Free Money Finance

How to Select the Right College

The following is an excerpt from High School Money Book, copyright 2007, 2008 Don Silver and excerpt reprinted with permission.

Once you decide you want to go to college, you face thousands of choices.

Six steps to help find the right college for you:

1. Determine your field of interest.

Ideally, when you enter high school, start thinking about the kind of work you’ll want to do after you complete college. Don’t let the task overwhelm you since you will probably have many different kinds of jobs in several different fields over your work lifetime. However, you have to start somewhere.

If you have many different areas of interest, take a sheet of paper and label one half “pros” and the other “cons.” Then, write down your top three areas of interest and list the pros and cons below them.

Among the factors to consider for each subject area are: (1) your interest/passion in the subject area, (2) how it will benefit society, (3) the likelihood of your being able to graduate in that field and find a job to your liking and (4) the amount of money and security a job in that field offers.

Here’s a word about job security. The work world is constantly undergoing tremendous change. Some companies merge and come together, others reduce their workforce periodically to save money and some go bankrupt as they are unable to meet business challenges.

Your best job security is to always be learning and expanding your knowledge and skills. You may also have an entrepreneurial bent so your initial jobs may turn out to be learning experiences for the time you open your own business.

One way to determine your field of interest is to see it in action and talk to the people working in the field. For example, if you want to be a software programmer, call up software companies and make appointments to talk to or visit in person with programmers. Speak to people who have been working in the field two years, five years and ten years. See what their perspective is on the work, their enjoyment of it and whether they’d recommend that you enter the field in view of your interests and abilities and their experiences.

Every six months during the high school years (and yearly throughout your work career), repeat this process of listing your career choices, writing down the pros and cons and conducting your real-world interviews.

2. Get college counseling and info on colleges.

Just as you should start to determine your field of interest as soon as you enter high school, at the same time you should start thinking about the type of college you’d like to attend.

Start by talking with a college counselor. Review your list of fields of interest and the input you’ve received from talking to people working in these jobs. Then take the counselor’s information and gather your own information through the Internet—three sites to definitely check out are http://nces.ed.gov/ipeds/cool/, www.collegeboard.com and www.collegedirectorynetwork.com. Some states have a wealth of data on their public universities on state board of regents’ websites (e.g., in Ohio, look at http://regents.ohio.gov/colleges_universities.php).

3. Make a list of colleges.

Make your list of colleges with the assistance of a college counselor and your parents. Here’s what to look for:

• the reputation of the college especially in your main field of interest
• the reputation of the college in general
• whether it’s a small, medium or large college
• how close the college is to your home

Don’t use cost as a factor yet. There may be extra financial aid available from more expensive colleges so the cost may not end up being higher (or much higher) than others you are considering.

4. Look at the money issues.

Now is the time to look at the money issues and to give your parents a homework assignment—to read this chapter after you finish it.

Discuss money issues with a counselor and your parents. Work with your parents and use the calculators and information at www.fafsa4caster.ed.gov/, www.finaid.org and www.collegeboard.com to help you through the process, including finding ways to pay for college.

5. Keep the long-term picture in mind.

You may be looking ahead to graduate school, too. Certain undergraduate colleges can help you get into a graduate program in your particular field of interest.

6. Look at the big picture of life.

The process of applying to college can be very stressful. Unfortunately, part of that process is not being accepted everywhere you’d like to be admitted.

Remember this as you go through the application process. You may not get into your “perfect” college. A rejection by a college is not a measure of your self-worth and for every door that closes in life, another one opens. Going to a particular college does not guarantee success in life, nor does it prevent it. Above all, you need to be a great person in life more than you need to graduate from a great college.

How to Pick the Best 529 College Savings Plan for You

Here's a piece from Money magazine that details the steps to picking the best 529 college savings plan for you and your kids. It starts by picking a direct-sold 529 (one that you invest in directly from the state -- not from a planner who's going to charge you several percent to "sell" you the plan):

Personally, I believe that everyone should invest in a direct-sold 529 plan, which most states offer in addition to an adviser-sold plan. Here's how to find the right one:

• Start with your home state. You can find information on tax deductions and fees for every state plan at collegesavings.org.

• Consider costs. Even if you get a state tax break, you may save more over time by going with a lower-cost 529 in another state.

Say you invest $10,000 in a 529 and you can deduct your contribution on your state return. If your local tax rate is 5%, your net tax savings (after 28% federal taxes) is $373.44. In this example, if a plan charges 0.4% less than the one in your home state, the lower fees will eventually outweigh the tax savings in 10 years.

• Select an age-based investing option. In an age-based fund, your stock and bond mix will automatically get more conservative as your child approaches college age.

And remember, any money you aren't using to pay your planner can go toward funding your child's education.

This is exactly what I did a couple years ago when I picked Michigan's 529 plan. I've since contributed the maximum to get the full state tax deduction for each tax year (2006, 2007, and 2008), and I plan on doing so until the kids leave for college. This savings, along with the $2k we put into our Coverdells each year, should set us up to pay for college without too much impact on our other accounts.

10 Ways to Reduce College Costs

The following is an excerpt from High School Money Book, copyright 2007, 2008 Don Silver and excerpt reprinted with permission.

Here are 10 ways to reduce costs:

1. Take advance placement classes in high school that qualify for college credits.

2. Take courses at a community college while you’re in high school (during the summer and possibly during the school year) to get a head start on college credits.

These first two steps can reduce how long you need to pay for a college education, give you a college experience in advance and give you the option to reduce your college workload.

3. Use military service education benefits.

4. Take advantage of nonmilitary service programs such as AmeriCorps to obtain college assistance.

5. Get all available grants and scholarships since you don’t have to repay them (as compared to loans). Pell Grants are a federal financial aid program based on need. Scholarship sites include:

• www.collegeanswer.com
• www.collegeboard.com
• www.fastweb.com
• www.finaid.org
• www.scholarships.com
• http://studentaid.ed.gov (click the Tools and Resources tab and  then click the “Go”  button for Scholarship Search)

6. Have you or your parents shop around for the best deal on loans. There are Stafford Loans, PLUS loans, Sallie Mae Signature Student Loans, home equity loans and loans against a 401(k) plan. Loans vary in size, the interest rate, the tax deductibility of interest, the repayment period and how the family income and assets affect the amount available. Try to get federal loans before private loans.

