Farnoosh Torabi's Blog, page 43

The Four-Year Graduation Myth

Time Magazine recently ran a story about the myth of four-year college degree. More than two years ago, I published a similar story for Newsweek but after its merger with The DailyBeast, the copy sadly fell off the website. I worked on this feature for more than two months, interviewing students, parents, educators and authors. Republishing it here because the conversation is back – and it’s an important one.

Previously published on Newsweek.com, November 11, 2010

With trying economic times, finishing an undergraduate degree in four years is becoming tougher than ever.

by Farnoosh Torabi November 11, 2010

Kiyan Rajabi, 19, a pharmacology major at University of California, Santa Barbara, was

excited about his study-abroad program in Spain this fall. His plans were foiled, however,

when earlier this year he realized that a basic biochemistry course he needed as a

prerequisite for higher-level science classes was offered only in the fall. If Rajabi didn’t

stay put in Santa Barbara, he was likely looking at an extra year of college. Barcelona and

the Sagrada Familia Church would have to wait—for a while. Rajabi’s summer session is

booked, too. “Summer classes have become the norm for the majority of students seeking

to graduate in the traditional four years,” he says.

For many college students today, Rajabi’s predicament is commonplace. College is pretty

much sold as a four-year stint. But take a look at the statistics and you’ll find it’s far from

that simple. On average, both public and private schools are graduating just 37 percent of

their full-time students within four years, according to a 2008 analysis by the American

Enterprise Institute, a D.C.-based public-policy think tank. That’s about a 3 percent

slowdown from the 1990s, and a 10 percent drop from the 1960s, says the Higher

Education Research Institute at the University of California, Los Angeles. But experts

expect these dismal numbers to sink even further. With the economy in the dumps, school

budgets being slashed, and more students than ever attending college, getting an

undergraduate degree in four fast years could one day become as unlikely as finishing in

three is now. “In the short run, the fiscal pressures on colleges and universities,

particularly in the public sector, are likely to lead to a decrease in four-year graduation

rates,” says Andrew Kelly, American Enterprise Institute research fellow in education

policy.

When colleges and universities report their graduation rates to the federal government,

they are more likely to use a six-year benchmark, not four, because it’s more realistic.

But students tend not to think about timing when they sign up for college orientation.

“Right now, most American students plan their futures and save money for college

assuming that a bachelor’s degree is a four-year commitment,” says José Cruz, vice

president of the Education Trust, a national student-advocacy group. “But that simply

isn’t the reality on most college campuses.” What’s more, that falling four-year grad rate

may eventually shift the overall timeline approach to college down the road. “As more

and more students fail to finish in four years, it is becoming acceptable to work ‘toward’

a degree,” says education consultant Donald Asher, “rather than to have a plan and follow

that plan to that finish line.”

For most students, extending college by an extra year or two is probably not a worthwhile

investment. “Students take on greater financial responsibilities the longer they stay in

school,” says James Boyle, president of College Parents of America, “because not only

do they end up paying more money to graduate, they also have a longer period of lost or

lesser income potential.”

Sure, some young people may unwillingly—or willingly—drag their feet. Common

issues that slow students down include changing majors, poor course planning,

transferring schools, and dropping courses. But others who have planned their course

load carefully still may not be able to avoid a growing number of factors getting in the

way of a four-year finish. For one, campus life is a lot more crowded these days. College

enrollment has risen 25 percent since 2000, according to the National Center for

Education Statistics. Add in growing university budget cuts, and for most students with

limited resources graduating in four years becomes a lot harder to achieve. “Schools are

changing their requirements and class offerings constantly, and these forces are all

working against the student who wants to get in and out in four years,” says Asher. Many

colleges have eliminated classes and instructors to save money, but graduation credit

requirements haven’t changed, leaving more students elbowing their way into fewer

classrooms—if they’re lucky enough to get in at all.

