students

Did I say “academic success”? Sorry, I meant “shoving consumerist lifestyles down the already-choked-by-debt throats of Americans.”

I was visiting a local Best Buy store to pick up some blank CDs, when I saw this “Back to School Tech List” displayed near the customer service desk. It starts with a nice Lifehacker-style title: “Top 15 must-haves for this year’s college students“, but the rest of it is essentially a big load of crap.

Here are the first eight essential tips for academic success:

And here are the remaining seven essentials for college life:

They probably missed #16 - apply for a Best Buy credit card with 32424531% APR, and then keep making minimum payments. Now, that’s also an essential aspect of academic success and college life.

A more appropriate title would be “Top 15 must-haves to start school with credit card debt“.

All these years I was under the impression that academic success depended on how hard you study, how well you understand, and how diligent you are with your homeworks and assignments. Things have probably changed now.

I am just picking on Best Buy because I happened to have their ridiculous list in my possession; however, these type of lists are fairly common in many retail shops around this time of the year. The back-to-school shopping business is really bloating up into a Thanksgiving/Christmas style shopping mania. Sharon @ The Frugal Duchess has some interesting thoughts and numbers on the subject. She also refers to an interesting report by National Retail Federation (NRF) which says that back-to-school spending will exceed $18 billion this year. It’s probably a coincidence, but this is what I found in the report:

“Electronics have evolved from luxuries to necessities, not only for college students but also for their younger siblings,” said NRF President and CEO Tracy Mullin. “While some students may be pleading with mom and dad for an iPod or a cell phone, parents are also investing in desktop or laptop computers, educational software and printers to support their children’s learning.”

I guess that’s where Best Buy picked up it’s *essential* tips from.

Many months ago, I wrote this post “Students, Laptops, Digital Cameras, Huge Cars, and Debt“. Some of you will find it interesting in light of the above discussion.

[Quick note: I mentioned "porn" near the Geek Squad logo in the first image above; read this article and this article on The Consumerist to know more about it.]

Money, Matter, and More Musings will be featuring some guest bloggers while I am on vacation for the next few days. This is the first of such guest posts by PT @ Prime Time Money. More information on PT and his blog is available towards the end of this post.

My brother-in-law is graduating from high school this week. Naturally, I reflected back to my own graduation, how glad I was at the time to be finished with high school, and how excited I was for college and the future. I also thought back at how naive I was in regards to my personal finances. So, I thought I would draft a letter to all the young people graduating from high school this spring and provide some practical advice geared towards their personal finances.

Dear High School Graduate,

Congratulations on your accomplishment! You should be proud. Newton D. Baker once said, “The man who graduates today and stops learning tomorrow is uneducated the day after.” With that, I offer you these words of advice for your finances as you continue on your journey of learning.

Save. Save a percentage of every dollar you get, no matter if it’s given or earned. I know. I know. You’ve heard this before, but I promise you, along with getting your advanced degree, this is one of the most important things you can do now to secure your future. You may not be earning much over the next few years, but very little is needed now in order to have a big impact later. It’s true that there is more time to save later, but your saving will never be as effective as it is right now. So, if you haven’t already, begin saving and make it a part of your normal routine.

Understand the Cost of College. I really want you to understand what it will take to pay for college. Most of you will either get scholarships, student loans, or some combination of the two. You may not stop to think about the true cost or to fully understand that student loan debt. Please, do not take on more student loan debt than you actually need. You’ll only end up blowing the extra money on “stuff” and food. Lastly, don’t just sign the loan papers and move on. Sit down with someone who can fully explain the debt you are getting into and help you to visualize your future with this debt. Believe me, fully understanding this transaction will do nothing but cause you to apply for just a few more scholarships or grants.

Be Careful with Credit Cards. Now that you’re a responsible member of adult society, the credit card companies will begin soliciting you. Don’t listen to them or their sales pitches. Seek out trusted advice, understand the ramifications, and get a card (for emergencies) on your terms. When you do use the card, use it with the knowledge that you will pay it off the following month. Never view the card as a way to finance your livelihood, and save the big purchases (car, flat screen TV, etc…) for later in life, when you’ve saved for them.