7. As early as possible, use the FAFSA4caster at www.fafsa4caster.ed.gov/ and also become familiar with FAFSA (Free Application for Federal Student Aid at www.fafsa.ed.gov), the federal financial aid application. Be sure you meet application deadlines.

8. Make sure your family is aware of the different financial aid results depending on who owns the assets being invested and saved for your college education.

9. Make sure your family is aware of available tax benefits connected with funding a college education.

10. Have your parents negotiate grants, costs and aid with the colleges.

Five Recommendations on Funding College Costs

I was recently sent a press release from Voyant that listed some of their thoughts on balancing college costs with general family finances. I asked if I could reprint some of these and they gave me the ok. So let's start with what they call five recommendations to help parents strike a balance between funding their children's education(s) and preserving their family's financial health:

• Cost of Attendance - Understand your school's total cost of attendance, which includes tuition, fees, room, board, books and miscellaneous expenses. These expenses can range from travel costs and furnishing a dorm room to purchasing a new wardrobe if your student is changing climates.

• 529 Plans - Actively manage your 529 plan investments - don't set them and forget them. If your plan is performing below average or has high expense ratios, look for greater growth and lower expense alternatives. Contrary to other types of investments, most 529 fund choices are fairly conservative. Keeping your portfolio diversified can lead to excellent returns all the way through college. 

• Loans - Shop wisely when considering a loan, as the right terms or interest rate can save thousands of dollars over the course of repayment. Home equity loans or lines of credit may offer lower rates and fees than federally-guaranteed Stafford loans (currently at 6.8 percent), but parents should carefully consider this option's impact on retirement and other financial goals. Families should also consider the total loan cost over time. Most education loans are deferred until six months post-graduation; however, interest starts accruing the day the loan originates. Borrowing $50,000 at 6.8 percent on a 20-year repayment schedule works out to a monthly payment of $381.67 - and adds $41,600.68 in interest over the full term of the note. In addition, some federally-guaranteed student loans have origination fees as high as 2.5 percent. 

• Get a Better Financial Aid Package - Consider your college acceptance letter a "bid" for your child's commitment - and an opportunity to negotiate for as much financial aid as possible.  Most colleges distribute financial aid packages that include grants, scholarships, work study and loan offers.
  If your child is offered $5,000 a year in assistance from College A, but only $2,000 from College B, find out if College B will match College A's offer. This strategy works especially well when negotiating with two comparable colleges.

• Explore Creative Alternatives - One option is to qualify for in-state tuition. If you are in the U.S. military, many colleges and universities will offer you and your dependents non-resident (out-of-state) tuition waivers. Another option is to work toward an earlier graduation date. Most colleges accept credits from advanced placement, community college, and summer courses taken during high school or academic breaks. Starting college as a sophomore could reduce undergraduate costs by 25 percent.

They also made the following comment which I thought was very interesting:

"At the rate things are going, parents of today's infants will shell out nearly $60,000 (including room and board) for a four-year public education and more than $140,000 for a private college diploma," said David Kaufman, founder and CEO of Voyant, Inc.

Frankly, this sounded a little low to me. Perhaps they're thinking that the parents will pay $60k and the kids will need to pay/take out loans for another $60k or so?

If You Don't Like Your College Financial Aid Award, Appeal It

Here's a suggestion I received via email from The College Blog. It's a bit promotional, but has some worthwhile tips so I decided to run it.

Unappealing financial aid award letters can be appealed - if you know how.

It’s that time of year again when colleges are sending out their offers, and this year seems to have the tone of doom and gloom.  With the traditional May 1st deadline, there appears to be very little a family can do except grin and bear it. 

“Virtually any offer can be appealed,” says Reecy Aresty, a 29 year veteran of financial aid trench warfare.  He’s been cranking out appeal letters for the past few weeks, and so far his batting average this year is 1.000!  Author of, How To Pay For College Without Going Broke, Aresty insists that colleges will not withdraw any aid even after an appeal letter arrives.  “If it’s politely written, the worst the school will do is deny any additional aid.”  He did mention that a few years ago a southeastern college that added additional aid in one category removed some at the same time.  The next letter asked for the aid to be returned, and the error was promptly corrected.

Some schools get away with murder, and Aresty stated, “This year one of the Ivy League schools reneged on their promise of asking a family to only pay 10% when they had virtually no assets and their income was less than $145,000.  They wound up being overcharged $800 and were petrified at the prospect of telling the school it had made a mistake!”  Don’t let this happen to you!

Aresty gave his prescription for appeals:

• Never call the school - it’s too easy for them to say, “We’re sorry, but we have no more aid to offer.”
• Students who live in the South and go North should ask for a winter clothing allowance - available at the Ivy’s
• The student always writes the appeal, as they received the award
• Ask for “help” not money
• Never bluff and tell a school you received more elsewhere when you didn’t
• Always ask for maximum loans and a Federal Work-Study Award - you did request them, didn’t you?
• Even if your EFC is more than the cost to attend, aid can be available
• Consider Professional Judgment for unusual circumstances

Aresty also mentioned that very often unsubsidized Stafford Loans can be subsidized, and that alone can save a student $1,000’s in interest over time.  Here are some of his successes from this year and in the past: $18,030 of aid when the semester bill was only $15,252; $2,000 grant increase plus a free laptop; $33,000 in year two, when there was no aid in year one; $12,500 of need-based aid when the EFC was $95,226, and the list goes on.

529 Plans Help with Estate Planning

The following is a guest post from Marotta Asset Management.

While many parents are struggling to fund their retirements adequately, the size of some grandparents' estates are prompting them to look for ways they can avoid paying excessive taxes. One effective estate-planning technique is using a 529 account both to fund their grandchildren's college and also help them avoid significant tax liabilities.

Families are finding it increasingly difficult to save for college. Four years costs about $55,000 at a public in-state school. With college inflation averaging 6.2% in the past decade, new parents in 2008 can expect the bill to swell to $160,000 by the time their children graduate from high school at age 18. Private schools are about twice as expensive.