Many state schools, like those in the University of California system, have undergone

massive budget cuts. About $637 million from California’s total higher-education budget

was slashed, which is 20 percent of its 2009–10 fiscal-year financing. Moreover, state

funding to colleges and universities fell an average of 4 percent from 2008 to 2009,

leaving only $6,928 per student, according to a survey by the National Conference of

State Legislatures. “Applications are up. Enrollments are up. But universities have cut

instructors and classes,” says Asher. “There’s bound to be some impact on time to

graduate.” Since January 2009, Louisiana State University in Baton Rouge has suffered a

$42 million cut in state funding, which led to a 10 percent reduction in its faculty. Private

schools hurt by losses in endowment funds are likewise cutting faculty and financial aid:

earlier this year, Dartmouth College announced it would lay off more than 70 employees

and eliminate full student grants for families earning more than $75,000 a year, mainly

due to a 20 percent drop in its endowment fund.

Also weighing on graduation rates is the sticker price of college, which has skyrocketed

over the decades. The high cost is forcing some students to take fewer classes per

semester to squeeze in a job, which further delays graduation. Inflation-adjusted tuition

and fees for four-year public colleges and universities are three and a half times higher

than they were in 1980, according to the College Board. And at private nonprofit four-

year schools, prices have nearly tripled over the same time frame. “College is markedly

more expensive … rising much more than any other sector of the economy, even health

care,” says Boyle.

On the surface, it may seem as though schools are purposely making it harder for students

to graduate. After all, each additional year gives universities additional tuition and fees.

But it’s not exactly a conspiracy, experts say. “I don’t think colleges explicitly aim to

keep students … longer than four years,” says the American Enterprise Institute’s Kelly.

At the same time, he notes, schools today have little motivation to ensure that their

students complete a bachelor’s degree in a reasonable amount of time. A school’s

reputation is only as good as its students—and their graduation rate. “Hopefully, with

[students and parents] increasingly focused on outcomes like degree completion and

degree production, institutions will have incentives to pay more attention to the time it

takes to earn a degree,” he says. Boyle, from College Parents of America, agrees:

“[Colleges] want to produce successful graduates, not lingering students who make more

payments and bring the school additional revenue on the margin.” Still, with the way

economic factors are unfolding, college students might have no choice but to hang

around.

Financial Skinny: 529 Plans

Will your family be ready when the first tuition bill arrives?

The average price for in-state tuition, fees, room and board is $17,860 for a public four-year college, according to the College Board. A private school is more than double that at an average $40,000 a year. But as we mentioned last week, the majority of parents haven’t made plans to fund thier children’s education. Of those that have, just slightly more than one quarter (27%) are saving using a 529 college savings plan – despite huge potential tax benefits. If you have college-bound children, especially considering the crisis of student loan debt, it may be wise to invest in this sort of plan.

What’s a 529 Plan?

In short, 529 college savings plans are state-sponsored, tax-advantaged investment accounts – named after section 529 of the Internal Revenue Service code. According to the College Saving Plans Network, they consist primarily of mutual funds and perform according to the market performance of their underlying investments. Typically 529 investment options are age-based and become more conservative as the beneficiaries near their expected date of college admissions.

How Do They Work?

Plan details vary by the state in which it’s administered but in all you must name a beneficiary when opening an account. Anyone can contribute to the account. Some state states have minimum contributions to open but many don’t. There are, however, maximum lifetime contributions in some states – usually around $300,000. The good news is you can establish a 529 in any state, even if neither you nor the plan’s beneficiary live in that state.

Why Invest?

Average balances for 529s grew to a record $17,174 in 2012, according to a report from the CSPN. That’s more than any other time in history. Existing 529 accounts also increased to 11.1 million last year, up about 4% from 10.7 million in 2011. Here’s why people are so excited about 529s: All earnings in them accumulate tax free. Withdrawals made for qualified education expenses (tuition, room, board, and books) at an accredited institution are also tax free. Finally, in some states, earnings from 529 plans are also exempt from state income tax and deductible when investing in a plan within your homestate.

Learn more about 529 plans from the College Saving Plans Network and  SavingforCollege.com. Both sites are  hubs for information on 529 plans and provide detailed, state-by-state listings of available plans and their features.

Photo Courtesy,  401(K) 2013.

Sticker Planet: Siblings Without Rivalry

[image error]Can siblings without rivalry merrily run a family business? Sounds too good to be true.

