A guest post by Suzan Bekiroglu.

In October of 2011, President Obama unveiled changes to the federal student loan program.

The changes he introduced could affect millions of student loan borrowers.

If you are a college student, student loan borrower or a high school student looking towards the future, then you should be aware of the changes to federal student loans that will take effect in 2012. If you are considering federal student loan consolidation, it is helpful to know what to expect ahead of time.

Eligibility

Only federal student loans are eligible to be consolidated under this program and there is an estimated 5.8 million borrowers who would be eligible.

If you have at least one federal student loan that was borrowed directly from the government rather than a private or bank lender, then you may qualify under the new rules.

If you do have federal student loans, but have obtained them from a bank or private lend-ing institute, you can still consolidate your loans under the original loan program, but it will not save you money.

Also, important to note, if your loans are in default, you are not eligible regardless of who the lender was.

Income Based Repayment Plan

The first change is in capping monthly payments due on federal student loans to what the borrower can afford to pay.

For example, if a teacher makes $45,000 a year and owes $60,000 in student loans, under the typical repayment plan, he or she would most likely pay about $690 a month.

But, now with the In-come Based Repayment plan, the payment would be reduced to $358 as it is capped to 15% of her discretionary income. In 2014, the IBR’s rates are scheduled to change from 15% of discretionary income down to 10%. Loan forgiveness after 25 years is also included in this plan.

Debt Consolidation for Easier Payments and Reducing Default Risk

The second change has to do with the federal government’s *student loan consolidation program which encourages borrowers towards federal student loan consolidation.

It is important to note that these changes only affect the federal student loan program- private and bank loans will remain the same as before.

The Department of Education is encouraging borrowers with multiple student loan payments to consolidate their debt under the Direct Loan program. Eligible borrowers should be notified by the Department of Education to let them know more about this opportunity.

For example, if a borrower is about to start making payments with two FFEL Stafford Loans for $4,500 each with an interest rate of 6% and one direct Stafford Loan for $5,500 at 4.5% interest, this borrower will be paying over $4,300 in interest until the loan repayment terms are satisfied.

However, if he consolidates his loans, they would save almost $400 a month in interest and have only one monthly payment to make, rather than multiple payments.

*You can find the article at Student Loan Consolidation

About the author

This guest post is written by Suzan Bekiroglu. Ms. Bekiroglu is a published freelance writer and editorial and SEO consultant. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the obstacle of paying over $24,000 in student loan debt. Ever since, she has sought to educate prospective students and parents on student loan debt. She also writes about general personal finance and money saving tips.

A note from the CSGP team.

We think you will find this post informative and useful. We stress that is essential for families to plan college finance as far in advance as possible, in order to avoid the heavy burden of debt on students and, increasingly, on parents. We address this in great detail in the CSGP membership site.

A National Public Radio segment (November 4th., 2011) highlights the burgeoning increase in student debt.

Student loans now exceed credit card debt here in the United States.

This figure does not include debt or asset reduction on the part of parents in an effort to fund a college education without their child graduating with a crippling debt burden.

According to which survey you study, individual student debt on average ranges from $25,000 to close to $40,000 after graduation.

But these are just averages. In our world, we often see students emerging from college with debt loads in excess of $50,000.

Then, many will look for work (if they can find any) that will barely cover their monthly living expenses as well as the educational loan payment.

After you read and/or listen to the article, we recommend you check out the comments below. Review it here at NPR: “College Students’ Borrowing Hits An All-Time High” by Larry Abramson

One of the most perplexing issues for parents in this piece is the contrast between Alabama A&M whose graduates leave with an average debt of more than $31,000, while students at Williams College, in Massachusetts have an average debt of only $8,000 while the “sticker price” at Williams is around $55,000 a year (and will probably exceed $60,000 by next year).

The big difference? A&M is a state school with shrinking state support, while Williams has a $1.7 billion endowment, which allows a generous and laudable admissions and financial aid policy.

This is just one example! So what is our message here?

Get into the college planning game early!

Where should you begin?