Imagine Grandma and Grandpa Smith. Having come of age during the Depression and World War II, they built great wealth through an entrepreneurial can-do spirit. They are reluctant to subsidize their grown children, who already spend more frivolously than they should. But they love their grandchildren and support giving them as much of a debt-free higher education as they can achieve. And, of course, saving on taxes is a welcome benefit as well. So funding a 529 plan for each of their three grandchildren is an easy choice for them.

Investing in a college 529 plan offers several layers of tax savings. Virginia allows residents to deduct $2,000 of contributions from their 2008 state taxes. If Grandma Smith opens an account for each of the three grandchildren and Grandpa Smith opens his own accounts for each one, they can deduct $12,000 (six accounts times $2,000). Any contributions over this limit can be carried forward for deductions in following years. In 2009 the limit goes up to $4,000 a year per account. That year the Smiths can deduct $24,000, saving them $1,380 at Virginia's 5.75% rate. Saving $690 in 2008 and $1,380 per year for 17 years gives them $24,150 in Virginia state tax savings.

The Smiths can also use 529 plans to reduce their large estate. Anyone can gift $12,000 per person without being subject to the gift tax consequences. With a 529 plan, you are allowed to give five years ($60,000) all at once to get the account started by filing tax form 709.

Great benefit accrues to gifting the entire $60,000 in the first year rather than gifting $12,000 a year for five years. By putting the entire gift upfront, all of the growth is compounding completely in the child's estate. Gifting $12,000 each year leaves the remaining $48,000 compounding in the grandparents' account, exacerbating their estate-planning problem.

But gifting the entire $60,000 in the first year puts over $16,000 in extra compounded growth out of the Smiths' estate by the end of the fifth year. This extra contribution will continue to compound in each grandchild's college account for further savings. Because both the Smiths have an account for each of the three grandchildren, the extra estate exclusion by funding them upfront is $96,000. At a 45% estate tax rate, they will avoid $43,000 in estate taxes by the end of the five years.

And the tax-free compounded growth continues to provide estate tax savings. Over the 18 years before the Smiths' grandchildren go to college, the compounded growth is both tax free and out of the Smiths' estate. After 18 years of growth at 10%, their initial $360,000 investment will have removed over $2 million from their taxable estate, for a total estate tax savings of $900,706.

There is also a savings from tax-free compounding. Had the investments remained in the Smiths' accounts, the growth would at least have been subject to a 15% capital gains tax, if not higher. Avoiding this additional tax saved another quarter of a million dollars.

And after 18 years, as if to add the cherry on the top to all of these tax savings, each account will be worth $333,595. Stanford, my alma mater, currently costs more than $60,000 for four years. Growing at 6.2%, after 18 years it should cost about $180,000. With two accounts each, the Smiths' grandchildren should only be limited by their drive and academic achievement.

You might wonder why Grandma and Grandpa Smith are overfunding their 529 plans with more money than their grandchildren will likely spend on college. Any unused money can be allocated for the college expenses of future generations. Beneficiaries can be changed to the children, stepchildren, grandchildren, parents, grandparents, aunts, uncles and first cousins. After the grandchildren have finished college and gone through graduate school, the beneficiary of any existing money can be changed to their own children. The Smiths could be starting an educational dynasty with generations of tax-free growth.

The Smiths retain full control of these assets, even though they have been removed from their estate. Typical estate-planning instruments would require the Smiths to make irrevocable gifts. But with 529 plans, they can switch the beneficiary, change owners or even withdraw money for their own use if they are willing to pay the taxes and the 10% penalty on earnings. They could even make themselves the beneficiaries and enroll in classes themselves. If one of their grandchildren receives an athletic or academic scholarship, the Smiths can receive a tax-free refund up to the amount of the scholarship. And with a grandparent as the owner, a 529 plan is not considered as a resource for financial aid.

Unlike 529 savings plans, we do not recommend prepaid college tuition plans. At best, they match college inflation, and if used at an out-of-state institution, returns may not even keep pace with inflation. Virginia has several different flavors of 529 college savings plans. VEST, the Virginia Education Savings Trust, is marketed directly to the public. Another, CollegeAmerica, is offered through financial advisors. It has different share classes, some of which have loads that make them unattractive. No-load shares are available through fee-only financial advisors. The advantage of CollegeAmerica is that it allows an advisor to create his or her own asset allocation mix from a few dozen different funds.

Consider College Debt Carefully

Here's a good comment left on my post titled Stuck about taking on (and dealing with) substantial college debt:

I just want to comment on the education debt that Sarah and Jesse brought up. For those who are already in that situation, well, yes, I suppose that's one case where both parents would have to work. No argument there.

But for those who are at an earlier stage of their lives, there's a lesson to take from this. To take on that much debt is to make the choice to work--possibly for decades--after school to pay it back no matter what else might come up in your life that would otherwise be more important to you. Now, that's not to say don't get an education, or even to say don't go into debt to get it if that's what you have to do. But do choose your major wisely and think twice about picking that fancy private school. This is particularly true for people whose inclinations lead them to fields that are not reliably well compensated, like the arts or politics to name just a couple.

Sometimes it seems to me that people have lost their minds when it comes to education costs, in much the same way as people who drop 20 grand and up on their weddings.

This is in agreement with what I've written in posts like How to Get the Most Financially Out of College and Go to Law School Without Racking Up Tons of Debt (this isn't just for readers thinking about law school.) In particular, here's what I said on the latter post:

"The point is that you need to look at a college degree (including a law school degree) as an investment. What will it cost and what will you get out of it? Look at the best way to maximize this investment, and you'll be able to find a school that meets your needs and won't leave you in a ton of debt relative to your income. Ignore these factors and select a school based on considerations like campus feel, nearness to home, the popularity of the football team, one great professor, and so on, and you may be setting yourself up for a bad financial decision."

To me, college debt can be "good debt" as long as it's kept under control. And the main way to keep it under control is to compare it to what you'll be earning once you graduate. For instance, consider the following:

• A teacher who will make $30,000 per year who leaves college with $30,000 in debt.
• An engineer who will make $70,000 per year who leaves college with $30,000 in debt.

Any question about who is in better shape to deal with their college debt?

For College Graduates: Learning to Live on Your Own, Part 1

The following is a guest post from Marotta Asset Management.

