LOS ANGELES (Reuters) – Filling out the federal financial aid form known as the FAFSA “is one of the first and most important steps” to getting a college education, First Lady Michelle Obama told a group of parents and students attending a FAFSA workshop at a Virginia high school on Wednesday.
What she didn’t mention is that applicants’ financial need can hurt their chances of being admitted at many schools.
Public colleges and universities typically make admissions decisions without regard to the applicants’ ability to pay. Only the nation’s richest private colleges, however, can afford to accept students based solely on their merit, and then meet 100 percent of any financial need those admitted students have.
The vast majority of private institutions practice some version of need-aware admissions policies to balance their mission to educate with their need for revenue to pay the bills, said Jim Jump, a former president of the National Association for College Admission Counseling.
“Most institutions are trying to do the right thing, but they are facing budgets that are getting squeezed,” said Jump, who is now academic dean and director of guidance at St. Christopher’s School in Richmond, Virginia, and a blogger (here).
“It’s only the old established institutions with great endowments, like the Ivies, that are able to be need blind with every student.”
The recession derailed many schools’ attempts to become need blind – or at least less need aware – as shrinking endowments collided with greater student need. Jump said he fears that going forward, colleges will have to become even more mindful of who can pay, and who can’t, as the pool of traditional-age students continues to shrink.
Even before the recession, college consultant Todd Weaver suspected that some schools touted themselves as need blind mostly as a marketing ploy.
“They wanted to increase their applications from every walk of life (so they could) reject more applications and make themselves look more selective,” said Weaver, of Strategies for College, a Hanover, New Hampshire-based consulting firm.
AID AND THE WAIT LIST
Many private schools are essentially need blind in their first round of admissions, Jump said. Top applicants are chosen solely on their merit. In subsequent rounds, more marginal students will be considered, but with an eye to whether they can pay their way or will need help. Students with high need may not get an offer of admission or may be wait-listed. Even if eventually admitted, these wait-listed students may get little or no financial aid, Jump said.
George Washington University had to admit late last year that its supposedly “need-blind” admissions policy actually wasn’t.
The university’s independent student newspaper, the Hatchet, broke the news that applicants who met the school’s admissions standards but who were not among its top applicants were moved from “admitted” status to “waitlisted” if they required financial aid.
Another approach public and private schools take is to accept students regardless of their financial status, but then fail to meet all or even most of their financial need in a process known as “gapping.”
Thanks to state funding cutbacks, public schools “rarely have enough money … to say they’ll be able to meet need,” Weaver said.
Meanwhile, many schools aggressively court foreign students and others who, based on ZIP code and other signifiers, such as private school attendance, they’re confident can pay full price.
That doesn’t mean poorer students should try to mask their true financial standing, college consultants stressed. They just need to be strategic about where they apply.
Focusing on public colleges and universities where the student has a reasonably good chance of admission is one such strategy. Most students attending four-year colleges, and the vast majority attending two-year schools, go to public institutions.
Families interested in private colleges would be smart to seek out schools where their students are likely to make the first cut in that initial round of admissions decisions, Jump said. Resources such as the College Board, CollegeData and the National Center for Education Statistics show the range of test scores, GPAs and class rankings for admitted students.
“You should apply to places where you are very much within the acceptable range,” Jump said, “as opposed to applying to nothing but ‘reaches.’”
(The author is a Reuters columnist. The opinions expressed are her own.)
(Editing by Beth Pinsker and Leslie Adler)
Dear Liz: My wife of 34 years died five years ago. Her father is 94. He has accumulated a large amount of wealth over the last 40 years. I always made a point of staying out of financial discussions between my father-in-law and his daughters. He told us for years that upon his death all his wealth is to be divided between us (my wife and me) and her sister. Recently, a gold digger reappeared on the scene. My father-in-law and his late wife took her in at a young age when her parents died. I don’t know if she was ever formally adopted or not, or how that affects the situation. My question is, do I have any legal rights, upon my father-in-law’s death, to any distribution of his estate if I am not listed in the actual trust or will?
Answers: Your chances of inheriting from your father-in-law may have died along with your wife.
Sons-in-law don’t really have inheritance rights. If your father-in-law dies without an estate plan, state law would dictate who his heirs would be: typically his surviving spouse (if he has one) and any living children. Even his kids would have no legal right to inherit if he has a will or trust that disinherits them.
Estate plans sometimes make provisions for a child’s spouse, particularly if the money eventually will be inherited by the grandchildren. Such a trust might give you the right to income from assets that on your death would go to your wife’s children, for example. If there aren’t grandchildren, though, the money your wife would have inherited may simply go to her sister (and possibly the “gold digger,” as you describe her, if she’s included in the estate plan).
