A month to the day we recommended that the Class of 2010 begin examining all their future options, that next year’s graduate should begin thinking about what they might do instead of simply entering the workforce. Our rationale was simple, the current unemployment rates and the impact of two poor successive job placement years meant that job opportunities next spring are likely to be no better than those seen last spring.

Lest our readers have any doubt regarding our advice, that particular scenario has been reinforced by data relayed today by the New York Times. According to the Times, Labor Department statistics for the month of July revealed that just “2.4 million full-time permanent jobs were open” yet there were “14.5 million people officially unemployed.”

That represents a six to one ratio, the worst such ratio since the Labor Department began tracking such numbers. The sum total is that workers will continue to be looking for employment for a much longer period than has occurred in prior recessions.

And that means that those graduating in 2010 will be competing with a number of experienced workers for the very few job openings available.

Long Term Impact

While some economists believe the recession is over, this data reveals that the recession could well be a double-dipper, if not a stagnator. The high unemployment rates mean that a large segment of America still has little in the way of disposable income and will remain in such a plight for the near future.

Therefore, the high unemployment rates also will ultimately translate to a continued reduction in consumer spending. Given the dependence of our nation’s economy on consumer spending, this current scenario could well mean that the ugly head of recession may reemerge in the not distant future.

The current situation also represents a major issue for federal and state budgets. Fewer workers translates to fewer taxable dollars coming into the government coffers, both in income and sales based taxes. That likely means more in the way of layoffs at the state and federal levels.

The job losses have also resulted in a large number of early retirement claims from laid-off seniors. Overall, applications for retirement benefits are up 23 percent over a year.

That means that Social Security is about to pay out more in benefits than it collects in taxes over the next two years (the first such occurrence since the 1980s). This will, of course, only make those federal budget deficit numbers for 2010 and 2011 that much worse.

Student Options

Overall, this data indicates that those graduating in 2010 should begin to research options other than the traditional workforce, including the Peace Corps, Americorps, Teach for America and graduate school. Given the state of the economy, the current situation means that these options could all well be out of the question for those who procrastinate.

If you are graduating in 2010, now is the time to begin thinking about all your options.

Embed This in Your Website
Please help spread the word. You may embed the image in your blog or on other sites so long as you reference the original source. We are planning on creating a few more graphics as well. Any feedback on how this one could be improved or what other topics you would like to see is greatly appreciated!

Embed code
</p> <p><a href="https://www.collegescholarships.org/blog/2009/09/24/student-loans-by-the-numbers/"><img src="https://www.collegescholarships.org/images/student-loans-by-the-numbers.jpg" border="0" alt="Student Loans by the Numbers."/></a></p> <p>

The idea of a college major goes back more than one hundred years. With very few exceptions, the list of available options for students today mirrors the very choices available for their parents and grandparents.

The one significant exception has to be the field of technology where a number of new options exist. But while these fields offer great career options, many are so cutting edge that students may not even understand what the major entails.

Such is the case with one of today’s cutting edge options, computational science. As technology continues to evolve, many industries are now using computer simulations to help them plan for a future that is not yet known.

Computers Simulating the Physical World

While computational science is the name given to the field, students might have a better sense of the major if the term simulation developer were used instead. Simply stated, computational scientists do not study computers; they use the computer and appropriate software models as tools to advance the study of other fields.

The concept of simulation as a tool has been used for a long time in aviation. As part of their training, pilots use machinery that replicates the key elements of flying a plane. In addition to normal everyday flights, these simulators test advanced skills by presenting challenges to the pilot in the form of technical malfunctions or the effects of severe weather.

Today, high powered computers are used to simulate possible world events such as a terrorist attack. Military leaders use computational science to help develop battlefield plans and the appropriate contingencies that should be considered in specific situations.

Meteorologists use simulations to predict the path of a developing storm such as a hurricane as well as the impact of carbon emissions on a warming planet. Large corporations now train executives using simulations that offer specific business challenges that require executives to effectively use their management skills.

Properly constructed, simulation development models isolate individual factors to determine how any one factor alone or several taken collectively can affect an outcome. The results can be used to train specific professionals so that they are prepared to handle any specific problem when it arises.

Majoring in Computational Science

The key to the field’s importance is simple. Simulations create opportunities for training and allow for the testing of theories without ever putting a patient, an employee or a company at risk.

