Is your college plan going to suffer from the “Base Year Blues”?

Calendar year 2011 comes to a close in just a few days. And the onset of 2012 signals a critical date for parents of high school juniors.

Yet that critical date is rarely recognized in time.

What is it? It’s called the Base Year.

For members of the Class of 2013 who plan to apply for need based college aid, it’s the year upon which colleges will make decisions about how much aid to award.

Unfortunately, this important time falls in the middle of an academic year, so it kind of goes by unnoticed.

The importance of the Base Year is clear for those of us in the trenches. To the extent that income can be minimized during the Base Year, aid eligibility is maximized. For example, in the need analysis formulas for both federal and institutional dollars, the top dollars of most families are assessed at 47%. In other words, a dollar of income that does not land on your tax return creates 47 cents of additional eligibility.

That may not sound so fantastic until you take a look at all the little gremlins that can innocently land on your tax return.

• Can you avoid a capital gain distribution?
• Can you adjust your withholding to avoid a state tax refund?
• Are you thinking about withdrawing from a traditional IRA or qualified retirement plan?
• Should you be investing in a way to produce income or growth?

It’s not uncommon for us to see a combination of these elements create “taxable events” in excess of $10,000. That means a $4,700 reduction in aid eligibility during the first year of college.

That means over four years close to $20,000 in missed aid opportunities.

We advise students and their parents about dates, deadlines and critical events using a milestone planning approach, and one of the very first critical milestones is the onset of the Base Year.

This is just one reason why you must begin planning for college early. To help you with that, we are inviting you to download a Special Report that covers what we consider the 19 critical milestone events in college planning. In the report, you’ll learn what to do and when.

No more wondering “what’s next?” in college search.

The milestone planning approach is further emphasized in our online community. By taking advantage of the education modules, forum and personal Q&A features of our membership, you can develop a top-notch game plan for college. Give it a try. You won’t regret it.

Access the College Planning Milestones Report here.

A recent online article in the Wall Street Journal (online) by Susan Shellenbarger addresses an issue facing millions of high school students right now:

Tests – SAT, ACT & PSAT (also known as nightmares)

The article covers important elements such as the impact of diet, sleep, pre-test studying, and test practice.

Test Time

Ms. Shellenbarger’s piece also addresses the myths of studying effectively while listening to music, texting or working in a noisy and distracting environment, as well as how to address and hopefully overcome exam nerves.

Our main additions to the message of this article are:

• Do not treat the PSAT as a “practice” test. This is the entrance door and puts the student on the radar.
• Review the question: Is the student more competent at SAT or ACT, and what is the predisposition of the colleges?
• Do not take the actual test repeatedly. You can never be sure which scores will show up. There are many courses with practice tests. Use them. Taking the official test more than twice? That gets some colleges asking the question: “Is test prep all this student does?”
• And taking a comment from a reader of the article: “Test prepping doesn’t start the day before or the week before. If that’s necessary you are already doomed.”

(We will not address the test optional issue here.)

We strongly recommend you read Ms. Shellenbarger’s Article, “Toughest Exam Question: What Is the Best Way to Study?” (WSJ Online) for some very useful insights.

We welcome any comments from our readers also.

This is part three of our three part series on enrollment management, net price calculators and affordability.

In part one, we learned about how colleges employ various enrollment management and financial aid leveraging strategies to attract the students they really want.

In part two, we discussed the Federal mandate for all colleges to provide “cost transparency” by posting net price calculators on their websites.  We also shared the results of our research on the net price calculators at over 80 colleges.  Based on the inconsistencies we found, there is much work yet to be done in pursuit of true cost transparency.  So nothing has really changed.  Each family still has the responsibility to determine exactly what is affordable while evaluating many desirable college options.

Wouldn’t it be great if you were able to go to a college or university website, enter your financial data into a secure calculator and get the real annual cost to you if your son or daughter were admitted to that school?

The new Net Price Calculators (NPC) are supposed to provide that option.