If you're like most of today's college graduates, you may find yourself ill prepared for the real world of financial responsibility. You never saw how your parents lived when they were first married and struggling. Consequently, you may be basing your after-school expectations on an upper-middle-class lifestyle. Here is my financial advice for those of you learning to live on your own.

My own financial education began when I was very young. My parents shared openly with us about the cost of running the household. I learned our home mortgage was $12,500, or about half the value of the house, and the interest rate on the loan was 4.5%. I knew my father's annual salary ($7,500) and that a week's worth of groceries cost $20 for a family of five.

Although you have to count on spending about 6.58 times more than that today, the principles of proportional living I learned are still the same: You can look like you are rich or you can actually become rich by saving and investing. Wealth is what you save, not what you spend. So be rich. Live frugally, and learn to save and invest.

The people who are struggling financially buy things and clutter their homes with them. The middle class buy liabilities such as boats and vacation homes and must spend money every month to maintain them. The rich, in contrast, buy investments. An investment is anything that pays you money.

Now that you are learning to live on your own, learn to live like the rich. The frugal millionaire enjoys both financial security and peace of mind. Living well within your means is a skill you may not have picked up from your parents or in school. Rather than learning from the so-called school of hard knocks, consider the following suggestions.

Rent is probably your biggest expense, but keep it well under 20% of your take-home pay. To lessen the impact, share your living quarters with roommates. If you learned nothing else in college, you at least found out how to share a room. Later on, when you get married and want your own place, you'll need the money you can save and invest now.

Whoever actually signs the rental agreement or lease and pledges to pay the rent on time each month deserves a better financial deal. That person should be able to charge his or her roommates more and also get first pick of the rooming options.

If you decide to live in a house or apartment and sublet, make sure to factor in the possibility that a roommate may leave without notice, owing you rent. Insist on a sublet agreement that requires the first and last month's rent to lessen the impact.

Your car ranks as your number-two expense. Again, keep total costs well under 18% of your take-home pay. With the salary at your first job after college, you probably can afford to make the payments on a trendy new car. Don't. Expensive cars increase both your insurance and your maintenance costs.

Be practical. Your car is a means of transportation, not a lifestyle. Buy a reliable car that has low maintenance costs. One that is at least a few years old will have already depreciated the most.

Only buy a car you can pay for with cash. Shun easy credit. The only decision that's worse than buying a depreciating asset is buying that depreciating asset on credit. Paying interest on an asset that going down in value may buy you a ticket to the poorhouse. Instead, start saving some of your monthly salary immediately for your next car.

After rent and transportation comes buying food. The average family spends 10% of their take-home pay on food. If you don't eat out, you should spend about 6%. When your earnings increase substantially, perhaps you'll be able to justify saving food preparation time and eating out. But until then, the time you spend cooking is well worth it. The calories you purchase at restaurants are about 2.5 times as expensive as those you prepare at home.

For example, if you brown bag your lunch all week, you can easily save $5.40 a day. Saving $27 each week adds up to $1,458 per year. After factoring in the rising costs of eating out and investing your savings in the stock market where they will grow and multiply, the difference to your net worth is amazing. Investing $27 each week will produce $100,000 in 20 years and $1 million in 40 years. Bring your lunch from home starting at age 20, and you'll have an extra million dollars at age 60!

Eating at home isn't the only way to save money. To extend your savings to the grocery store, here are a few commonsense rules that will lead to uncommon cents savings.

For dinners, master a dozen easy-to-prepare meals. If you can read, you can cook. Keep staples on hand to make these meals. Consider a bread machine and a slow cooker as essential purchases.

Plan your meals when you are hungry, but shop right after you have eaten. Shopping on a full stomach will help you limit impulse purchases. Make a shopping list. Buy staples in bulk at super discount stores.

Avoid convenience packaging and expensive processed foods. Try buying the generic store brand. If you don't like it as well as the leading advertised brand, many stores will refund your money. Actually compare the prices. Most stores make the bulk of their profit from products placed at eye level.

You don't have any extra in your budget for monthly services. You have only about 6% more to spend, and the remainder you should be saving and investing. You may tend to ignore the services that are billed automatically each month, but they will be the most serious drain on your finances. So consider getting the least expensive package of features or doing without entirely. These electronic transfers include phone service options, cable or satellite TV, high-speed Internet, and health club dues.

529 College Savings Accounts: Preferred Way to Save and Could Provide Child's Nest Egg

Here's an article from Kiplinger's that answers several questions about 529 college savings plans. I thought there were a couple pieces of information worth sharing with all of you. Here's the first:

When it comes to calculating college financial aid, it's much better to have assets in the parent's name. Parental assets are taxed at a lower rate (5.6%) than assets owned by a child (20%). By law, 529 accounts are considered parental assets, so they automatically qualify for favorable financial-aid treatment.

I'm not sure "taxed" is the right term, but you get what they mean -- 529s offer an advantage in that they count as parental assets.

Furthermore, 529s can be used as a nest egg if a child decides not to go to college:

Because you're primarily interested in a college fund, a 529 would let you take advantage of a slew of tax breaks: Your contributions may be eligible for a state tax deduction, your savings would grow tax-deferred, and the earnings would escape tax altogether if the money is used for qualified educational expenses, such as tuition, fees, and room and board.

But if your daughter doesn't go to college, you still have some control over the money. You could transfer the funds to another family member and preserve the tax benefits, or withdraw the money and pay income tax plus a 10% penalty on the earnings.

I guess it's the latter suggestion that qualifies as "using it as a nest egg" in Kiplinger's mind.

In the end, 529s are a GREAT way to save for college expenses. For some reasons why (and tips on how to make the most of them), see these links:

• What to Do with 529 Money If Your Child Gets a Scholarship

• 529s Are the Undisputed Kings of College Savings

• Avoid Costs When Investing in 529 Plans Too

• Why 529s Make Sense

• FAQs on 529 College Savings Plans and Why 529s are a Good Deal

How to Determine if Your State's 529 is a Good Plan for You

USA Today gives us some guidelines for deciding whether or not your state's 529 college savings plan is a good deal for you:

Kerry O'Boyle, an analyst at investment research firm Morningstar, says he would never recommend investing in a subpar 529 plan just to receive a state tax deduction. But what should you do if you think that while your state's plan is respectable, another state's is better? Some factors to consider:

• The amount of the deduction.
• Your tax rate.
• The amount you plan to contribute.

