful as it is, some of this soul-searching should have happened earlier in the process, and better late than never. It's healthy to be questioning whether $50,000 a year makes sense to attend some colleges.

More on the hell of waitlists here and here, and on bling-bling college tuitions here and here and here.

A short TV interview I had done on the subject aired today -- watch it here.

It's that time of year when Top Chef and Hell's Kitchen both rank very highly on my TiVo Season Pass list, and catching up on those episodes, I'm reminded of how bone-crushingly physical kitchen-work is. I'm also reflecting on a NYT article I read last month called "Top Chef Dreams Crushed by Student Loan Debt." An excerpt:In the way that the work of directors like Martin Scorsese flooded film schools with students in the 1970s, and the television show ''L.A. Law'' packed law schools in the 1980s, the rise of celebrity chefs has been good for culinary schools.

But would-be top chefs face a challenge that most lawyers, engineers or nurses do not: few jobs in their chosen field pay enough for them to retire their student loans. As a result, as many as 11 percent of graduates at some culinary schools are defaulting on federal student loans. The national average for all students last year was roughly half that, at 5.1 percent.

Although the restaurant industry is expected to create two million new jobs in the next decade, the Department of Labor reports that in 2005, the latest year for which data were available, the average hourly wage for a restaurant cook was $9.86.

''The problem isn't getting a job, the problem is getting a high-paying job,'' said Susan Sykes Hendee, a dean at Baltimore International College and a member of the American Culinary Federation Foundation Accrediting Commission, which accredits many culinary schools....

''Truly the worst horror stories are from private culinary schools,'' said Alan Collinge, who founded the grass-roots lobbying group Student Loan Justice and collects information from people with student loan problems. ''The story is always the same. The school convinces the student they are going to be the next Julia Child or Wolfgang Puck, and the student will sign anything.''I'm all in favor of people pursuing their career passions, but, as always, I encourage them to know what they're getting themselves into and to ask themselves whether they really need an expensive degree to get from here to there. Is culinary school worth it? Read the debates at Chowhound, Accidental Hedonist, Portland Food and Drink, and David Lebovitz (former pastry chef at Chez Panisse; check out what his blog posting has to say about culinary school "recruiting techniques").

Today's NYT reports on elite colleges trying to introduce more economic diversity into their classrooms.  An excerpt:

The discussion in the States of Poverty seminar here at Amherst College was getting a little theoretical. Then Anthony Abraham Jack, a junior from Miami, asked pointedly, “Has anyone here ever actually seen a food stamp?”

To Mr. Jack, unlike many of his classmates, food stamps are not an abstraction. His family has had to use them in emergencies. His mother raised three children as a single parent and earns $26,000 a year as a school security guard. That is just a little more than half the cost of a year’s tuition, room and board, fees and other expenses at Amherst, which for Mr. Jack’s class was close to $48,000.

So when Mr. Jack, now 22 and a senior, graduates with honors on May 27, he will not just be the first in his family to earn a college degree, but a success story in the effort by Amherst and a growing number of elite colleges to open their doors to talented low-income students.

Concerned that the barriers to elite institutions are being increasingly drawn along class lines, and wanting to maintain some role as engines of social mobility, about two dozen schools — Amherst, Harvard, Princeton, Stanford, the University of Virginia, Williams and the University of North Carolina, among them — have pushed in the past few years to diversify economically.

They are trying tactics like replacing loans with grants and curtailing early admission, which favors the well-to-do and savvy. But most important, Amherst, for instance, is doing more than giving money to low-income students; it is recruiting them and taking their socioeconomic background — defined by family income, parents’ education and occupation level — into account when making admissions decisions. . . .

For Mr. Jack, there were adjustments at this college, where half the students are affluent enough that their parents pay tuition without any aid from Amherst.

He did not let it bother him, he said, when wealthier classmates blithely inquired about the best clubs in Miami — as if he would know, Mr. Jack said dryly — before flying off to his hometown for spring break. Mr. Jack could afford to go home only at Christmas, and the end of the year, when Amherst paid his plane fare.

The article also points out the uncomfortable fact that traditional, race-based affirmative action benefits mostly middle and upper-class minorities.

One of the challenges these colleges will face is preparing economically and educationally disadvantaged students for the rigor of their classrooms. Many kids who've never attended fancy prep schools or received expensive after-school tutoring or perfected their study skills will have some catching up to do, and colleges should be aggressive in acknowledging that gap and offering academic assistance. It would be a huge disservice to those students to throw them into the classroom and expect them to fit right in with a bunch of kids who in high school were reading John Locke and taking Latin classes to help them with their vocabulary and conducting research projects with names like "The Influence of DNA Mismatch Repair on the Types of p53 Mutations Found in Msh2 Null and Msh2/Atm Double Null Transformants."

Congratulations and good luck to Anthony.

Stanford GSB is now offering loan forgiveness options to its international graduates:The GSB International Loan Forgiveness Program (ILFP) was launched in fall 2006 and is already having the kind of impact it was designed for: helping international students who graduate from the Business School with staggering debt. “The program is part of the School’s increased interest in having a greater positive influence abroad,” explains Colleen MacDonald, director of financial aid and a key player in the creation of the new program.