October 29th is the date when all colleges in the United States are required to post calculators on their web sites that provide this type of cost transparency to prospective applicants and their families.

The jury is out on just how effective and accurate these calculators will be, and our research to date justifies those who have expressed serious doubts about this initiative.

This post is split into two parts:

• Results of our research and why parents and planners should treat the NPC’s with extreme caution and diligence.
• An account of the background and history that has led up to this development,                (Essential Background) if you are not fully up to speed with college financial aid basics.

We must also confess that this is not the easiest or most entertaining topic, but it is an essential element to grasp and understand.

Higher Education Act 2008 – Feds To The Rescue?

• The objective is valid.  The current outcome is lacking.

• The goal of the NPC provision was to help families determine how much they will really have to pay.

• For an explanation of how students and families have been confused and disadvantaged by the college admissions and financial aid process see below: Essential Background.

• Under the new system, prospective applicants will now be able to enter financial (and in some cases, academic) data into the NPC on a college website.

• The intent was to provide a method for consumers to get a cost estimate from a college before an application for admission was made.

• The U.S. Department of Education developed a basic NPC template. Other companies also offer NPCs that add more flexibility for the colleges.

• Consequently, consumers are going to find a lack of uniformity among the NPCs they encounter and this will indeed create confusion.

Observations From Our Research Of Over 80 NPCs

• Many families will not know whether or not a college employs tuition revenue management or “financial aid leveraging” wherein students at the top of the admit pool (academically) receive preferential aid packages in order to influence enrollment decisions.
• There are close to 1,000 colleges that employ some form of this practice.  No single net price calculation will flag them.
• Even if you know the college’s policy, you will not know where you stand until you get your award letter.
• We conducted almost 200 calculations using a variety of different NPCs and found only two that truly incorporate the student’s academic record. 
• Even that does not speak to one’s standing within the pool of admitted students.
• It was very concerning to us that each of the calculators we used collected different family data.
• Colleges are permitted to use customized approaches, but without a uniform method, real comparisons among colleges are difficult to make.
• There is no uniform way that colleges are required to display NPC results.
• Finally, there will be serious confusion for divorced and/or separated parents.  Some colleges will require financial data from both biological parents to ultimately determine a financial aid package, but we have not yet seen an NPC that can “run the numbers” for these situations.

Like MSRP Net Cost Is Only Part Of The Story

• The uncertainty with regard to your standing in the pool of admitted students extends to awards made to meet financial need as well as merit scholarships.  While average merit awards are embedded in the college’s average grant aid figure, this is only marginally informative or helpful for any individual applicant.
• Merit scholarships may or may not be part of college’s aid package (a policy issue) and for some colleges any amount assumed is pure speculation.  The NPC’s we researched often include a disclaimer in this regard and note that it will be subject to the judgment of Financial Aid Office or scholarship committee.  That’s comforting.
• Our research of 80 institutions indicated that net price varied by more than $10,000 for the same college depending on the EFC (Expected Family Contribution).  We also found that variations among colleges for the same EFC can also be in the tens of thousands of dollars.
• So you must enter data into the NPC for each school under consideration using the instructions provided on the respective websites.  And, you should run the NPC in subsequent years too.  This will account for changes in TCOA (Total Cost Of Attendance), EFC formulae, family finances and other important data.
• Families should also be aware that timing is a key issue.  Colleges may change their financial aid packages in the spring depending on the applicant pool and the enrollment targets they need in order to achieve net revenue goals.  The aid estimate generated by completing an NPC in the high school senior year may differ from the aid awarded in the spring even with no change in financial data.
• We advise you to print the NPC results from each college website in order to compare the results to the award you actually get.  This will provide some potential leverage at decision time.

Establish Your Financial Comfort Zone

With all of these conditions in mind, when assessing one or comparing a list of candidate colleges it is up to each family to conduct an “affordability review” that determines precisely what you can comfortably handle for a net cost.

• Remember, true net cost is TCOA minus grants and scholarships (money you do not need to repay).
• But you will be offered student and parent loans to cover unmet financial need.