Find a Mentor. There’s always someone else out there who has been through it. No matter how smart you think you are, you can always learn something from others. Find someone stable and successful that you admire and pick their brain for every financial step you take. You will get ahead much quicker by learning from the mistakes and successes of others than by always trying to do it on your own.

Congratulations again on your success thus far. I wish you the best in your future and finances.

Sincerely,

Prime Time Money

About the author: PT is in his early 30s living in Texas where he’s lucky to be married to a wonderful wife who, by the way, worked her way through college. No kids yet, but they have a house on the way, and a fat cat named Larry. Catch PT lamenting about his high school and college years (and all things personal finance) on his blog, Prime Time Money. He can be reached at ptmoneyblog at gmail dot com. Check out his series of posts titled “10 Things That Bring Success in Personal Finance” (Feed link for Prime Time Money)

I was reading up some articles at CBS News, and came up on this interesting one: Meet “Generation Plastic”. It’s about students who get caught up with credit card debt. Apart from some sad stuff about credit card marketing strategies, there is something else to notice in the article. Read this:

“I had Visa, Visa MasterCard, First Financial Bank, Visa, Gap, Target” says college senior Sara Magee. She was lured at 18 by the promise of a free Frisbee. A dozen credit cards later, she’s working three jobs to pay down $6,000 in charges, fees and interest.

“I didn’t understand interest and what a high APR was — I really just didn’t understand the concept, and it seemed like a good idea — like (I) can’t afford it now, but I will pay it off later,” she says.

This comes from a graduating senior!

I am pretty sure there are a whole lot of students in the same boat - and of course, there must be a whole lot of non-students who know diddly-squat about credit cards, their usage, and related terminology.

When you don’t know what “APR” is, how much it will cost you in interest, what are the consequences of late payments, etc. - and you still keep swiping it around as much as you can; then you are basically the guy in this picture (been there, done that):

Now, blaming credit card companies for high fees, twisted marketing tactics, and unfair billing practices is all meaningful - only AFTER we, on our part, take enough efforts to understand how these things work. The way I see it, most pain and suffering caused by credit cards is initiated due to credit card abuse by the consumer. This pain is then compounded by credit card companies’ tactics.

To solve part of the problem, here is an outrageous suggestion: impose a card-specific, knowledge-based test to determine whether a person is eligible for *using* a credit card. A credit card application won’t go through unless all the questions are answered correctly. Such tests should include simple questions like:

• What does APR stand for?

• What is the grace period on the card for which you are applying?

• What will be your APR if you miss one payment?

…and some moderately challenging questions like these (moderately challenging = something that a monkey will not be able to answer easily):

• What will be the minimum payment due if you carry a balance of $5000 during the statement period?

• At 14% APR, how much would it take for you to pay off $1000 balance on your credit card if you keep making minimum payments?

Feel free to thrown in suggestions for questions that you think should be part of such a test. Sarcastic suggestions are perfectly OK.

This will serve some good purposes like:

• The extra hassle will discourage casual credit card seekers - and it will enforce awareness for those who seriously want to have a card.

• It (the numbers) will make people think twice before applying for a relatively *bad* credit card.

• Even if people cheat on such tests, they will be forced to look up (or ask for) some information - which would still serve the purpose of raising awareness.

Yeah people will whine and moan - but that exactly would be the purpose of such a test - to make them whine and moan before they get their credit cards instead of after using them mindlessly.

For students, there should be a “Credit Cards 101″ course…and they should not be allowed to apply for a card unless they have taken that course. It will be interesting to see how many students just give up on credit cards just because they want to avoid the course.

“You are pre-approved” will have a radically different meaning.