A career in computation sciences demands extensive knowledge of advanced mathematics, computer science, and simulation and modeling. Because a computational scientist creates an abstract model of the physical world then develops a computer program to mirror that world, these professionals must be able to translate abstract models to the language utilized by computers.

In addition, the particular system being modeled may require specific insight into other fields. For example, to create a weather model, simulators would need at least a rudimentary knowledge of physics and chemistry as well as an in depth understanding of the field of meteorology.

In the case of training business executives, computational scientists would likely need a background in psychology, economics, and business management principles. As for developing simulation training models for doctors, computational scientists must possess a strong background in biology, anatomy and physiology.

By the very nature of the field, students interested in simulation development also have the opportunity to be of great service to any number of important disciplines. For those interested in a technology/engineering career yet worried that their work might be of less value to society as a whole, the field of computational science represents a very rewarding career option to consider.

Three Classic Mistakes to Avoid

Debt is a major issue for literally millions of Americans. However, when you find yourself overextended, the fact that many others are in the same boat offers little in the way of consolation.

As your debt accumulates, there is a strong tendency to make three very common mistakes. While it is easy to understand why people make them, they must be avoided at all costs.

Mistake 1: Making Only the Minimum Payment

This is easily the most common of mistakes but minimum payments are a trap. Because of how cards work, the goal of the credit card company is to enlarge your debt so that interest rates yield more in the profits.

Making only the minimum payments ensures you will be in debt for the longest possible time. Paying the typical minimum level for a $500 debt at current interest rates of 15-20 percent will keep you in debt for more than a decade, even if you never charge another item.

Of course, by paying the minimum amount your are maintaining your credit score. It’s just that your debt will grow instead of decrease.

The folks at Learn Financial Planning recommend that you set your own personal minimum payment level that is at least triple the minimum payment and stick to it.

Mistake 2- Taking a Payday Loan

There is debt that is worse than credit card debt. It is the debt created by payday loans.

A payday loan is short-term loan, generally offered on a two-week basis (from one pay period to the next) and ranging between $100 and $500. The idea of a payday loan is to provide you the cash needed for immediate expenses and is a loan against your next paycheck.

Payday loans feature administration fees, processing fees, broker’s fees and even early repayment fees. Typically, the finance charge per $100 borrowed is $25.

While it is easy to accumulate credit card debt, payday loan debt is considered as much as eight times more punishing. While it easy to think this is a good way to deal with an immediate issue it is one you should never consider.

Mistake 3 – Falling for a Debt Settlement Scam

When your debt reaches the breaking point, debt consolidation and debt settlement can be the right step. The first step to take in such a situation is to admit you have an issue and then contact your creditors to discuss possible mechanisms to work through your issue.

You may be able to make some simple progress with your company, perhaps even negotiate a lower interest rate. Simply stated, credit card companies do not benefit if you default.

However, you have probably heard on television or seen online an ad by some third party company that can help you eliminate your debt. While there are legitimate agencies that do provide such services, many other entities are simply hoping to take advantage of your plight. If you are not careful, you may soon find one of these companies is bleeding you worse than your credit card company.

A legitimate debt settlement company will consolidate your loans and negotiate with your creditors on your behalf. The basic structure involves you making one monthly payment based on the total amount owed. As funds are collected, payments are negotiated with each creditor separately, a step that can reduce your debt total by as much as 50%.

There will be a fee associated with the process but legitimate firms will set up a reasonable plan that will help you make modest progress immediately and significant progress long term.

Avoid Compounding Your Mistakes

It is easy to accrue debt in a multitude of formats. If you do not do due diligence, that debt can double or quadruple in the matter of months.

Avoid borrowing and purchasing with plastic. When you do borrow or purchase, pay the amounts off quickly, do not fall into the trap of making only the minimum required payment.

Doing so puts you on a downward spiral into the world of payday loans and debt settlement scammers.

According to Anne Marie Chaker at the Wall Street Journal, “New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion.”

The overall news may not be shocking to most people, after all the amount of money students borrow for school has been rising steadily in recent years. But the key number here is the size of the increase.

To put the 25% increase in perspective, we turn back to the WSJ.

“…last year far surpassed past increases, which ranged from as low as 1.7% in the 1998-99 school year to almost 17% in 1994-95.”