For many international students, particularly for those in developing nations, financing their education becomes a huge obstacle. Securing a loan in their home countries can be challenging, and loans from the United States are tied to American currency. The average indebtedness for an international student in the MBA Class of 2006, for example, was more than $80,000. That spells tough choices upon graduation. Going back home where one’s expertise could make a real difference can mean not earning enough to keep up with loan payments. Working in wealthy nations has often been seen as the only option. . . .

“We want to enable students to go back to their home countries or other countries where they can really put their skills to work assisting developing economies,” MacDonald says. Eligible graduates may be awarded up to $7,500 each year, according to their level of indebtedness. Currently, recipients can receive funds for a total of three years after graduation.

“Our hope is to expand the program beyond the pilot so that it can function much like our nonprofit loan forgiveness program, which has been serving about 30 students a year since 1988,” Marine says. Some of those students are happily receiving grants for the life of their loans.More here and here.

Documents revealed yesterday by The Daily Texan, the student newspaper of UT Austin, show just how little swag lenders have had to cough up to curry favor with financial aid officers. Preferred lender status in exchange for free Hula Hut Happy Hours? That's quite a return on investment.

As the Wall Street Journal reports:The University of Texas at Austin's Office of Student Financial Services rated student-loan firms based on "treats" and other meals provided to university officials, school documents show.

In internal reviews of their lists of lenders recommended to students, financial-aid officials rated the loan companies based on loan volume, customer service and whether they offered students reduced fees. But "visibility" was another factor the office cited, which it defined as "based on the number of lunches, breakfasts and extracurricular functions for entire OSFS staff." Lenders on the list were graded on the quality of their culinary largesse by metrics ranging from "very good" to "poor."

Last month, the university put Lawrence Burt, associate vice president and director of student financial aid, on paid leave after it emerged he owned shares of a former parent of Student Loan Xpress Inc., now a unit of CIT Group Inc. Student Loan Xpress was rated "very good" in free meals and functions, according to a school analysis dated March 10, 2006. In an interview last month, Mr. Burt said that there was no connection to his stock ownership and that the company was one of 20 lenders picked for service and benefits. "I did not do anything wrong," he said.

One document titled "Lender Treats," also dated March 10, 2006, listed a "Hula Hut Happy Hour" courtesy of one lender; and a lasagna lunch from another.

The Wall Street Journal reports today that an official at the U.S. Department of Education held shares in a company that issues federally guaranteed student loans. Looks as if the financial aid community is keeping the New York attorney general awfully busy these days.

Interesting to compare Columbia's PR response to the Department of Ed's, whose press page doesn't even mention the scandal. (Columbia's news page gives the dean's response top billing.) As of today, that Department of Ed official (Matteo Fontana) is still listed on the staff page, while the financial aid officer at the center of the Columbia scandal has been suspended.

More postings on the financial aid racket here, here, and here.

Here's an email I received this evening -- it went out to Columbia College alumni (among others):You are probably now aware of news reports relating to an undergraduate financial aid officer who may have violated Columbia policies by having a financial relationship with Student Loan Xpress, a student loan lender. The employee involved has been put on administrative leave pending an investigation into this conduct. We take this matter extremely seriously since the integrity of the process by which we recommend lenders to students is of utmost importance to us. While we have not confirmed all of the details, the case here appears to involve a single official who may have violated our policies, and we believe that this has had no adverse financial consequences for students and their families.

Our goal has been and remains to ensure that students and their families have the best choices of independent high quality preferred lenders to help finance their higher education. In 2005, Columbia's process of selecting and overseeing preferred lenders was reorganized and centralized to ensure that we identified lender sources who could provide the most favorable terms and services for our students. These changes were designed to ensure a competitive process, overseen by the University's Office of Student Services, that includes six financial aid directors broadly representative of our University population.

In view of the recent allegations we have taken a number of additional steps: the University immediately contacted the New York State Attorney General, who had been conducting an investigation into lending practices at other universities; the lender involved has been removed from our preferred group pending a complete review of the facts; Columbia has also insisted that a public endorsement by the Columbia employee that appeared on the lender's website be removed and we have been advised that it has been removed.

We are all fully supportive of what the Attorney General has done to make student lending more transparent and will continue to work with his office on this matter. It is important for you to know that Columbia does not have the kind of direct financial relationship with student loan lenders that was the subject of the Attorney General's recently- announced settlement with a number of other universities.

We have moved quickly in this case precisely because we take our responsibility to you and your families so seriously, and we wanted to share this information with you.

If you have any questions or concerns, please call Nanette DiLauro, Director of Financial Aid Operations at 212-854-3711.

Zvi Galil Dean Fu Foundation School of Engineering and Applied Science

Austin Quigley Dean Columbia College

I've posted previously about the financial aid racket and financial aid administrators who sign off on loans that students have no business taking out. Now comes the news, according to the New York Times, that "[t]he directors of financial aid at Columbia University, the University of Texas at Austin and the University of Southern California held shares in a student loan company that each of the universities recommends to student borrowers, and in at least two cases profited handsomely." I bet that's the tip of the iceberg.