Look at your college funding position right now, even if your college bound child is still in middle school (or even earlier).

This might sound excessive. But if you wait until the high school sophomore year, when college issues (academics, location, personal traits and environment) begin to raise their heads, your financial flexibility will be highly restricted.

And this is most likely to have a negative influence on your student’s search for the ideal college.

Getting the college Money Factor squared away early will make the college search and planning clearer and much more relaxed (we have many years of experience that have taught us this).

Here is a symptom of how this effective approach is ignored …

Monthly Google Searches* (as of 11/7/2011):

• “Grants”: 2 million + per month
• “Scholarships”: 2 million + per month
• “College Plan”: 14,800 per month
• “Planning for College”: 1,300 per month
• “Student Loans”: 1 million + per month

Does anyone sense a panic button here? A frantic scrabbling for “free” money, while objective preparation is a rare occurrence.

And then the search for loans (note that no parent loan searches are mentioned). This is just the tip of the iceberg regarding the search for money for college.

So, regardless of what stage your student is in with respect to college search and admissions, we invite you to visit the CSGP Membership. When you join, you get to use all of our content for seven days absolutely FREE.  We encourage you to enroll and then take a serious look at the Money Factor section which will allow you to research and understand exactly how your college funding position will evolve.

Your student can then review those colleges that offer an excellent education as well as a feasible financial profile.

There is no cost to review. You can continue your enrollment at minimum cost and stay with the program at your convenience (just use the material and tools that are most relevant to your needs). You are able to build your college plan’s foundation, then leave and return when the other elements come into play.

Our objective is to help students and families achieve an excellent and successful college experience while protecting the family from an excessive financial burden.

As you can see from the Google search figures above, this is not a simple task.

* Google search based on “phrase” and limited to U.S. searches

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.

This is installment number one of our three part series on what goes on behind the curtain in the admissions and financial aid offices at over 1,000 colleges in the United States.

In this article, we discuss the use of enrollment management and financial aid leveraging by colleges who seek to enroll a first year class that can be retained and which can produce optimum revenue for the institution.

It was first explained to us as follows in the 1990’s by a former Dean of Admissions:

• A generation ago, admission into most colleges and universities was a fairly simple, straightforward process.
• Many admissions offices in the seventies and early eighties were headed by former educators with significant experience as teachers and/or counselors.
• Goals that were considered good practice and typical of the times were:

1. To match students to a college, even if it was not at his/her own institution
2. To help all students receive appropriate need-based financial aid

Then there came a “sea change” …

Enrollment Management:  The “Stealth” Game-Changer

During the eighties, college admission operations began shifting from the educational model described above to a new model utilizing a technique called “enrollment management”.

Though enrollment management can be complex and sophisticated in its full-blown form, the concept is pretty simple.

The colleges designate an executive enrollment manager (Dean or Vice President) who oversees both the admissions and financial aid offices. The mission:

• To enhance the college’s ability to achieve targeted numbers of students (new and retained)
• To do so while optimizing net tuition revenue

This seemingly innocuous, unadvertised transition changed the game dramatically for both students and parents.

Uninformed families can be blindsided by the fallout from this transition.

Enrollment management has quietly brought about increasing levels of scrutiny and competition for admission for college applicants and introduced invisible obstacles to financial assistance for parents.

Overcoming these forces to find the “right college” requires families to conduct more thorough research and to exercise due diligence in their decision making.

It is paramount to be aware that enrollment management has become the norm.

And this is not reserved to only the high profile elite private colleges.

For example, flagship state universities in many regions have adopted selective policies that adversely affect outcomes through such unusual phenomena as state lottery scholarships, diversity quotas, and admission into specialized programs such as Honors Colleges.

Diversity here is interpreted in the broadest context:

• Gender
• Geographic
• National origin
• Socio-economic factors
• Racial factors
• Academics
• Artistic and athletic interests

Some enrollment management practices offer as many as five different admission options and deadlines, and each option offers undisclosed advantages and disadvantages.