In addition to the increase in borrowed funds, the percentage of students taking out loans to pay for school is also on the increase. Today, nearly 70 percent of college students are borrowing funds to help pay for school. Just 12 years ago, the percentage of borrowers totaled 58%.

To get a sense of this distressing trend and its impact on students, the Journal offers a number of frightening examples. First, they discuss the plight of “Kordi Solo, a senior majoring in journalism at Central Michigan University,” who “expects to owe about $60,000 in student loans by the time she graduates in the spring.” Later they tell the tale of “Zack Leshetz, a 30-year-old lawyer in Fort Lauderdale, Fla.,” who “has $175,000 in student loans from his seven years in college and law school.”

Even with a law degree, Leshetz lives paycheck to paycheck. And while Leshetz is struggling, Solo might be in an even worse position at one-third the debt level. Given the extent to which the journalism field has been hammered by the recession and an evolving media model, her accumulated debt could well be insurmountable.

Losing Investment?

The impact of this borrowing on students and their future opportunities is significant. Chaker notes:

“The ripple effects for today’s heavily indebted young people are becoming palpable. A growing body of research suggests that tough loan payments are affecting major life decisions by recent graduates, forcing them to put off traditional milestones—from buying a first home to even marriage and having children.”

While most everyone continues to tout the college degree as a must for future job options, Chaker notes that borrowing such sums to obtain that coveted sheepskin put students into a tough spot when they first enter the world of work.

These numbers and the impact on major life decisions have Karl Denninger of Market-Ticker uttering some almost unthinkable words:

“Students are literally coming out of college with more debt than they can ever reasonably hope to amortize over their working lives, making their education a negative net equity position – that is, a guaranteed losing investment.”

In other words, the debt load accrued by the majority of students is so large that even with the greater pay associated with a job based on earning a degree, that pay is not enough to cover both the costs associated with taking care of oneself and the debt payments that must be made.

Borrowing Begets Higher Costs and an Additional Need for Loans

As but another sign the system is not working, it seems that all the borrowing ultimately is triggering an even greater need to pursue loans.

“The rising levels of borrowing,” writes Chaker, “may ironically be contributing to the accelerating cost of college, say some college-finance experts. Loans can give colleges an artificial sense of a family’s ability to pay tuition.

“To some extent, that false sense of security gets built into the assumptions schools make when setting prices, say experts.

“The idea is that as prices rise, families borrow more and more, spurring prices to rise further, which in turn requires more borrowing.”

The untenable position students are finding themselves in has Seth Godin insisting that higher education may well be at the crossroads.

Godin suggests that higher education is going to have to make basic decisions in three distinct areas moving forward.

• Should higher education be scarce or abundant?
• Should higher education be free or expensive?
• Should higher education be about school or about learning?

Currently, Godin suggests that college tends to be focused on scarce, expensive schooling. The result could be categorized as a monopolistic format.

Students can only obtain a college degree by spending gobs of money to gain access to specific curricula at institutions that have ascertained accreditation. Yet once in an institution, there is little emphasis on what a student has actually learned. Instead, credits are paid for and collected and when enough money is spent and enough credits accumulated the degree is awarded.

Godin instead imagines what higher education might be like if a school were to be built around inexpensive, abundant learning. A place where an unlimited number of materials were made available for a modest fee and the emphasis was not on charging per course or per credit, but for access, with a degree awarded based not on the courses or credits or fees, but on demonstrated knowledge.

One Option Exists

While most students continue along the traditional path, one that is taking too many down a road of false promises of future prosperity, it is interesting to see that one company today is challenging the status quo.

A new educational entity called StraighterLine is delivering Godin’s suggested option, offering online courses in subjects like accounting, statistics, and math for a flat rate of $99 a month. Instead of a per course or per credit fee, the rate is $99 for the month. In addition, instead of a semester or yearly or four year degree schedule, there are no semesters or defined calendars.

You as a student decide how many courses you want to take at a time and for how long you want to take them. Instead of heading off to some distant location or stopping your schedule to meet that of higher education, you work online, from home.

Students can “access course materials, read text, watch videos, listen to podcasts, work through problem sets, and take exams” all over the internet. In addition, to make the program more consistent with one critical aspect for learning (the need for a sense of community) StraighterLine also features online study groups where students can collaborate with one another via a “listserv and instant messaging.”