But brother and sister Richard and Hillary Kraft do run their specialty store, Sticker Planet (220 W 3rd St), with a sense of shared responsibility and mutual respect.

Hillary admits that her relationship with her brother – both personal and professional – can sound a little sugary.  “People always say how rare it is to see a brother and sister work so well together,”  she explains. “But we have always been close, even as kids.  When we had the opportunity to work together, we jumped at it.  The store has elevated our relationship to another level.  I can’t imagine running the business with anyone else.  We trust each other implicitly.”

Richard and Hillary were both feeling burnt out in their respective jobs in 1991, so when their parents, Bernie and Selma, suggested they join the family business during a relocation, it was a no-brainer.  Though the original location did not survive the renovation of the Santa Monica Place Mall, Sticker Planet became one of only two or three merchants from “the other side of the lot” invited to reopen in the historic part of Los Angeles’ famed Farmer’s Market at Third and Fairfax following its major overhaul in the early 90’s.

“The historic Farmer’s Market is a great location that draws both locals and tourists. It’s wonderful being part of a place that’s been an institution in Los Angeles for nearly 80 years,” says Richard.  “If there is any downside to the location, it is that, being in an open-air market, we are subject to the weather.”

Though the Farmer’s Market may be central to Sticker Planet’s success, it comes with some unexpected responsibilities that make it essential for Hillary and Richard to keep the lines of communication wide open, especially considering both have jobs outside the store.  (Richard is a substitute high school teacher.  Hillary does consulting work in the areas of change management and human resources.  They occasionally do document writing and editing work together for other businesses and organizations on a freelance basis.)

“We don’t keep regular hours,” notes Richard.   “Our workload ebbs and flows.  There are family fun days and other events that we participate in,” he says.

“Just a few weeks ago the Farmer’s Market hosted a birthday party for 50 children,” Hillary chimes in.  “We provided the arts and crafts.  Other merchants provided food and drinks.  There are no typical days here.  We have to be flexible.”

Because they both do other work, Richard and Hillary constantly strive to make Sticker Planet’s day-to-day operations run more efficiently.  They replaced their old-school cash register with a modern POS system that has drastically improved the management of their just-in-time inventory.   They outsource their payroll to a PEO (Professional Employer Organization) that also provides HR services, like benefits for their full-time employees.   And ten years ago, they completely rebuilt the store with three walls made entirely of glass.  “The best way to advertise and market our product is for people to actually see our product,” says Richard.

Their mother, Selma, is still actively involved in the store.  She works the floor twice a week, attends trade shows, and continues to seek out new and interesting sticker projects, which are displayed throughout the store.

Sadly, ten years ago, Richard and Hillary lost their father to Lou Gehrig’s disease.  Though Bernie is gone, his spirit lives on.  Over the past ten years, employees at Sticker Planet have raised tens of thousands of dollars for ALS research by walking together as the “Sticker Planet Bunch for Bernie” in Los Angeles’ annual .   “It was our dad’s vision to open a sticker store here in the first place,” says Richard.

3 Ways to Boost College Savings

Students across the country are frantically checking their mailboxes for (hopefully!) acceptance letters to their dream schools. But a bigger question remains: do they have enough saved to attend? In an ideal world, families have already considered the cost of higher education and have a payment plan, but the reality is most have not.

Recent research finds that while nearly all parents believe college is an investment in their child’s future, only one-third have a plan to pay. According to Sallie Mae’s 2013 ”How America Saves for College” survey most parents, only one-third were prompted to save by the birth of their child mainly via savings accounts and CDs. The average savings goal was nearly $40,000, about enough for one year of private school tuition today (maybe room and board).

I recently tapped Kevin Garrett, financial advisor and partner at Integrated Financial Group, for advice on how families can improve their college savings.

Know the Projections

Start your plan with a realistic estimate of how much you’ll need to save in order to help send your kids to school in the future. The average in-state public college tuition for the 2012-13 academic year was $22,261, according to a 2012 report by the College Board. Financial aid resource FinAid.org’s rule of thumb is to assume tuition rates will increase about twice the general rate of inflation. With that in mind, the average in-state, public tuition could be close to $40,000 over the next 18 years.