Counselors & Financial Professionals Need To Grasp This Concept

As if the tactics noted above are not confusing and stressful enough (how is the average hardworking parent or student expected to be expert in this domain?), another key building block of enrollment management is “leveraging.”

Leveraging (AKA enrollment and revenue management) is a statistically driven system designed to help colleges match aid packages to each student’s “price sensitivity.”

In other words, financial aid is leveraged toward willingness to pay vs. calculated financial need. Advocates believe that without leveraging, colleges tend to “overaward” (offering more aid than a student “needs” to decide to enroll), or they may “underaward” (not offer enough thus causing a student to go elsewhere or to not continue through graduation).

Leveraging purports to get each student the “ideal amount of aid” not just to enroll, but also to continue through graduation.

Parents and students who seek admission at colleges that are even moderately selective and that routinely reflect an annual total cost of attendance in excess of $40,000  (and rising 4-6% per year) are especially in need of professional counsel due to these practices.

Flying solo may be “penny-wise” and “pound-foolish”.

How can the average hardworking parent or student be expected to be aware of these practices let alone develop the expertise to function effectively in this domain?  The first step is to get some help and get educated.

Independent college counselors and financial advisers are in pole position to provide this essential service.

Why College Search GamePLAN Membership is Just What You Need

The information presented above came to us in the mid 1990’s,  and we have built our strategies for college search and paying for college with enrollment management in the forefront of our private practice for more than 15 years.

Later this month, CSGP members will have access to a new Special Report unveiling more specific details on leveraging and a plan to manage all of the difficult realities of the enrollment management puzzle.

This is in addition to over 20 other training modules focused on the ins and outs of developing of a comprehensive, win-win, college gameplan.

You can begin a 7 day free trial membership with College Search GamePLAN today.

Next …

In part two of this series, we will share our research and conclusions about the “Net Price Calculators.”  Our findings are based on what we discovered on 80 college websites.  We’ll also explain the relationship (or lack thereof) between the NPC you find on a college web site and that college’s enrollment management strategy.

Is there any such thing as “Good” debt?

How about student loans?

Many financial planners would tell you any debt is bad debt.

However, the received wisdom in the United States proclaims that student loan debt is “good” debt because (you are told) you are borrowing to enhance your future earnings.

After all, being a college graduate is much more fruitful, leading to a higher income level and a good return on investment… Right?

Our clients and members of the College Search GamePLAN understand that you can only measure ROI when you understand what the total investment is.

Unfortunately, most families don’t “crunch the numbers” in time, and here it is;  that time of the year again when students and parents are looking for the best loans they can get, to help pay for college.

And many families will struggle to cover the difference between the total cost of attendance and any financial aid for which they qualify (the dreaded “unmet need”).

After exhausting cash flow and savings resources, most families look for appropriate loans for the student and/or parents (usually both) to assist in coming up with the money needed for the student to attend class… and get credit for it!

Researching Student Loans

For those looking for helpful student loan forgiveness options, check out this link at the Project on Student Debt.

Also, take a look at your state’s higher education financing authority for programs specific to your state.

An example of one such plan can be found with the Rhode Island Student Loan Authority which rewards nursing students in Rhode Island.

On another note, everyone should read up on what has been resolved over the Federal budget and debt ceiling issues.

As part of the budget reduction options, a key education-related component of the findings by the Bipartisan Commission on Deficit Reduction was implemented (See page 46, recommendation 4.3 on the proposal to eliminate the subsidized interest for student loan debt.).

For now, it looks as though only Independent students and Graduate students will be losing the subsidized portion of their student loans, but this could get worse – for undergraduates – as negotiations in Congress continue this fall.

This could result in a significant change to what is now a very good loan program for undergraduate students.

Currently, for undergraduate student loans originating in 2011, the Stafford interest (after graduation) will be fixed at 3.4%. For loans originating in 2012, the interest rate is set to double to 6.8%. So watch the details.

Student Loans – Some Basic & Essential Questions (Before Signing)

• What is the interest rate? How is it determined?
• Fixed or Variable? If the latter, is there a cap?
• What are repayment options?
• Who is the borrower? Parent or student?
• Are there origination fees?
• Is cosigner required or permitted?
• Will having cosigner affect rates/fees?
• Is the loan secured or unsecured?
• Is interest on the loan tax-deductible?