Of course, if the old man likes you, he could make a bequest to you in his will. But you have no legal right to demand that he do so, and any attempt to pressure him could raise the question of who is the actual gold digger here.
Moving student loan debt
Dear Liz: My daughter has $30,000 in student loans from obtaining her masters degree. The loans have about a 7% interest rate. She will be eligible to have $5,000 forgiven if she works five years in a low-income school. Although she is currently so employed, she does not know whether she will stay there for five years. I have a line of credit available with a 4.8% interest rate. It seems to me that she will pay less overall if she uses my line of credit to pay off her student loans and makes the monthly payment on the line of credit. Does she miss out on developing a good credit score by using my credit? Is it worth paying the higher interest rate to develop that credit history?
Answer: There are several reasons not to use your credit line, and they don’t have to do with her credit scores.
The student loans are helping her scores now and will continue to do so even after they’re paid off, since most lenders continue to report closed accounts for years.
If she uses your line of credit, though, she won’t be able to deduct the interest she pays. Student loans provide a valuable “above the line” income adjustment for most borrowers. They don’t have to itemize to take advantage of this adjustment, which is the smaller of $2,500 or the interest actually paid. The ability to take this tax break is phased out in 2013 when modified adjusted gross income is between $60,000 and $75,000 for singles and $125,000 to $155,000 for married couples filing jointly.
Also, your line of credit carries an adjustable rate that can (and likely will) go higher. The rate would have to rise only two percentage points before it equals the fixed rate on her federal student loans. Federal student loans offer a number of other protections, including income-based repayment options, forgiveness after 10 years in public service jobs (after 25 years otherwise) and forbearance or deferral should she experience an economic setback. She can learn more about these options at studentaid.ed.gov.
Finally, if she failed to make payments on your line of credit, your credit scores would be on the line — as would your home, if the account is secured by your home equity.
It’s commendable that you want to help your daughter, but in this case you both may be better off keeping the debt in her name rather than putting it in yours.
It’s bad enough that tens of millions of Americans’ financial and personal data got hacked in recent database breaches (Target, Michaels and Neiman Marcus have admitted breaches, and more may be on the way).
But this week we learned that you’re much more likely to be the victim of identity theft these days than you were even a few years ago. From Kathy Kristof’s post on MoneyWatch:
If your data had been stolen three years ago, you only had about a 10 percent chance of falling prey to identity thief. Today, one-third of those who are affected by a security breach become victims of identity theft, according to Javelin Strategy and Research, which has done comprehensive annual studies of identity theft since 2006.
If your debit card information was stolen, the chance is even higher – 46 percent of consumers with a breached debit card in 2013 became fraud victims in the same year, according to the Javelin study.
As I wrote earlier, you should demand a new debit card (one with a new number) and change your PIN if you used your card at any of the affected retailers. Same goes if you used a credit card, although you have more protections from fraudulent charges when you use that type of plastic.
And you need to be vigilant. Scrutinize your statements and question every charge you don’t recognize. Beware of emails and phone calls purporting to come from your bank, your credit card company, even the IRS. The Target breach included email addresses and other personal information that could be used to deceive you.
If you really want to make yourself paranoid, watch this short video that shows how much data we leak in a typical day. It’s an eye-opener.
Today’s top story: 11 personal finance books you should read before you turn 30. Also in the news: Avoiding Valentine’s Day scams, five ways to boost your credit score, and how to prepare financially for the zombie apocalypse.
11 Personal Finance Books You Should Read Before You Turn 30
Time to load up the e-reader.
5 Valentine’s Day Scams to Avoid
Don’t let cupid break your heart or your wallet.
5 Ways to Boost Your Credit Score
Simple guidelines for the path to credit perfection.
Preparing Financially for the Zombie Apocalypse
Keeping an eye out for walkers.
4 Free Tools to Super Charge Your 401k or IRA
Give your retirement savings a boost.
Today’s top story: The long wait for credit card rewards. Also in the news: Simple money lessons to teach your kids, tips on switching your car insurance, and how to impress your loved one on Valentine’s Day without going broke.
Where the Heck Are My Credit Card Rewards?
Waiting is the hardest part.
5 Super Simple Money Lessons To Teach Kids Of All Ages
Starting off on the right foot.
7 Smart Steps to Switching Your Car Insurance
Don’t let your car become a financial liability.
7 Ways to Say ‘I Love You’ Without Breaking the Bank
You don’t have to go to Jared.
When Not to Use Tax Software: Should Man or Machine Be Your Accountant?
Complex finances should be left to the experts.
Today’s top story: The wrong way to boost your credit score. Also in the news: Target’s data breach spreads to big hotels, how to make a tax lien disappear, and better, more responsible ways to use credit cards.