You can use FinAid’s calculator to project the cost of tuition in years to come. “Aside from tuition inflation, you also want to consider the future cost for in-state education vs. out-of-state, public vs. private,” says Garrett. “All of those things will determine cost.”

Invest in a 529 Plan

In short, a 529 plan is an investment account with tax advantages that makes it easier to save. Offered by individual states, the account is exempt from federal taxes (and from state taxes in some states) and, in some states, contributions are also deductible.

These savings plans are not as popular among parents, according to the Sallie Mae survey, but Garrett highly recommends them to clients. “From the stand point of tax deferral, 529s are still a pretty good vehicle to save for college, but many have a set-it-and-forget type of approach,” he says. With fluctuations in the market, Garrett says parents shouldn’t limit their options to just their state’s plan.  ”Take a look at the performance of the state you’re in first then compare that to some of the [other] leaders out there. Save as soon as you can and put a little in every month, similar to your 401k.” SavingforCollege.com is a hub for information on 529s, with state-by-state listings of available plans and restrictions.

Stick to a 4-Year Plan

A sound financial plan for college can go completely awry without careful academic planning. TIME recently published a story on “The Myth of the Four-Year College Degree” and what they found was astounding. “According to the Department of Education, fewer than 40% of students who enter college each year graduate within four years, while almost 60% of students graduate in six years. At public schools, less than a third of students graduate on time,” the story reads.

“These days a lot more students are taking four and a half, five year to graduate,” says Garrett. “I talk to them about focusing on the front end. Get a better handle on planning and what your student wants to actually do, what they’e good at and let that determine their studies.” When applying for a school, Garrett suggests families schedule a call or meeting with registrars, department heads and other administrators at the prospective school. Discuss adequate course loads, possibilities for changing majors, and other factors that could effect matriculation.

Photo Courtesy,  401(K) 2013.

Top Financial Advice for Women

Women are making incredible strides. For the first time in history, we are more educated than men and hold a majority of the advanced degrees. We represent 50% of the workforce, up from 35% a generation ago. And, we make most of the household decisions, everything from buying items for the home to managing household finances. But of course, as women, we still face unique challenges that need specific attention and advice. Here are my top money tips every woman ought to know. Read more here.

We want to hear from you. What’s some financial advice you find particularly important for women? Connect with me on Twitter @Farnoosh and use the hashtag #FinFit

eBay Selling Secrets

Last week we brought you pro-tips for buyers. This week, eBay enthusiast Ken Rockwell, with a section in his e-book titled, “Make Millions on eBay,” shares his strategic secrets for Sellers.

“Selling” at this global online marketplace certainly seems to be working for many.  In 2011, the total value of goods sold on eBay was $68.6 billion — that’s more than $2,100 every second.  In fact, even the IRS had to sit up and  take notice:  In 2011, tax laws Buyers changed so that your Aunt Gertrude who’s cleaning out her closet for some extra cash won’t necessarily be harassed by the tax man, while those making a legitimate living from the site are able to pay their dues (see “pay your taxes” below).  So whether as a side gig, hobby or stay-at-home business, consider selling your possessions or investments on eBay for profit.

Here’s How:

Buy it Cheap, Sell it High

Forget trying to buy items on eBay to resell on eBay – per last week’s article, there are no “deals” to be had here. Though it’s a as basic as it gets in terms of business principles, we can all use a good reminder: the only way to make money on eBay is to acquire items for free, or buy items cheap from somewhere else, then sell them on eBay for a profit. Your best bet is to seek out the best garage sales, estate sales, storage and municipal auctions you can find.

Take the Auction Less Traveled

The elusive and difficult-to-find municipal auctions can bear some of the most unique items of all, which you can sometimes successfully flip into a sale on eBay. Your city and county governments should be able to share when and where the fire-sale on the really fun stuff is happening– like old cop cars, aged equipment like typewriters, machinery and even professional grade restaurant gear. Or, contact your local police or sheriffs’ department to find out when they’re auctioning unclaimed stolen and recovered property. The bottom line : Governments are terrible about advertising their own auctions. If you’re one of the few people who can find them and get there, you could easily walk away with some valuable items at bottom barrel prices and sell them for a profit online.