Most importantly, tutors are available to help students when they need additional support. These support personnel are available any time, day or night, and there is no extra costs for accessing such services.

A student completing a traditional college semester of 15 weeks and 15 credit hours in the traditional time frame would spend a total of just $400. Compare the cost of one full year under such a format with the numbers bandied about today for America’s elite colleges, as much as $40 and $50 thousand per year if a student chooses to live on campus.

StraighterLine is actually the idea of a man named Burck Smith. The entrepreneur has created an educational model that seems to fit Godin’s inexpensive, abundant learning concept by getting some other established (i.e., accredited) colleges to allow the transfer of credit from Straighter Line to the traditional learning model.

This is ultimately the biggest hurdle as it allows learners to earn that coveted diploma from an accredited institution. In other words, at the end of the line they have that all-important degree.

StraighterLine is indeed a new model, one where students are not tied to some college campus or program. Instead, students can assemble a degree from various course providers from their own computer.

More importantly, they can do so at a cost that is reasonable, a step that protects their long term fiscal future. Perhaps most importantly, it is a step WashingtonMonthly.com sees as a proper one for higher education.

It may be some time before the “Internet bomb explodes in its basement,” writes Kevin Carey. “The fuse was only a couple of years long for the music and travel industries; for newspapers it was ten.

“Colleges may have another decade or two, particularly given their regulatory protections. Imagine if Honda, in order to compete in the American market, had been required by federal law to adopt the preestablished labor practices, management structure, dealer network, and vehicle portfolio of General Motors. Imagine further that Honda could only sell cars through GM dealers. Those are essentially the terms that accreditation forces on potential disruptive innovators in higher education today.”

Time for a Change

We would like to think the fuse has been lit, that the current accumulating debt loads being assumed by college students would be cause for society to demand a new model for higher education.

Yet, because it is so early in the process, StraighterLine is likely to seem a bit too much cutting edge, a little too groundbreaking and novel for a public that tends to prefer tradition. It is also, dare we say it, a little too inexpensive to be considered a viable alternative by a populace that equates higher cost with higher quality.

But with accruing debts making the current model a net negative for students at precisely the same time that society is placing greater emphasis on earning a college degree, more cost-effective methods must be created.

That would indicate that we are at the crossroads as Godin postures, a time when higher education does move from its current scarce, expensive schooling format to one that features a more abundant, cost-effective learning model.

By now you are no doubt familiar with the story of Trina Thompson and her lawsuit against her alma mater, Monroe College. The blogosphere has been abuzz since Kathianne Boniello of the New York Post broke the story.

The Digital Student over at GoCollege offered some support for her plight. They noted that tiny Thomas College in Waterville, Maine, actually makes a promise to its grads, one that Monroe does not: a job or else.

But most were merciless in their criticism of the 27-year-old. Robbie Cooper at UrbanGrounds gave her “The Idiot of the Day Award” while Ryan at RightJuris dissed her even as he stood up for the legal profession noting that Thompson had to file the suit herself, the insinuation being that the case was so frivolous that no one in the legal field would touch it.

Given some of the absurd suits that have been filed we tend to believe her when she simply says she filed it herself because she could not afford a lawyer. Whatever the case, therein lies the rub.

Everyone in the blogosphere has an opinion of the information-technology graduate. Trina Thompson is now a household name on the web.

Today, if one uses any search engine of note and types in the name Trina Thompson, pages and pages emerge. Many with unflattering titles, many more mentioning the anger she feels as a result of her plight and all highlighting the fact that she has chosen to blame her school for her failure to acquire a job.

Future Employment?

Irrespective of the merits of her lawsuit, Thompson now faces more difficulty than she could have ever imagined.

Anyone involved in the process of hiring someone for a professional position will thoroughly check a candidate’s references. Not only will phone calls made and questions asked of all listed references, many employers will try to determine the inside scoop by contacting someone else that may have knowledge of a candidate but is not listed as a reference.

However, the Internet has brought new meaning to the term reference check. The time has come when virtually all potential employers add one other simple process: Googling a candidate’s name.

The availability to readily access information on the web about a candidate has created a whole new phenomena called personal branding. It is a concept every high school and college student needs to become aware of and breaks down simply: it is extremely important that when your name is Googled, positive information comes up.