The Wrong Ways to Boost Your Credit Score
What not to do in pursuit of a better score.
Latest Known Credit Card Data Breaches Target Big Hotels
If you’ve stated at the Sheraton, Marriott, or Holiday Inn, pay close attention to your bank statement.
How to Make a Tax Lien Disappear
How to handle on of the worst things to appear on your credit report.
Yes, Virginia, There Is a Responsible Way to Use Credit Cards
Credit cards are not the enemy.
10 Ways to Boost Your Retirement Savings
It’s time to build a better nest egg.
Dear Liz: I’m confused about paying down credit card debt. Some say to pay the lowest-balance cards first and others say the highest balance or the one with the highest interest. I have almost $16,000 on credit cards ranging from a $4,930 balance on a card with an 8.24% interest rate to $660 on a card with an 18% rate.
Answer: Actually, the first question you should ask is “How much credit card debt do I have compared to my income?” If your balances equal half or more of your annual earnings, you may not be able to pay it all off. You should make appointments with a legitimate credit counselor (such as one affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org) and a bankruptcy attorney (referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org).
If your situation isn’t that dire, the fastest way out of debt is to pay the minimums on your lower-rate cards and send as much money as possible to your highest-rate card. Once that’s paid off, concentrate on paying off the next-highest-rate card, and so on. Some people instead like to target balances from smallest to largest to get a quicker feeling of victory, but you typically pay more in interest with that approach.
Dear Liz: My wife and I have had our bank’s airline cards a long time, but we want to change because it’s become almost impossible to cash in the miles. What I don’t see in various card-comparison articles are ratings of the card issuers for customer service and fraud protection. Our bank has been quite good at both, but what about the other issuers?
Answer: People are often unduly impressed when their credit card issuers contact them frequently about possibly fraudulent charges. The issuers are the only ones at risk in these situations, since under “zero liability” policies you can’t be held responsible for bogus charges. Also, if their software were better, they might do a better job of separating legitimate from fraudulent transactions and have to bother you less.
In any case, it’s tough to tell as a customer how good the issuer’s fraud prevention measures are. So perhaps a better metric to use is customer service, and J.D. Power publishes an annual credit card satisfaction study that tries to gauge six factors: interaction; credit card terms; billing and payment; rewards; benefits and services; and problem resolution. American Express has ranked at the top of the survey every year since it started seven years ago. Discover ranked second for 2013 and Chase ranked third.
Dear Liz: As a CPA financial advisor to individuals and small businesses, I devour your column. It’s almost always spot on. But the first sentence of your advice to the person whose 401(k) doesn’t offer a match — “start looking for a better job” — was not, and you missed an opportunity to educate your readers in how to compare job compensation.
I encourage my small-business and wage-earning clients to adopt a “total compensation” view to evaluate labor costs and to talk wages with their employees or employers. Employer A offering $100,000 might be better, worse or equal to Employer B offering $70,000 plus retirement plan match and, more importantly, employer-subsidized family health insurance. Besides the intangible factor of job satisfaction, one just doesn’t know which employer’s total financial compensation is “better” without crunching the numbers before and after tax. The two companies might be different only in philosophy of how compensation is paid, not better or worse.
Answer: Some jobs come with pensions or pay so good that the lack of a company 401(k) match is all but irrelevant. It’s safe to say those jobs are not in the majority. The median full-time wage at the end of last year was under $44,000, which means half of all workers earned less. Given stagnant incomes and rising costs, many workers have a tough time saving, so the extra help provided by a company match can make a world of difference in their ability to achieve a comfortable retirement.
Nine out of 10 employers that have a 401(k) offer a match, according to PlanSponsor.com, so plans that don’t are definitely outliers. The most common match is now 100%, or one dollar for each dollar contributed, up to 6% of the worker’s salary, according to the most recent Aon Hewitt study. Nineteen percent of the employers surveyed offered this match, up from 10% in 2011. The most common match used to be 50 cents for each dollar contributed up to 6% of salary.
Clearly, more employers are getting the message that good company matches are an excellent way to signal that they care about their employees’ futures.
Today’s top story: Hiccups to avoid when applying for a VA loan. Also in the news: Keeping your home from turning into a money pit, learning the basics of the Affordable Care Act, and how to file your tax returns electronically.
5 Homebuying Hiccups for Veterans to Avoid
How to clear any potential hurdles on the way to a VA loan.
7 Homebuying Mistakes to Avoid
How not to turn your new home into a money pit.
5 things you need to know about the Affordable Care Act
Learning the basics.
Ways to Electronically File Your tax Return
Skip the long lines at the post office.
Medical Services Medicare Doesn’t Cover
If you need glasses or a hearing aid, you’re on your own.