For me, the decision was pretty easy. Michigan has a pretty good 529 plan, one that's worth considering even if you don't live in the state. But since I do, it made my decision a no-brainer. I get a good plan plus a $400 tax savings. I'll take it!!!

For more thoughts on 529 plans, see these posts:

• 529s Are the Undisputed Kings of College Savings

• Why 529s Make Sense

• FAQs on 529 College Savings Plans and Why 529s are a Good Deal

No Wonder College Costs So Much

Here's an interesting piece on the huge amounts of money spent at Ivy League schools. A few of the numbers I found especially compelling in the piece:

The $5.7 billion in investment gains generated by Harvard's endowment for the year that ended June 30 exceeded the total endowment assets of all but six U.S. universities, five of which were Ivy Plus: Yale, Stanford, Princeton, MIT, and Columbia. Ivy dominance extends to fund-raising. A mere 10 schools accounted for half the growth in donations to all U.S. colleges and universities last year. All of the top five on the list were Ivies, led by Stanford, which set a record for higher education in 2006, collecting $911 million in gifts.

During 2006-07, the Ivy "Big Three" — Harvard, Yale, and Princeton — collectively spent $6.5 billion on operations, up over 100% from a decade ago. This was more than double the 41% average budget increase for all U.S. colleges and universities over this period and quadruple the 26% rise in the consumer price index. The Big Three sank a further $1.2 billion into new construction and other capital spending last year. "Yale is wealthier now, so we can add resources in almost every dimension," says its president, Richard C. Levin.

In other words, they're bringing in a ton of money and they're spending a ton of money. Meanwhile, tuition is climbing...

The Ivies have steadily raised the list price they charge their traditional clientele: the wealthy and the well-born. Tuition, room and board, and fees now run an average of $45,000 a year, which, the schools are quick to point out, covers only one-half to two-thirds of operating costs. But even at those prices, demand, in the form of undergraduate applications, continues to soar. On average, the Ivies rejected about 90% of applicants for the Class of 2011.

But they're also helping out at least some who are less fortunate:

Extraordinary wealth has allowed the Ivy Plus schools to mitigate their extreme exclusivity by offering bigger discounts to more students of modest means — a move that few would object to. Princeton has doubled its budget for grants, loans, and other aid since 2001-02, to $82 million, as the percentage of undergrads receiving financial support has jumped from 44% to 53%. The average award is $32,200, against total charges of $44,950.

Where are they spending all of this money? Yes, some is spent on buildings, but most of it is on staff:

The Ivies' biggest expense category by far is labor. At Harvard, compensation and benefits accounted for 49% of its $3.2 billion in operating expenses in 2006-07. Although salary gains have consistently outpaced inflation, it is the addition of new teaching positions that is chiefly responsible for driving up the cost of instruction. Harvard, the largest of the Ivies, employs 2,164 faculty members, 55% more than in 1997-98. All of the Ivies increasingly are emphasizing small-group learning, independent study, and hands-on experience. "It's a much more personal connection between teacher and student, and a lot less delivering education in large lecture halls with armies of teaching assistants," says Carol L. Folt, a Dartmouth biology professor who doubles as its dean of faculty.

And I had no idea that professors made so much money:

The Ivies' heavy spending to enlarge and upgrade their faculties has contributed to an ever-widening salary gap between private and public universities. The $106,496 average salary earned by full professors at PhD-granting public universities in 2006-07 amounted to just 78% of what their counterparts earned at private universities, according to the American Association of University Professors. This figure was 91% in 1980-81.

The Ivies' superior spending power puts even the finest public universities at a disadvantage in the competition for faculty. One of the many academic areas in which Yale has brought its financial muscle to bear is physics, which until recently was chaired by Ramamurti Shankar. "Yale told us: Let's go after who you want. We will make it happen,'" says Shankar, who is particularly proud of having bested several other top private schools to lure the quantum mechanics expert Steven M. Girvin away from Indiana University, a Big Ten public stalwart. "There was a huge war," Shankar says. "Everybody wanted him." Shankar declines to disclose the price he paid for Girvin in 2002, but says that the going annual rate today for theoreticians of his caliber is $400,000 to $600,000, which includes salary and research support. This is for an assistant professor, the level at which Yale does most of its hiring. The price tag for top experimentalists, who have far more extensive laboratory needs, is $1.5 million to $2 million, according to Shankar, who remains on the Yale faculty.

It goes on to talk about the impact on public universities as well, so if you're interested in this topic, you should read the entire piece. Personally, I found the article fascinating.

But holy cow, who knew top professors made that much?!! That is a bundle of money. Am I just out of it or is this a surprise to anyone else too?

Is Graduate School Worth the Cost?

Here's a piece from Yahoo that asks if graduate school is worth the cost. The answer is -- maybe. Their key thoughts:

Graduate degrees are necessary for some fields, raise earnings on average, and can lead to more enriching careers -- but choose carefully. Compared to college, there's less financial aid available; tuition is higher (averaging over $20,000 for master's programs at public institutions); parents are less likely to foot the bill; and, as an independent adult, you give up income from working in order to attend.

Less than a fifth of all graduate and professional students receive scholarships, fellowships, or assistantships. And some graduate degrees barely increase your earning potential -- and may even lower it.

The bottom line is, besides the out-of-pocket and opportunity costs, graduate school is meant to prepare you for a specific field. If you end up working outside that field, there goes a lot of time and money. That's why I think anyone who enters a graduate program should first spend at least a year getting closely related work experience.

In other words, look at it as an investment. What will it cost you (in tuition, etc. as well as in lost wages) and what will you get out of it (how much more will you earn)? Then you can make a financial decision based on the facts.

Of course, there may be other reasons to proceed even if it's not a good financial deal -- such as allowing you to move from a field you hate to one you like. In this case, you may take a financial hit, but eventually be happier overall. For an example of this, see "From six figures to student loans" from Money magazine.