Close Your Own Auctions Wisely

According to Rockwell, Monday morning at 9:54 PST is the best time to close your auction. Why? Because everyone else, including many pro-sellers, are trying to close Sunday night, eBay’s busiest evening.  His take: why close your auction during a time when competition on the site is high, and competing distractions at home could interfere with a lucrative bidding war?  Instead, he advises targeting the more “organized” bidder, i.e., the alert office worker.  You will find you have their undivided attention Monday mornings (try early on the West Coast and mid-afternoon in the East for the most exposure).  Other online organizations even concur: their busiest online sales days are Mondays, so take advantage of people’s appetite for spending on this day.

Close Courteously

If you’re selling parts and accessories, make sure to close your listings at least a few minutes apart, and in the correct order.  Nothing’s more frustrating as a buyer than realizing you need the attachment to the gear you just bought, only to find it’s been sold to someone else moments before.

Feature Your Items

Though we’ve advised Buyers to ignore all “Featured” items (they are essentially paid sponsorship), as Sellers, I say, why not?  Consider paying for the publicity, just like you would any other form of advertising for your business.  Assume that if there are 100 million active users on eBay, there will always be those who click and bid early, and continue bidding until they’ve won their treasure. More eyeballs on your posting will always mean more bidding, and more bidding ensures your item goes for a higher price.

Pay Your Taxes

Actually, most people will tell you that selling on eBay is easy.  It’s the running of the business that’s hard, says Rockwell — from insurance to registration to taxes. eBay Sellers have run into problems with the IRS in the past for not reporting income on their rather profitable “hobbies”.  It’s the law to report any income to the IRS.  Also, starting in 2011, if you sell more than $20,000 worth of goods, or conduct more than 200 transactions, you’ll need to file a 1099-K form.  The good news is that by reporting income, this allows you to report expenses as well, such as internet access, gas, and other tools you might use to get your wares to auction.

For taxes and other kinds of business advice, try SCORE, offering help for small start-ups and independent contractors.

Photo Courtesy of: wikimedia.org/wiki/File:EBay_former_logo.svg

Financial Skinny: Renter’s Insurance

Imagine all your possessions lost in a fire or robbery. Are you financially protected? A new study found that most Americans don’t have renter’s insurance despite coverage that could prove invaluable.

Just 34% of Americans who rent their homes have renter’s insurance, according to a survey of more than 1,000 participants by InsuranceQuotes.com. They found that the most common excuse for not having renter’s insurance was that respondents felt safe without it. More than half replied:  “My apartment or rental home has good security.”  Forty-eight percent erroneously believed they were covered simply because their landlord has insurance and, finally, more than half thought that the cost of renter’s insurance is too expensive.

The pricing problem is sort of a myth. InsuranceQuotes found that 60% of Americans incorrectly guessed the annual cost of renter’s insurance at $250 per year or more. Another 21% thought it cost a as much as $1,000 per year. It’s actually less. According to the National Association of Insurance Commissioners, the average annual cost of renter’s insurance is $185 per year – or $15 a month.

I spoke with Laura Adams, senior insurance analyst at InsuranceQuotes.com for more on the importance of renter’s insurance and shares how to score the best rate.

What’s Covered?

“The most immediate is your personal belongings in case they’re broken  damaged in a natural disaster or stolen,” she says. Then there’s the coverage we usually don’t consider, like liability insurance. “Lets say you have a party and someone gets bitten by your dog or slips and falls and has medical injuries,” says Adams. “Having liability coverage would protect you from potential finaicial loss. There’s another big, often overlooked piece: additional living expenses. If you have a fire in your building and it becomes uninhabitable. As a renter, you have to find quick temporary hosuing or stay in a hotel. The additional living expenses will pay for your temporary housing and other expenses like meals, etc.”

How Much Will It Cost Me?