In part three of this series, we will discuss the affordability review and how it can help you evaluate your NPC results  - before you write that first tuition check!

Essential Background

For decades, the financial aid system in the United States has been grounded in three major elements:

• The college’s so-called “sticker price” (Total Cost of Attendance or TCOA)

• The Expected Family Contribution (a calculated value based on a complex formula that allegedly reflects  “family financial strength”, and

• The difference between the TCOA and EFC which is defined as “Need”(or more precisely, a family’s maximum eligibility for financial assistance)

Financial Assistance has always been delivered in two flavors:

• Self Help (Student Loans and Campus Work Study and,
• Gift Aid (grants and scholarships) which do not have to be repaid.

After financial assistance has been subtracted from the TCOA, it is up to each family to find a way to pay the EFC.  It’s the most basic responsibility in paying for a college education.

In a perfect world, each family would pay its EFC and financial assistance would cover the difference between the EFC and the TCOA.  However …

In Most Cases, Confusion Reigns And Families Pay More Than The EFC
At their discretion, colleges often award financial assistance packages that fail to provide all of the aid for which a student is eligible.

There is a myriad of reasons for this practice, but let it suffice to say that most colleges do not provide financial assistance that covers one hundred percent of a student’s financial need.

And even in cases where one hundred percent of need is satisfied, grants and scholarships are combined with substantial portions of self-help.

Unfortunately, awareness of the EFC, its meaning and how to calculate and use it are often obscure to the public until late in high school.  As a result, most families really do not plan and strategize with the EFC like they do about income taxes.

In fact, many financial services professionals will provide financial plans that simply include the time inflated TCOA when “helping” parents plan for college.  Rarely is there any discussion of net price or establishing college savings strategies focused on covering the EFC versus the TCOA.

In and of itself TCOA is not a good metric when looking for the best value or when trying to compare colleges unless you are a well-to-do, full-pay family who has no need of financial assistance.

But what about everybody else?

Our Affordability Review (a major element in our CSGP membership program) is an essential foundation of our college planning approach.  It enables a family to create a clear and realistic vision for a successful college funding campaign.

A financial planner asked us recently why we created the College Search GamePLAN teaching platform for college search, admissions and funding.

Our long time colleague, Tom McGrath had this image in his library, and it provided a clear answer…

We are like the grizzly old guy trying desperately to stop that woodpecker making more and more holes and sinking the ark with all its passengers.

In our case we are trying to help students and families achieve a successful college career while preventing them sinking in an ocean of debt.

The reason old Noah’s having such a hard time swatting that bird is that it is so fast and attacks so many different areas (as you can see).

And that is what we confront when providing college search guidance and planning to families with college bound students, and to financial planners who are responsible for helping families protect their assets.

The college search and financing process creates many challenges and problems. Here are just some of the main ones:

College – Total Cost of Attendance (TCOA)

College affordability is an ever increasing challenge.

Our database now shows 99 schools with a total cost of attendance of $50,000+ per year (and some closer to 60K). There were 8 schools at that level in 2009.

If you are a parent of an elementary or middle school student, what do you think you will be facing a few years from now? Or do you not want to think about it (remember the ostrich with its head in the sand?)?

And if you are a professional with clients that have college bound children, how will you help them confront this financial challenge?

And don’t believe for a moment that there are many schools with much lower costs. Today, very few are in the lower $20,000 range.

Not understanding academic competition

Even excellent students can find themselves on the margins of acceptance at many colleges, and not just because of fierce academic competition. The odds are stacked against them.

Take a look at the following example:

Harvard, Princeton and Yale, certainly three of the most highly selective universities announced that they received a combined 89,345 applications for a paltry 4,286 “open” seats, which implies that only 4.7% of those applicants will enter the Class of 2015.

4.7% is pretty skimpy (it would seem) but, in reality, even this number is inflated.

The fact is that after those schools have accepted their legacy students, international, minority, geographic, athletes, musicians, etc., there are probably fewer than the 4,286 “real” open seats available for the “average” qualified student.

