Liz Weston

Don’t think college is worth it? Read this.

February 11, 2014 By Liz Weston

The earnings gap between young people with and without college degrees is the widest in half a century. Recent college graduates are more likely to be employed full time and far less likely to be unemployed than high school grads.

And all that debt college grads had to incur? The vast majority of college grads aged 25 to 32–72 percent–say their education has already paid off. Another 17 percent believe it will in the future.

Those are just a few of the fascinating statistics from the latest Pew Research survey, aptly titled “The Rising Cost of Not Going to College.” Read, learn, and use the statistics to combat those who say a college education isn’t a good value.

Lowering college costs: What you need to know

February 11, 2014 By Liz Weston

My latest Reuters columns focus on financial aid and new opportunities for borrowers with private student loans to get some relief.

One of the big complaints about private student loans is how hard it’s been to consolidate or refinance these often high-rate, variable loans. Many big lenders fled this market and those that still offered the loans weren’t much interested in reducing rates for borrowers.

That’s starting to change as smaller lenders see the opportunities to cherry pick the most credit-worthy borrowers and offer them better rates. A new entrant into the market, RBS Citizens, is even offering fixed-rate refinancing. (RBS operates as Citizens Bank in the northeast and Charter One elsewhere.) For more, read “Student loan borrowers get relief from small lenders.”

Meanwhile, the financial aid season is in full swing as families submit their FAFSA forms and hope for the best. My column “How asking for aid could hurt your college chances” warns that most schools aren’t truly need blind, which is why you need a strategy for getting admitted.

Since most families need some help in cutting college costs, going without financial aid isn’t a smart option. In “Seven ways to help your child get more money for college,” I review the best ways to lower your expected family contribution. “Four financial aid strategies that can backfire” covers the strategies that won’t work.

In addition to those four, here are two other approaches doomed to fail:

Making kids “independent.” A father with a hefty income said that he didn’t plan to help any of his kids pay for college. He rationalized that without his support they could be considered “independent” for financial aid purposes and get help based on their own meager income and assets.

Sorry, Dad, but colleges closed that loophole decades ago. The Higher Education Amendments of 1992 tightened the definition of who qualified as independent for federal financial aid purposes to people who are:

24 years of age or older
orphans or wards of the court and those who were wards of the court until age 18
veterans of the U.S. armed forces
graduate or professional students
married
parents or who have legal dependents other than a spouse
students for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances.

A parent who simply refuses to help isn’t typically considered one of those “unusual circumstances.” Financial aid will be based on his resources, which can effectively cut off grants, scholarships and loans for the children he won’t help.

Faking in-state residency. College consultant Lynn O’Shaughnessy of San Diego heard from a family who thought they would only have to pay out-of-state tuition rates for their daughter for the first year, believing that after spending her freshman year at the school she would qualify for in-state tuition.

States vary considerably in defining residency but typically require that at least one parent be a state resident for a full year before the student starts college. If the parents are divorced, residency is based on where the custodial parent lives. FinAid.org has a list of state residency requirements on its site.

Tuesday’s need-to-know money news

February 11, 2014 By Liz Weston

Today’s top story: How to tackle debt as a couple. Also in the news: Creating a personal finance statement, the pros and cons of buying pet insurance, and how to have a great first date without going broke.

6 Tips for Tackling Debt as a Couple
There’s no need to go it alone.

Will Your Personal Financial Statement Surprise You?
If you’re looking to start a small business, a personal financial statement is a must.

Should you buy pet insurance?
Keeping your four-legged friend healthy can become expensive.

How to Be a Cheap First Date
Making a great first impression without going broke.

How to Pay for Cancer Treatment When You’re Broke
Help is available.

Monday’s need-to-know money news

February 10, 2014 By Liz Weston

Today’s top story: Finding the best strategy to pay off your debt. Also in the news: The best way to use your tax refund, the credit scores needed in order to obtain a mortgage, and how to get rid of your bad money habits.

What’s the Best Debt Payoff Strategy for You?
You need to have a gameplan.

Eight ways to use your tax refund wisely
Oddly enough, purchasing a Harley is not on the list.

How Many Credit Scores Do You Need to Get a Mortgage?
Start with one from all three credit bureaus.

3 Simple Steps to Help Change Bad Money Habits
Identifying your triggers is essential.

How to Stop Living Paycheck to Paycheck
Four steps that will help give you some breathing room.

How asking for aid could hurt your college chances

February 10, 2014 By Liz Weston

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)

Widower may be out of inheritance

February 10, 2014 By Liz Weston

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.