The Yahoo piece then details various graduate degrees (business, medical, etc.) and gives some thoughts on whether or not they are worth the cost. Here are some that aren't:

From a dollars-and-cents perspective, the worst values in graduate education are those in which tuition is high and average earnings are low or unpredictable: fine arts, creative writing, and cooking come to mind. Popular and exclusive graduate programs in creative and competitive fields can charge high prices because they promise access to an inner circle -- a crucial edge in a line of work that's always going to be a bit of a gamble.

And they end with this good advice:

It's important to remember that universities create and market new graduate programs to serve their own needs as much as to add value for prospective students. So anyone who's smart enough to get an advanced degree should be smart enough to limit their expenses to a minimum and choose a program that will widen their options without saddling them with debt.

As I've noted before, there are some things you can do to maximize your overall college investment. If you take these steps, it's likely that your investment of time and money will pay off big. This is what happened for me and if done correctly, the same opportunity is still out there today.

College is Certainly Worth the Cost

Here's a piece from Yahoo that asks if college is worth the cost. Their bottomline:

On average, the answer is yes.

While the earnings of people with bachelor's degrees dropped about 5 percent between 2000 and 2004, they'll still earn an average of about $1.2 million more than high school graduates over a 40-year career. Borrowing for college, as most students do, cuts into the return on education, but not by much.

At the extreme end, say you paid for a private college with private loans -- $133,204 at 9 percent. Over 20 years, you'd pay back almost $300,000 -- still leaving a $900,000 average lifetime earnings premium.

In other words, it's a good investment. You pay in money and time, but you reap a financial windfall.

However, there are some things you can do to maximize your overall college investment. If you take these steps, it's likely that your investment of time and money will pay off big. This is what happened for me and if done correctly, the same opportunity is still out there today.

How to Go to College for Free

Here is a very interesting article from Business Week. It includes the story of the College of the Ozarks in Point Lookout, Mo. and says that every student that goes to college there does so for free. The details:

At the College of the Ozarks, all students' tuition costs are offset by a mandatory work-study program.

I was very surprised to hear that a college like this existed. Then I read further -- there are several colleges like this one:

Tuition-free colleges—also known as full-scholarship colleges—remain one of higher education's best-kept secrets. True to their name, they are institutions that guarantee to cover the entire student-body's tuition. There are only a handful of such schools in the U.S., which is one reason they are often overlooked by students, parents, and high school guidance counselors during the college search, says Sandy Baum, a senior policy analyst at the College Board. "It's not a trend of the future. It's just a certain niche market. These schools have unique situations that allow them to go tuition-free," she said.

And here's the big benefit to those that attend free schools:

Students who attend these schools walk away from college with little to no loans, debt, and financial worries after they graduate. In most cases, the only fee students need to pay is room and board, a cost separate from college tuition. It's a financial situation with almost irresistible appeal for college students with limited means, said Rick Darvis, co-founder of the National Institute of Certified College Planners, an organization founded in 2002 to help families navigate the college loan and financial aid market. "For kids coming out of college today, debt-free is pretty rare," Darvis said. "As far as a kid having a summer job to help pay off college, that's not going to happen anymore."

I have to think that people are killing themselves to get into these schools. But if you do get in, it's worth it. I think of all those people who've barely saved anything for college (and their parents haven't saved much more than that.) A free tuition school seems to be a very good alternative for them.

For those of you interested, here's a list of free colleges.

Go to Law School Without Racking Up Tons of Debt

After writing about one woman's disastrous journey to law school, I had to post on this piece from CareerJournal on how to pick a great law school while avoiding hefty debt. Their tips:
 

• Consider an in-state public law school.

• Be a big fish: If your law-school admissions test score doesn't qualify you for admittance at the top 20 to 30 schools ranked by U.S. News & World Report in its annual law-school rankings and your goal is a high-paying law-firm job after graduation, consider going to the school where you will get the biggest tuition discount and where you will be among the top incoming students.
  
• Ask about on-campus recruiting.

• Look for transfer opportunities: Elite schools are increasingly plucking the best students from lower-ranked schools, administrators say.

• Check alternative law-school rankings.

• Scrutinize schools' data on graduate employment.
  
• Think about location: Unless a school is nationally recognized, it's tough to take its degree to firms on the other side of the country.

Let me just reiterate the feelings I detailed in How to Get the Most Financially Out of College (which applies to grad school, law school and the like as well.) My key points:

1. Try and decide what type of work you'd like to do before you apply to any colleges.
2. Go to the least expensive school (or at least an inexpensive one) that will get you where you want to go.
3. Get as many scholarships and free money as possible.
4. Apply the various ways available to save money on college.

I have already detailed what I did to get two degrees (including an MBA) for only $5,000 but let me add a bit to the picture.

When I went to undergraduate school, I wanted to become a lawyer. My school had done well at getting people into law school, so I was set. Then I took an internship with a lawyer in my junior year, hated it, and shifted my focus (through some counsel as well as a few personal experiences) to business/marketing. Trouble was, NO ONE recruited business/marketing majors from my school. Unless you count the Missouri Department of Game and Fisheries -- that paid a whopping $15,000 a year. Therefore, I knew I needed to go to grad school to get where I wanted to be.

I also knew the kind of employer/industry I wanted to work for. In fact, I knew the exact company I wanted to work for, but I was willing to work for a similar company in the same industry. I knew that if I worked for any of these Fortune 500 companies, my career would be set (at least to some degree). So I started looking for the cheapest school (in terms of tuition as well as what work/aid I could get) that had these companies recruiting on campus. I applied for and got an assistantship (based on my undergraduate success) at one school that fit the bill, I graduated two years later, and left with a job at the company I wanted to work for from the start. From there, my career took off. The degree got me to job #1 and job #1 got me to successively better and better positions.

Ok, enough rambling, what's the point? The point is that you need to look at a college degree (including a law school degree) as an investment. What will it cost and what will you get out of it? Look at the best way to maximize this investment, and you'll be able to find a school that meets your needs and won't leave you in a ton of debt relative to your income. Ignore these factors and select a school based on considerations like campus feel, nearness to home, the popularity of the football team, one great professor, and so on, and you may be setting yourself up for a bad financial decision.

How to Get the Most Financially Out of College

Here's a piece from MSN Money that asks if college is worth the cost or not. The author goes out of his way to show that it's not worth it in some cases, especially when:

• The student goes to a very expensive college.
• The student borrows a ton of money to pay for it.
• Upon graduation, the student takes a job that doesn't pay much in relation to the debt he just incurred.