And don’t think for a second that this process is limited to those three icons.

Many excellent students are limiting their opportunities by applying for early admission and/or applying only to their “dream school” (or just going through the motions with regard to back-up applications) …

The result: Many experience the deep disappointment of rejection or being waitlisted (which is pretty close to rejection).

There are many excellent “best fit” colleges out there. You just have to know how to search and identify them.

Flawed college search

Following on from the last topic …

Too many students are choosing a college before understanding their financial options. This is a recipe for disaster – putting families in situations where financial offers from some highly visible colleges, make attending their student’s “Dream School” a financial nightmare.

The myth of “Choose first, pay later” is just that, a myth. It’s imperative for families to learn what their financial options are.

Make sure you have a sound financial strategy in place before beginning the college search.

College drop outs/transfers/late graduation

We have all heard this proverb: “He who fails to plan, plans to fail”

According to which study you read, first year college drop out/transfer rates hover around the 28-33% mark or even higher.

Average graduation rates range from 5 to 6 years (for a four year degree).

With annual college costs ranging from $25,000 to $50,000+, the financial impact is immense.

What leads to transfers, drop outs and late graduation?

A whole range of factors come into play here. But the core lies in lack of planning and lack of awareness of how the college admissions process works.

The frequent result is typically a large financial hole filled with monetary and personal “costs” as well as a number of non-transferable credits left “on the table.”

College Debt

Total student loan debt in the U.S. is expected to reach $1 trillion in 2011. That’s more than the nation’s total credit-card debt.

The college graduates of today, who used loans to pay for college, will graduate with an average of nearly $24,000 in federal direct loans. That’s not even touching upon those who got into the private loan market or parental debt.

See the scary trends compiled by the National Center for Education Statistics here.

Not understanding the college search process
We are only scratching the surface here.

When we drill down deeper into the process, there are many challenges, obstacles and distractions that derail the quest for the right school.

Clearly thought out planning for college with cost, debt, “best fit”, academics and timely graduation is essential. And NOW is the time to start!

Our College Search GamePLAN program guides families (and professionals that have clients with college bound students) through this process in detail, step by step.

We offer a 7-day free trial so you can give it a test drive. Just click here.

Summer Holidays – Dreaming About College?

The weather is getting hot. Picnics, barbecues and getting in the water somewhere are the thoughts that occupy our minds.

There might even be brief occasions when a high school student might think about getting into college, or a parent might be concerned about finding money for college, but why not wait until high school starts again in September?

Or for those parents with younger children, setting up camp schedules for their 7 and 8 year-olds, planning for summer and vacations – Money for college and other college search questions can stay on the back burner. After all, those kids will not head off to college for another 10 years or so.

Yes, why worry? There is no pressure (otherwise known as “ignorance is bliss”).

If our College Search GamePLAN blog had a big air horn, we’d let it rip right now!

Remember the old saying: “A stitch in time saves nine”?

This is a golden rule if your student is college bound (no matter the age).

Since we don’t have a foghorn or an air horn like those big old trains, we’ll just try to spread the word and hope a few will listen and TAKE ACTION!

Here are just some of the issues we will be discussing over the next few weeks:

• Who should be planning for college and when should they start? (And who is “who”?)
• Money for college: When and how should you begin a college financial plan?
• Who should be involved in the college search and admissions process? (And again, who is “who”?)
• Why “scholarships” might be “fools’ gold”
• College search – Beware of “shiny objects”
• College statistics that can make your eyes water

So stay tuned. The posts won’t be super long and will address a variety of issues as well as money for college. But if they flip your college search and financing switch and help get you on the go, they will have done the trick.

As high school Juniors embark on their college searches, what preoccupies them?

Dreamy student (Photo by Julia Freeman-Woolpert)

We know that many large schools use sports programs as an aggressive marketing tool (that should give you some ideas).