The last thing you want to have happen is for that search to yield information that would cause an employer to think twice about offering you a job.

If Ms. Thompson was truly searching hard for work before but was coming up empty, her decision to file the lawsuit has likely become her kiss of death. By virtue of her actions, she has created the ultimate red flag for human resource offices. No employer wants to hire someone that appears willing to sue others in a fit of anger.

Unfortunately, the filing of this lawsuit led Trina Thompson down a path in which she lost control of her personal brand.

And given the nature of the Internet that will follow her the rest of her life.

Borrowing from a popular credit card commercial format, we toss out a longstanding fundamental belief about higher education.

Four years in-state tuition and fees: $17,360.00

Books and Supplies: $3,960.00

Computer Fees: $4,160.00

Room and Board: $31,200.00

Earning a College Diploma: Priceless

The Financial Benefits of a College Education

In general, most insist that you simply cannot put a dollar figure on a college diploma. It is truly a priceless commodity leading to greater future earnings and a better chance to pursue something one truly loves as a career option.

That said, in recent years, eyebrows have been raised. College costs have been soaring and critics have begun questioning the value of a college diploma.

For years, the generally accepted figure associated with earning a college diploma has been $1 million. Those calculated additional earnings a college graduate earns in his lifetime above and beyond of a classmate with just a high school diploma continue to be used as the rationale for earning that coveted diploma.

However, that generally accepted $1 million figure has recently been called into question by a gentleman named Charles Miller. According to his analysis, the value of a college diploma may actually be significantly less than the popular dollar figure generally tossed around.

A Much Lower Return?

Miller, the former head of the Commission on the Future of Higher Education, raises some interesting dialogue with his set of calculations. He, in sum total, insists that higher education just might have gotten too expensive for what it produces and is certainly too costly for the typical student.

To arrive at that conclusion, he first insists that the calculation procedure used to determine the $1 million figure contains too many false assumptions. For example, Miller rails against one fundamental criterion used in creating the million dollar figure.

When computing the $1 million in additional earnings, estimates are based on an assumption that students finish college in four years. Miller correctly notes that other college graduation data utilizes six years as the standard for earning a degree. So the first significant way that Miller’s numbers are adjusted is to take away two years of earnings for the average college graduate.

Miller also notes two other major calculation adjustments. First, current procedures typically report lifetime earnings in the “present value” of the dollar totals, rather than adjusting for inflation over time. Second, most calculations do not isolate the benefit of those who have only a bachelor’s degree.

Using his assumptions, Miller contends that the lifetime earnings differential for a bachelor’s degree over a high school diploma is a much more modest figure: $279,893.

Easy to See Why Concerns Are Being Raised

There are numerous folks who insist that Miller has low-balled the calculations. In their eyes, he has done everything he can to reduce the value.

Still, the difference is a rather significant number. Certainly, $280,000 in additional earnings is nothing to sneeze at.

However, if we do assume that this more modest differential is somewhat accurate, then the current cost of a college degree does raise interesting questions. Four years of in-state tuition at a local university will set a student back at least $60,000, especially if some time is spent living on campus.

As a monetary investment that number still seems reasonable. We certainly can advocate spending $60,000 knowing full well we can one day expect to pocket $280,000 as a result. Add in the ability to better control one’s career choice and the investment seems to be a no-brainer.

But what of those private schools, of those topping $50,000 per year? Four years of expenses will top the $200,000 mark.

Under such a scenario the monetary piece becomes suspect. In such an instance, the rate of return falls to less than 2% return on the money invested if figured on a per year basis.

With those numbers it is easy why folks are concerned with the skyrocketing costs of a college education. If the costs keep rising, the rate of return ultimately diminishes.

As President Obama has stated on multiple occasions, we must find ways to make college more affordable.

So Where Do We Stand?

Interestingly, Miller’s strong push has at least one agency acknowledging that the $1 million figure may not be entirely accurate. In responding to Miller’s criticisms, the College Board acknowledged that $1 million in additional earnings is misleading.

At the same time, the College Board noted a thought many concur with: there is a very high individual return from a higher education.

According to the Board, a public college graduate will break even by the age of 33. At the higher priced schools, the private colleges, the Board offers a break even point at age 40.

Given those assertions, it is easy to see why education does in fact pay off. Of course, if costs do continue to rise, those pay back ages would rise as well. Pushing them back another ten years would make the dollar return a far more questionable discussion point than as it currently stands.