So George Washington University, already the country’s most expensive college, has raised its tuition again and broken the $50,000 barrier (including tuition, housing, and mandatory fees).

An article in the Washington Post quotes a GW student already $60,000 in debt: "I think people are going to come regardless of how much it costs," and apparently the president of the GW Student Association thinks that “tuition is not a big issue at GWU, in part because parents often pay for it and in part because students think they're getting a great education” (as paraphrased by WaPo).

Is a GW education really so magical that it merits the highest price tag in the country? Either (1) GW is full of people so well off financially that price really is no object (although the über-rich are some of the most cost-conscious people I know), (2) it’s full of people who aren’t so good at math (see my previous post about people who can’t do math when they’re choosing a college and the financial aid racket that facilitates dumb decision making), or (3) GW's financial aid is so generous as to render the ticket price completely fictional (unlikely, given the size of its endowment -- it doesn't enjoy the financial aid luxuries of, say, Princeton).

Published tuition costs are of course really just list or sticker prices, like the ones car dealerships use. A lot of people don’t actually pay list price. Either they negotiate the price down (if they can play peer schools against each other), they are poor enough to qualify for need-based aid, or they can dangle some carrot the school wants, whether that’s geographic origin, race, grades and test scores, or a particular extracurricular talent. Schools discount tuition all the time so that they can engineer the kind of incoming class profile they want. Still, baselines matter. A high list price means a high negotiating baseline for you and a high discounting baseline for them.

Which brings me to the term “discount.” I remember attending a conference for admissions officers and hearing people use that lingo --  the speakers referred to financial aid as “tuition discounting." That's all financial aid is when you boil it down, so don’t get too wrapped up in the sticker price on the window if you have something you know a school wants.

That’s the strategy I generally advise for college selection: go to the place where you’re a big catch for the admissions office and save your money. Career coach Marty Nemko had a great post on this subject, and I agree with 99% of it. In particular, he writes:Although it's easier to make connections at a prestigious college, it's far from certain that you'll make connections that will actually help your career. As you'll see below, many, many students, having mortgaged their family's financial security by attending an expensive private college, graduate feeling disillusioned, even ripped off.

You might protest, "But look at the most successful people! So many came from places like Harvard and Yale."

Yes, Ivy graduates are disproportionately represented in top positions, but that doesn't mean the college was causal. On average, Ivy-caliber kids are smarter, come from better schools, and have brighter, better-connected parents. You probably could lock Ivy-caliber high school in a closet for the four years of college and, on average, they'd end up with much better careers than other students.

A study reported in the American Economic Review concluded that even in terms of earnings, "What matters most is not which college you attend, but what you did while you were there. (That means choosing a strong major, choosing professors carefully, getting involved in leadership activities, getting to know professors)...Measured college effects are small, explaining just one to two percent of the variance in earnings." (James, et al, 1989).In that post he also has a list of schools that offer great educations for more modest price tags.

The one piece of advice in his post I don’t agree with is to factor the weather into college selection. Four years fly by before you know it, and it doesn’t make sense to me to rule out an otherwise great option right off the bat just because you don’t like the climate. (Weather can be a nice tie-breaker, though.) The same goes for how chi-chi the surrounding neighborhood is. That's all trivial compared to what goes on inside the classroom.

I’ll close with an important caveat: I’m a firm believer in the maxim that it’s the terminal degree that counts. That means that you should go all-out to attend a prestigious graduate school, assuming you’ve already done the analysis to figure out that the particular graduate degree you’re interested in is a worthwhile financial investment to begin with. If you’re going to spend big bucks on a degree, don’t spend it on your first one. Go to the college that represents the best value proposition, knock people’s socks off, and then invest in a fancy-pants, big-ticket, big-name graduate school.

Guess law firms are hoping that throwing more money at associates will encourage them to stay (until they're up for partner, of course). This just in: Simpson Thatcher in NYC has broken from the pack and raised salaries...announced this afternoon.  See email below.

>  The Firm has been very busy and we expect the high level of> activity to>  continue. We are proud of the results we are helping our> clients achieve. >>>  We believe we have the finest legal team of any global law firm. In>  appreciation of your efforts, we are pleased to increase> associate base>  salaries as follows, effective January 1, 2007: >>>  Class of 2006 - $160,000>>>  Class of 2005 - $170,000>>>  Class of 2004 - $185,000>>>  Class of 2003 - $210,000>>>  Class of 2002 - $230,000 >>>  Class of 2001 - $250,000>>>  Class of 2000 - $265,000>>>  Class of 1999 - $280,000>>>  Class of 1998 - $290,000>>>  We are also raising the base salary for the members of the > Class of 2007,>  who will arrive in the fall, to $160,000.>>>  Counsel and classes senior to 1998 will be addressed on an individual>  basis.>>>  Again, on behalf of the Firm, thank you for your commitment > and hard work.>>>  January 22, 2007>>>  Pete Ruegger