The College Search GamePLAN training course provides families (and financial advisers) how to effectively approach the issues of college cost and student debt, while finding the best fit college options for the student.

Student loans and debt are, unfortunately, a fact of life. Parental debt is yet another one. Taking effective and timely action will minimize this burden.

PS – We will return to the topic of the “Road To Nowhere”, in response to an interesting comment from a reader.

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.

Or, does a “better (brand) name” translate to a “better education”?

University in the Fall

“I wanted to go to a school with the best name, the best national recognition to get the best job.”

Such is the reason a young woman from Massachusetts gave when asked why she didn’t consider the home-state option when applying for college.

Perception is not always going to be reality.

The University of Massachusetts, Amherst, confirmed that it considers itself a so-called “second-tier” school. As I made a campus visit last year, I can, unfortunately, confirm that the Amherst facilities leave a lot to be desired.

However, the fact is that a bright student is going to do well no matter what the name of the school is on their diploma.

Judging from her academic record in high school, this student probably would have been considered for the Commonwealth College (Honors College) at the University of Massachusetts which offers a world class opportunity to students, on par with so-called “first-tier” schools.

And yet the article reports that her family is willing to pay the additional cost of $100,000 over four years for a degree from the University of Michigan rather than a degree from the University of Massachusetts.

So let’s call a spade a spade.

It seems that it’s not just the academics that are driving students away from UMass, is it?

The students quoted in the article seemed more concerned about the opportunity to watch Division I football and basketball than take the time to truly understand why they were going to college in the first place.

Isn’t it to get an education, and not to find the best “theme park”?

School spirit is important to many students and shouldn’t be overlooked. But if that’s the reason for choosing another school, then just admit it. Don’t spin the story another way.

We deal with hundreds of college bound students and their families, and we certainly don’t begrudge a student wanting to have a different set of experiences in college by branching out of their geographic “comfort zone.” That’s not the point of this commentary at all. More power to the student who has the confidence and desire to do so!

Sadly, the Commonwealth of Massachusetts is allowing for the shamefully declining position the flagship public university is dealing with. For a state the prides itself on educating the best and brightest, it really should put its money where its mouth is.

We are responding to a recent article in the Nashua Telegraph, Mounting Tuitions Test Multi-children Families

A sad conclusion to be drawn from this story is that many families only consider the “sticker” price of colleges, a mistake that is often costly both in terms of finance and education.

The article brings up several essential issues. However, we feel that some clarifications would be helpful.

We see two areas where obvious preconceived notions limit a family’s goal of putting their children through college.

The first essential issue is that the parents probably do not even know what they can afford. The Estimated Family Contribution (EFC) – not mentioned in the article – is the figure all colleges use to determine financial aid eligibility. Much like buying a house, where you need to have a pre-approved mortgage in place in order to make an offer, families need to know what they can afford prior to embarking on the college search process. The EFC helps get them started. From there, a family can then figure out the more realistic “Workable Family Contribution.”

The second issue arises from a parent’s comment that they made a decision to not have to worry about paying for college. That is, the kids would have to take care of college funding themselves. It may not be that it is a God given right to go to college and that the parents should fund that dream. However, parents and students should know that colleges think differently.

When a student files for financial aid, the college’s expectation is that the parents will contribute to their student’s education. Whether a family decides to fund all or part of the funding of college, it is paramount that they know, or work with someone who does know, how to strategically approach the transaction. There is no reason a 21 year old college graduate needs to start out “in the hole” with thousands of dollars in debt, and/or leave the parents in a similar position.

An effectively planned college search puts the student and family in control of the process, and allows a range of options when it comes time to make a final college selection.

A competent counselor can explain that a high priced college may, in some cases, require less funding and less debt than a state university, but because of this misconception, students do not apply to schools they believe to be “out of their price range”, or they and their parents resign themselves to incurring significant debt.