And after so many years working with families, we can cite a long list ranging from brand name, class/dorm (co-ed or not) size to location, boyfriend/girlfriend, favorite teacher’s alma mater, even proximity of shopping mall … and on and on. (You would be amazed!).

But we rarely hear any concern about retention and graduation rates.

Retention is the percentage of first-year, full-time students who return to the same institution for their second year of college.

Here is a disturbing fact:

28-33% of students transfer or just drop out of college after their first year.*

With annual college costs ranging from $25,000 to $50,000+, do you really want to be included in this statistic?

For more insight, read our article, The College Search Storm.

What leads to transfers and drop outs?

Typically, the college and the student are a “wrong fit” academically, contextually and/or personally. This in turn leads to an unhappy and underperforming student and a drag on the institution also – A “lose-lose” situation.

The frequent result: A transfer or drop-out of college with money and non-transferable credits left “on the table”.

Do you want to “throw away” money for the “wrong fit?”

There is no absolute guarantee that a student will be happy at college, but a solid college search plan followed by student and parents working as a team can reduce the risk of an unfortunate choice.

Never before could the old adage “a stitch in time saves nine” be more relevant and appropriate.

Watch for the next post on graduation rates!

*According to a newly released study from ACT, Inc., retention rates at 2-year colleges are increasing (up 8.5% to 55.7% since 2004) while they are decreasing at 4-year public colleges (down 3.5% to 67.6% since 2004). Looking at the study, the drop in retention at 4-year private colleges since 2004 is down the same percentage (down 3.5% to 72.4%).

In prior posts, we have pointed to the confusing mass of information regarding college search and admissions.

Who can criticize parents and students researching as much as possible to help make the right decisions?

But how should they use the information to establish a solid and rational decision making process?

By reading a recent Bloomberg article, based on what appears to be a number of phone interviews and statistics, early applications are now driven by the need for future job security. The opening paragraph reads:

“Applications for early admission to Massachusetts Institute of Technology, Duke University and Dartmouth College rose to the highest on record as students said name-brand colleges give graduates an edge in job searches.”

And yet, a Wall Street Journal Survey, published in September, reveals that business and industry recruiters put more faith in state schools than the Ivies or “name brand” colleges.

This short video interview sheds light on this topic …

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When discussing this subject with our colleague, Tom McGrath, a 20+ year veteran in the trenches of independent college counseling, this was his response:

“Which rationale do we believe really motivates 17yr old early action/decision applicants for the Ivies and near Ivies.

I seriously doubt that it is jobs in a future economy(4 yrs down the road) that no one can even describe or characterize with any certainty today that drives most of these students to undergraduate studies at Brown, Harvard, Stanford etc.

I believe, prestige, reputation and aspiration for top grad schools is a bigger force for most students. This point was affirmed by the employers surveyed in the WSJ video.”

As one honest soul (student) admitted in the most recent article, the current strategy of applying early to Ivies and “near Ivies” is seen as a way to improve one’s chances of being admitted to top colleges and universities – even with less than stellar test scores or GPAs.

Based on conversations with admissions officers, it seems this strategy has gone “viral.” As a result,  the strategy now may be less effective than once thought because the number of early applicants with skyrocketing test scores (1400+) and 4.xx grades in rigorous high school curricula has gone through the roof.

The colleges now simply have their pick of the litter from a larger and much more competitive early admission applicant pool.  In fact, it has become yet another unexpected phenomenon for admissions offices at highly selective colleges to manage.

In other articles, we have pointed out the potential harm of early decision and obsession with “dream schools”. Thinking that you can “game the system” falls into the same category.

“The object of education is to prepare the young to educate themselves throughout their lives.”

If a family lays the foundation of the college search focusing on Robert M. Hutchins’ quotation, and follows the principles and guidelines we have used successfully over the past 20 years, the need for tricks, gimmicks and fads will quickly fall by the wayside.

“Can you afford it?”

Christine Romans, anchor of CNN’s Your $$$$$, asks on the cover of her new book, “Smart is the New Rich”.