Without a doubt, students must be mindful of the debt they are incurring as they earn that diploma. They must also have an excellent understanding of potential future earnings: a career in social work or a job as a teacher will not necessarily produce additional earnings towards the $1 million mark.

Great Experience

Ultimately, college can be a great place to spend four years. Students often get their first chance at learning to be on their own. At the same time, you still have a safety net, a “shelter where you can develop yourself.”

At the university level, you will also meet many interesting people and have access to adults who are willing to help you learn new things. Once in the world of work, there will be far fewer people willing to help you become successful.

So independent of the financial figures, college can be a great place to learn about you and about society. College is a place where students get a safe chance to mature even as they pursue a degree and a potential career.

And if you manage the financial piece appropriately, you can expect the opportunity to earn additional funds even as you work in your preferred field. Just don’t go around thinking that a bachelor’s degree is going to make you a millionaire.

How about this for a change to that painful FAFSA application form?

According to reports, Secretary of Education Arnie Duncan has indicated plans to add a new button to the online FAFSA application. That one single button would authorize the IRS to fill in all the FAFSA required financial data directly from all relevant, filed tax returns.

That’s right, a button that would authorize the IRS to collect, summarize and drop the pertinent data already submitted during prior tax seasons into the form in the appropriate places. And with that step, the form we all have to do to be eligible for federal financial aid, the form that everyone, sooner or later comes to despise might actually be on the way towards being reasonable and dare we say it, user-friendly.

Now that would represent change we can believe in!

Promises of Fewer Questions and Quicker Response Times

It seems that at long last the U.S. Department of Education is about to streamline the indeterminate FAFSA form. Under President Barack Obama’s continued pledge to increase access to college, the DOE is about to eliminate 22 questions and some 20 different Web screens that used to appear when students filled out the FAFSA application online.

Perhaps even better news for students and their families, instead of waiting weeks and months to get the results, the new application will be able to provide an estimate on the amount of aid students would be eligible for in the matter of seconds.

All of the changes are seen by the Obama administration as increasing college enrollment. The steps come in direct response to data that indicates that one out of every five students that borrows for college does not fill out the FAFSA form.

Many contend that the reason so many students skip the application has been the sheer volume of information asked for on the form. For everyone the form has been a massive headache, but for some, it has been seen as a barrier.

According to the U.S. Department of Education, the FAFSA included 153 questions, some of which were not asked for when parents or the student filed their income taxes. The sum total for the DOE is that the form has ultimately been more difficult than filing income taxes.

The result, an estimated 1.5 million students who currently are enrolled in college likely qualify for Pell grants yet they never applied for them.

The Button by January

While work is under way to streamline and simplify the form, the magic button noted by Duncan still is not ready. The goal for the direct upload of information to the FAFSA from the IRS is scheduled to be in place by January.

So those of you about to enter your senior year in high school, and all those further out from applying, the new financial upload button should be in place by the time your turn comes.

Perhaps just as importantly, Obama wants more streamlining for students. Reports indicate he is asking Congress to eliminate another 26 financial questions, all deemed to have minimal effect on how much aid a student is eligible for.

Of course, while these steps will make it much tougher for us to dump on the FAFSA form down the road, we still wonder why it might not be possible to eliminate the application process altogether. Imagine if the government would, as a matter of course, determine a student’s eligibility based on a family’s tax return alone.

Perhaps the government could even take the step of notifying students directly of their potential eligibility and do so as soon as the child enters public school. Now that would be real progress.

Still, we will take the efforts of the Obama administration. Every single one related to the FAFSA is a step in the right direction.

On Wednesday, under the College Cost Reduction and Access Act of 2007, the repayment of college loans will become a whole lot more manageable for lower income wage earners.

New Options

The new Federal Student Loan Forgiveness Law is set to help student repayment in two significant ways:

• Lowering the monthly student loan payment on federal student loans (Income Based Repayment or IBR); and

• Canceling remaining loan debt after 10 years for those who have entered public service (Loan Forgiveness for Public Service).

Income Based Repayment (IBR)

Income based repayment (IBR) offers enormous potential reductions in the monthly payments for high debt/low income borrowers. Designed for those with “partial financial hardship,” IBR limits annual educational debt payments to 15% of a borrower’s discretionary income. For the purposes of the law, discretionary income is defined as adjusted gross income minus 150% of the poverty level for the borrower’s family size.