Well, duh. Of course it's a bad deal in this example. But I'd consider this the worst-case scenario.

As you all know by now, I'm a big fan of going to college. Studies show what a great deal it can be for you financially and education's made a huge difference in my finances. That said, you can't simply go to whatever college you like, borrow whatever you like, and take whatever job you like and expect that to be a series of good financial moves.

Here's what I would recommend to those people looking to make the best possible investment out of college:

1. Try and decide what type of work you'd like to do before you apply to any colleges. I know this can be difficult to do -- for a 16-year-old to decide his life's work -- but at least give it some thought. Narrow the list to a few careers and look at colleges that cover most (if not all) of those. And in the first year or two of college, take as many "general" classes as possible. This will give you a bit more time to decide what you really want to do.

2. Go to the least expensive school (or at least an inexpensive one) that will get you where you want to go. For instance, if you want to be an engineer at company XYZ and you know that XYZ recruits from both college 123 and college 456, but college 123 costs $10,000 a year and college 456 costs $15,000 a year, consider the cost difference before picking a college. You may still go with college 456, but really, really, really consider if it's worth the extra $20,000 to attend.

3. Get as many scholarships and free money as possible. Some of this is not dependent on you (such as whether or not you qualify for need-based scholarships) but many do. This is why it's important for you to rack up extracurricular experiences, community service, and good grades starting in 9th grade. The work done here will pay off in all sorts of various scholarships and aid given to those who excel in various activities. For more thoughts on this, see 11 Ways to Get Your Share of College Money.

4. Apply the various ways available to save money on college. Here are just a few I've written about:

• College for Half-Price
• How to Save on College Textbooks
• Save 50% on Education Expenses
• Save Big Money by Getting Good Grades in College
• Save on College Courses
• Save on College by Studying Abroad

You can find more ideas by going to my college category and reading all the articles.

Now whether or not college is a good deal even if you apply these principles still depends on what you make leaving college versus what you could have made with just a high school degree. But generally, a college educated person will make substantially more over his career than a high school educated person, so as long as the debt load leaving college is reasonable, it's a no-brainer -- college is a better deal by far.

Can you find circumstances where this isn't true? Of course. But in the vast number of cases, a college degree obtained at a reasonable cost (and with reasonable levels of borrowing) is a great deal. The key is to think ahead and plan what you're doing all the way through starting when you/your child starts 9th grade. If you do this and do it correctly, college will not only be a great, life-changing experience, but it will also be a very lucrative decision.

I'm Sick of Hearing About This Topic

Here's one topic I'm really sick of hearing about: how people are leaving college with boatloads of debt that make living their lives difficult. Here's the type of scare-tactic quote I see on this issue over and over:

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time, financial experts fear.

Oh my! You mean people will have to sacrifice eating out and other necessities to pay for college? This is criminal!!!!!!

Puh-leaze. Give me a break.

What I especially love about this article is the example they use:

Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, owes $150,000 in private and government-backed student loans.

Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.

"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."

She commutes now to her Legal Aid job in Kalamazoo, but Cole said she may need to eventually get a job at a law firm to make ends meet.

"I wanted to do something with my life and I went to law school," Cole said. She opted for legal aid work right after graduation in 2005.

"I feel real connected to this work, I really enjoy it and want to stay involved. Unfortunately it's nearly impossible to get ahead. I can pay my bills and that's about it," Cole said.

A native of Saginaw, Cole has bachelor's and master's degrees in Spanish from MSU. But she shouldered most of her student loans -- $100,000 -- to pay for law school. Although her federal student loans have a low interest rate, under 3 percent, the private loans from a bank carry 8 percent interest.

The piece goes on and on about how much college costs, how much people have to borrow, how they don't have a life and can't do the work they want to do, how it's not fair and blah, blah, blah. What a load of junk!

Here's my take on this situation:

1. Yes, college is getting more expensive. As such, we need to take steps to make it more affordable. For instance, parents need to reign in their spending and work on saving more for their kids' college expenses. And kids need to do what they can -- get good grades and be active in high school so they can earn scholarships. In addition, they both need to look for creative ways to pay for college. I happen to have tons of ideas on all these issues. Go to my college category and scroll down the list. There's lots of stuff there to save you a bundle of money.

2. Though college costs a lot, it's worth the investment. Let's say someone would tell you, "give me $40,000 and I'll give you $1 million back." Do you think this is a good deal? I do. And that's what happens when most people go to college -- they end up earning way more than what they would have otherwise and way more than the cost of college.

3. People need to balance the amount they borrow with the amount they can potentially earn with the degree they get. I detail this thinking in How Much College Debt is Too Much? but the simple rule is the more you expect to get out, the more you're able/willing to put in.

4. It is fair, so quit complaining. When people go to college, they know what they're getting (a degree in something), what they're paying for it, and what they'll likely be able to make when they get out with that degree. Where's the unfairness? What really gripes me is that people think they can pay/borrow whatever they want and then take whatever (usually low-paying) job they want to and that should be "fair." Life doesn't work like that, people.

Now for the example above. Let's review what Kristin did and how she could have done better than end up with $150k in debt:

1. She should have thought ahead. Did Kristin really think that she could earn enough working in legal aid to pay back $150k? Nope. I guarantee she didn't think about it at all. For that matter, it looks like her undergrad degree racked up $50k in debt. Seems she didn't think about that in advance either. If she would have considered what she'd be earning before she enrolled in school, she probably would have either decided on a different career or a different school.

2. She paid way too much for school. Where'd she live, a ten-bedroom house? This is Michigan State she went to -- not Harvard. How could someone rack up such large debt going to Michigan State law school? I guarantee you she could have gone to a much cheaper school and gotten the same job she has now with legal aid.

3. She didn't save in advance or (it appears) work during school. Why not? Is it because a law degree demands too much effort? Well, I worked while I got an MBA and I don't think a law degree is that much (if any) harder.

4. She probably used the same lack of decision-making when she got her undergrad degree. (I'm guessing on this one based on what she did (or didn't do) when she got her law degree. There are a lot more opportunities to save money on an undergrad degree and while she would still have a ton of debt from law school, she could have knocked off up to a third of her debt if she'd applied the above principles when she got her first diploma.