Again, despite what many assume, the average cost of renter’s insurance is under $200 a year. Adams says there are three factors that could alter the rate:  1) The type of coverage you choose 2) how much you’re covered and 3) the deductible you choose (the higher the deductible the lower the premium). All of these variables can impact on your monthly rate. When is comes to how mich coverage you need, Adams says $100,000 is the standard coverage for most policies. Note: Some high-value items in your home such as a diamond ring may require separate insurance.

Take Inventory 

The amount of coverage you’ll need will, of course, be largely based on the value of your possessions. Adams recommends taking stock of your possessions at least once a year. To make the job easier, she suggests working on big categories instead of approaching item by item. “Lump them into categories like jewelry, furniture and art, housewares like dishes and glasses, silver and gold and electronics. Thinking about it in chunks will make it easier,” she says.

Score the Best Rate

“Whether online or in person, you want to get three quotes for an apples-to-apples comparison of coverage,” she says. Another tip of her’s is to try to bundle your renter’s insurance with another policy for a discount. “If you have a car insured by a certain company, ask an agent if there’s a discount for adding additonal coverage,” she says. “Often there are discounts available but you won’t kow unless you ask.”

TODAY Show: Budget Vacation Tips

Viewers emailed TODAY.com about how they saved money on a vacation — many of them wrote that they had the time of their life while saving money. I stopped by the Today Show this morning to share more budget vacation tips, along with travel guru Nilou Motamed.. Read more here.

Best Days, Months and Hours to Spend Money

We all want to spend our time and money wisely. The new book – “Buy Shoes on Wednesday and Tweet at 4:00” offers tips on various transactions, from leasing a car to getting a haircut. Read more here.

What are some other great times to spend money? Connect with me on Twitter @Farnoosh, using the #FinFit hashtag.

The Financial Skinny: Credit

Credit: It’s one of the most important piece in the personal finance puzzle, yet also one of the least understood. Here are the basics on credit.

Credit Defined

“Credit” as it relates to your finances is a measure of confidence in your ability and intention to repay money lent to you. And unless you can pay for college, buy a home and car with cash, credit is almost unavoidable. Consider this: in January, consumer credit expanded to $2.795 trillion, according to a report by the Federal Reserve, including money borrowed from credit card companies, banks and credit unions.

Understanding Your Credit Report

To get those loans, financial institutions need to know if they can trust you’ll pay them back by checking your credit report, at the least. A credit report is as the name suggests. It’s a detailed outline of your financial history that begins with identifying information (your name, address, Social Security number and date of birth.) It also includes every account you have established with a lender, detailing the type of account, the date you opened it, your credit limit or loan amount, balance on the account and your payment history.

There’s another section of your credit report that lists inquiries into your credit, or everyone who’s accessed your credit report within two years. Finally, your report shows public record information on overdue debt with collection agencies including: bankruptcies, foreclosures, suits, wage attachments, liens and judgments. The most popular credit reporting agencies, Equifax, TransUnion and Experian, are known as “the big three.” They collect this information to make it accessible to you and potential lenders.

Understanding Your Credit Score

A credit report isn’t the same as a credit score. The all-important score is, however, based on your report. When most people talk about credit scores, they’re referring to the scoring system set in place by industry standard FICO. Your FICO score is calculated from several different pieces of data in your credit report. That data is grouped into five categories with varying weight.

Payment history accounts for 35% of your credit score, amounts owed (30%,) length of credit history (15%,) new credit (10%,) types of credit used (10%.) FICO scores your creditworthiness with a number between 300 and 850. Keep in mind: the average American FICO score is 692 but one of 740 or higher will make you eligible for the best loan terms. You can maintain a good score by paying your revolving bills on time every time.

Monitoring Your Credit

It’s important to keep track of your credit, partly in case of mistakes in reporting, but mostly because it’s your financial face to the world. Credit Sesame, Credit Karma and Credit.com offer credit-monitoring services that will allow you to track your history. Whatever you do, never pay for a copy of your report. The Fair Credit Reporting Act (FCRA) requires each of “the big three” reporting agencies to provide you with a free copy of your credit report, at your request, once every year. To order yours, visit annualcreditreport.com.

Photo Courtesy,  401(K) 2013.