Under the IBR plan, the loans eligible for consideration include: all Federal Direct Loans (FDL) and federally guaranteed loans (FFEL) including subsidized and unsubsidized Federal Stafford loans; Federal Grad PLUS loans (but not Parent PLUS loans); and Federal Direct Consolidation loans. Federal Perkins Loans are only eligible when part of a Federal Direct Consolidation Loan.

The Detroit Free Press offers the following as an example of the potential savings:

Take a college grad who has $40,000 in federal student loans and an adjusted gross income of $30,000 each year.

If we use this example, the grad would pay $171.94 a month using the new plan — compared with $460.32 with a standard 10-year repayment plan or $277.63 a month for an extended 25-year repayment plan.

As a person receives annual salary increases, the monthly payment would rise only according to the percentage of salary increase. In the case of a married couple, each would be eligible for the program and the eligibility would be dependent on each individual’s situation, not the combined income of the two individuals.

The new IBR option goes into effect July 1, 2009. Members of the Class of 2009 become eligible within two months of graduation.

Loan Forgiveness for Public Service Employees

In addition to repayment reduction under the law, students entering public service are also eligible for loan forgiveness. Upon entering full-time public service, once a borrower makes 120 qualifying loan payments on a Federal Direct loan (including Federal Direct Consolidation loans), the unpaid balance remaining including the accumulated interest on the loan is forgiven. The worker must remain in public service for the entire ten year period and the 120 payments timeframe but there is no limit to the amount to be forgiven.

The time period for public service is retroactive to October 1, 2007 meaning those borrowers who have already elected public service may begin counting the ten year period at that point. Some restrictions occur for those who had already consolidated their loans and those restrictions may move the eligible period forward to July 1, 2008.

In the case of loan forgiveness, only Federal Direct loans (including Federal Direct Consolidation loans) are eligible. Payments made on federal loans in the Guaranteed (or FFEL) program are not eligible for the loan forgiveness aspect (only eligible for IBR).

A Major Step Forward

The new law represents an enormous positive development for those students who have accumulated significant federal college debt yet have limited income. To learn more about the program and examine the calculation process visit:

• Georgetown Professor Phil Shrag’s law review article detailing IBR and Loan Forgiveness for Public Service Employees (pdf).
• The IBR monthly repayment calculator.
• Federal direct consolidation loan information and applications.

Our hat goes off to Sam Lee, a graduate student, and to Inside Higher Ed, for shedding some more light on the shaky college rankings game. Lee had noticed that the University of Southern California ranked lower than seventh on all of the graduate level engineering category subfields yet somehow managed to earn the number seven slot on the U.S. News and World Report College Rankings.

Lee’s questioning led Inside Higher Ed to contact both U.S. News and USC to see if it could get to the bottom of the matter. Turns out the large number of the engineering school’s professors that were reportedly also members of the National Academy of Engineering helped push the USC rankings to seventh.

But while USC reported to U.S. News 30 professors belonging to the academy and the school’s web site listed 34 such professors, Inside Higher Ed, through a very simple fact check, was able to determine that these figures were entirely inaccurate.

For reporting purposes, the school was supposed to be sending along the number of full-time faculty members that met the prestigious status. Turns out, of the 34 listed on the web site, 17 did not meet the criteria set forth by U.S. News.

U.S. News immediately acknowledged that if the school did have fewer faculty members in the academy than had been reported, the engineering college’s ranking would indeed fall. The exact drop would of course depend on the final numbers reported and how they related to competitor schools.

And in one of the most important acknowledgments for students to hear, officials for the magazine also indicated they were not in the business of verifying the accuracy of the reports from schools. Instead, they trust the schools to be institutions of integrity and simply take what is reported at face value. Of course, they also base their rankings on the information provided.

This episode comes on the heels of the surprising candor of a Clemson official who publicly expressed how the rankings could be gamed (including the very issue expressed here, the accuracy of the reported data). That story was all over the internet in prompt fashion as was a followup admonishment from school officials.

Ultimately, the lesson for students is not to put too much emphasis on these rankings. Especially now that it is clear that those doing the ratings acknowledge they do not verify the information provided.