Ok, this rant is coming to an end. I know that college costs are getting higher and tougher to pay for. That's all the more reason we need to plan for how to minimize them and pay for them so our kids don't leave with a boatload of debt. I'm all for reading articles with these sorts of ideas. But I really am starting to hate the abundance of these "I made stupid mistakes in borrowing for college and it's not fair" articles.

Help a Reader: Which 529 is Best?

Here's a question I received recently from a reader:

We are trying to decide how to best start a 529 for a newborn. We have plenty of cash we could allocate to a plan, and are trying to decide whether to start the plan with a bigger initial investment or larger annual contributions. Can you provide some info on how you went about starting & maintaining your 529's? Any specifics would be much appreciated!

Here's what I've had to say on the issue:

• 529s Are the Undisputed Kings of College Savings

• Why 529s Make Sense

• FAQs on 529 College Savings Plans and Why 529s are a Good Deal

Any other thoughts for this reader? What would you advise him to do?

How I Made Millions Off a $5,000 Investment

Ok, so the title's a bit over-the-top on this one. But that's the kind of mood I'm in as I write this, so I'm going with it. :-)

Getting a college education and following it up with an MBA has been one of the best financial decisions I've ever made. The numbers show that if you get the right college degree and maximize the earnings from your career, you can add millions to your income throughout your lifetime. For me, my MBA was a major step in moving my salary up much higher than I ever thought it could go.

And best of all, this great investment didn't cost me that much. Yes, it did take six years of my life, but in terms of financial costs, I left grad school with only $5,000 in debt. Best $5,000 I've ever spent. I thought I'd briefly detail for you how I did it. The steps:

1. I applied myself in high school. Yep, you lay the groundwork for college scholarships/success starting in 9th grade of high school (for more on this line of thinking, see Why Extracurricular, Volunteer, and Community Service Activities in High School are so Important at Getting You into the College of Your Choice and What You (or Your Child) Should be Doing in 9th Grade to Get into the College of Your Choice). I studied hard, was involved in extracurricular activities (including leadership positions), served in the community and held a part-time job. All of these looked great on college applications and helped me get accepted to colleges I was interested in.

2. I went to an undergraduate school that was good (not great) but that was affordable. I did a cost/benefit analysis when I decided what college to attend. Today it seems that many kids simply pick a college they "like" and decide to figure out how to pay for it (or borrow for it) without much regard to how much the college costs and what the expected payout is.

3. I got scholarships based on: 1. Academic accomplishments (see #1 above -- my work in high school paid off here). 2. Leadership/activities. (Again, high school work paid off.) 3. Need. (At that time, I was from a "poor" family).  These added up to a nice chunk of change each year.

4. I applied myself in college. I viewed going to college as my "job" and treated it as such. Sure, I had plenty of time for fun and non-school activities (my fraternity brothers can attest to this), but I also studied hard and was involved in several campus organizations. This led to more scholarships and a lucrative assistantship in my sophomore through senior years.

5. I worked in college. My freshman year I worked in the library for a pittance, but because of my grades and activities I moved up into the assistantship the last three years of school. I also worked every summer and saved like a fiend. Even the summer I couldn't get my job at the grocery store back, I found work "walking beans" (don't ask if you don't know what it is -- you don't want to know.)

6. My success in undergraduate school set up my grad school success as well. I followed the same process -- looked at good but not great schools that were very affordable and used my high school and college results to get into one that fit my criteria. Also based on these results, I got an assistantship that paid my entire tuition for two years. But I worked for it. EVERY Friday and Saturday night for two years I ran a movie theater in the student union. Yeah, it was a pain to go to work when my friends were out partying, but the sacrifice was worth it as I left grad school owing only $5,000 to my grandmother (which I paid back a few years later.)

So, in the end, that $5,000 investment will end up earning me millions more than if I hadn't gone to college and grad school. Seems like a good investment to me! ;-)

BTW, when I went to college, I didn't know about all the other ways people can save when getting their degree. If you want more ideas on how to save on college, check out my college category for tons of ideas.

Avoid Costs When Investing in 529 Plans Too

I've noted that a key part of making the most on your investments is to avoid as many associated costs as possible. The same thoughts hold true when investing your college savings in 529 plans -- the more costs you can avoid, the better your investment will perform.

One major cost with 529s can be brokerage selling costs/fees. I say "can be" because you can usually purchase 529s directly from the state without incurring any broker's fees. Here are the details from Bankrate:

When you purchase a 529 plan through a broker, the broker receives commissions, paid for by you directly through sales charges and/or indirectly through additional expenses attached to the investment. You will avoid these costs by going to a 529 plan and opening your account directly. Each 529 plan has a Web site containing an official program description and other enrollment materials, and most of the "direct-sold" plans allow you to easily enroll online and make contributions via electronic transfer from your bank account. You might also locate 529 plans through the Web sites of the mutual fund firms, including the firms mentioned above, that are hired by the states to manage their 529 plans.

Ok, so if it costs more for the EXACT SAME INVESTMENT, why would anyone EVER buy a 529 from a broker? Thoughts on this:

Should you go the direct route or the broker route? The answer depends on your ability to understand and select 529 plans and other investment vehicles, as well as the amount of time you are willing to spend investigating your options. Many parents, and especially grandparents, decide to involve a financial professional and don't mind paying the extra costs associated with broker-sold 529 plans. You may also wish to consider that broker-sold 529 plans tend to use actively managed mutual funds in their investment options while many of the direct-sold 529 plans use index funds.

A few thoughts on this:

1. The translation of that last sentence is "not only will you likely pay more up front for a broker-sold 529, but the funds you'll get from it will probably be more expensive making your total return even worse."

2. Consider the extra amount you pay a tax on ignorance. Yep, it's easy to learn about personal finances, but if you don't want to take the time and effort to do so, you're probably going to pay more and get less on lots of items.

3. I bought my 529s directly from the state of Michigan. Not only did I save fees by going direct, but I also got one of the best plans in the U.S. as well as a nice state tax deduction.

4. For more thoughts on 529s, see 529s Are the Undisputed Kings of College Savings.