Romans’ theme: how to control your money – by watching how you use it and spend it across the board.

Here’s the follow up in the title:

Where will the money come from?

How about a college education?

How many school counselors, teachers, college admissions officers and, last but not least, parents, are going to utter that crushing admonition to a college bound high school sophomore, junior or senior determined to apply to a “dream school”?

Not many, we would guess.

So is it a good thing to let the process run, hoping for the best in spite of a high probability that the hammer/axe will fall at the very end?

How about a different and more uplifting approach with regard to a college education …

“Let’s begin by identifying schools that are affordable and that generally fit our academic and personal profile. And then we can drill down to see which ones offer the ‘best fit’ and are affordable for the family.”

This allows the family to take control of the college search, rather than being at the mercy of colleges and their financial aid policies.

Parents, are you going to keep your eyes closed praying and hoping for a positive outcome?

Or can you work with your student using focused strategies and tactics?

Here is a quick checklist (not exhaustive), built in the trenches of successful independent college counselors:

• Take a good long look at your family finances (According to Kathryn Canavan’s review of Romans’ book in USA Today, a solid 56% of us still don’t have a household budget and 30% of us have no savings)
• So there is solid work to do there for many of us
• How would the cost of attendance in college affect your family financial status?
• Get this “financial checkup” done ASAP – ideally well before the end of sophomore year in high school – This is important. Check out the Money Factor on the CSGP Gameboard (free membership available)
• Learn the basics of student financial aid (again, you can visit our free membership site to learn about cost of attendance and financial aid)
• Know your resources. For example, do you have 529 accounts to apply toward higher education costs?
• If so, do you know what actually qualifies as a “higher education cost” ? (Courtesy Morningstar Advisor)
• Make sure you’re saving the right amount in the 529 plan (if you are able to set aside funds for that)
• If you have savings, put them in the “right” account
• Savings or no savings, make a close analysis of your cash flow and work out what you can really afford on a monthly basis

In other words, know your options, before your student (and you) go down the single and narrow path of choosing/pursuing a “dream school”.

And if you follow a real college search plan, you may well find several “dream schools”, some of which are much more affordable than others, as well as offering a superior educational experience.

In the end, if the “dream school” (or any other for that matter) is out of reach (financially or academically), the stark reality will have to be delivered by the parents rather than those other “players” who are really not stakeholders in the family’s well being.

Sometimes, it is the student that sadly walks away from an opportunity in order to not burden the parents.

With solid options, parents do not have to suffer the crushing consequences of having to tell a son or daughter they cannot go to their first choice school.

With solid options, the student can enjoy the power of choice.

This approach requires family teamwork, and casting aside some taboos.

It’s not always easy, but the rewards are great, and may well keep the college cost wolves away from the doors of students and parents.

Are you and your student ready to work as a team? Visit the CSGP membership site and take a tour of the gameboard for more insight.

Health Care Proxy

College freshman everywhere are settling into their residence halls and high school seniors are eagerly anticipating being next.  Moving on to college is an important milestone for young adults, but it is important not to lose sight of other turning points along the way as parents and students prepare for college.  An important checkpoint is the student’s 18th birthday – the point in time when the law sees the student as a full adult, whether or not the student is still living at home or even still in high school.

This birthday has many implications, but one of the most important – and most often overlooked – is that parents no longer have any inherent legal authority over the student.  So, in an emergency, telling medical professionals that you are someone’s parent will not allow you to make medical decision for them.  And if a student goes abroad, simply being his or her parent won’t allow you to sign tax returns or leases for the coming year on their behalf.

There is a simple solution – every young adult, upon reaching age 18, should consult with an attorney and have three important documents drafted for him or her: a Durable Power of Attorney, a Health Care Proxy, and a HIPAA Authorization.  These documents, if properly drafted and executed, will allow a young adult to decide who should have the power to make which decisions for him or her if needed, and will provide both the student and the parents with a great deal of peace of mind.

Many thanks to Jennifer Taddeo, ESQ, for providing this article.