Any other novel preventive measures or suggestions for refinement? (”ban credit cards” is not creative enough)

Some amount of sarcasm is intended (more than a solution to any specific problems) through this post. The aim is to channel our thinking towards how to make (force) people understand credit cards before they start using it foolishly. The qualifying test is just one potential hypothetical measure ~ to be taken with a grain of salt. One can easily fathom the enormous social effort that will be required if such a system were to be practically implemented.

News about this student loan settlement was reported yesterday by CBS (click here to read the full article). The report follows a nationwide investigation into an alleged kickback scheme perpetrated by schools and lenders. The investigation was spearheaded by New York State Attorney General Andrew Cuomo. Below, I will highlight some important excerpts from the report. My comments are in italics.

The chief practice that he (Cuomo) hopes to curtail is when lenders pay back schools a portion of the loans steered their way (typically .25 to .50 percent of the net value), payments that tend to grow when a school designates a bank as a “preferred lender,” because 90 percent of students and their families seek loans from those institutions.

Honestly, I had no idea that such a thing existed. So, all this time, students were carrying the extra burden of kickbacks to their own school? I thought the increasing tuition was enough PITA. That’s not good. Raise the tuition from one side…so that more and more students are forced to avail student loans, and then raise the burden on the student loan side too? Aren’t student loans supposed to *encourage* students to study more?

Other provisions in the code are:

The new code requires schools to disclose why it has chosen some lenders to be “preferred” and bans financial aid officers and other school officials from receiving more than nominal gifts from lenders.

“More than nominal gifts” - isn’t that equivalent to bribing? Why was it allowed till now?

No longer can lenders answering telephone queries identify themselves as school representatives when calls made to school loan hotlines are sometimes forwarded to outsourced call centers.

Wow…that’s like the school name is just a proxy and lenders are running the show!

As a part of the settlement, New York University will refund $1.4 million and The University of Pennsylvania will refund $1.6 million towards reimbursement funds. More schools refunding the kickbacks are mentioned in the report. One lender - Citibank is mentioned to be in agreement with the code of conduct.

Well so much for the good part.

The bad part is that the investigation started with about 100 colleges and half a dozen student loan providers. And, the settlement (as reported by CBS) involves only 1 bank and just a third of the schools. Makes me wonder what happened to the rest of the parties involved. Also, there are like 2500 schools in the US (?) (I need a reference here). It’s rather hard to believe they were all clean and *innocent*.

I recently ordered a Dell OptiPlex desktop for my office desk. Though the computer came through a higher education “preferred pricing account” that my university has with Dell, it turned out to be the most expensive computer we ever bought. I tried a similar desktop configuration with Dell Dimension available in Dell Home section and that computer turned out to be $200 cheaper than this *preferred pricing* computer. May be in Dell’s dictionary preferred pricing means higher pricing. Also, my university thinks it is a good deal with this *preferred pricing* from Dell and doesn’t want to deal with any other manufacturer (wasted taxpayers’ $$)…so I had to go ahead and order it anyways. Other than this cost discrepancy, there were other idiotic things that I came across on the website.

Right after I chose a OptiPlex model and click on customize, these options appear for the choice of processor:

What the !? Ok, I am glad you are giving your customers a lot of flexibility in the choice of the processor, but look at the way this information is presented. It’s neither arranged according to increasing or decreasing pricing, nor according to processor speeds. Fortunately, I am a bit literate about some related terminology, but for an average customer, what will this “2×2M?” and “2×1M” mean? (it’s Level 2 cache of 2MB per core; for a dual core processor it’s 2 cores x 2MB cache total 4MB cache). If they want to throw some jargon in the buying process, at least they should link it to someplace where you can find what it means. After reading some information on Intel’s website, I finally decided on Pentium D 945 processor.

Later on, there were some stupid options like this:

I don’t understand why this option is even existing.

And like this:

Nice, pay a buck to “Hide Microsoft Outlook Express” . Read the last option “Sets wallpaper to blank”…I am glad they are not charging a buck for doing that. May be Dell thinks university people are really stupid or something (there are stupid people in universities, but let’s talk about them sometime later).

And then there is the issue of warranty. For higher education purchases, Dell slaps a mandatory 3 year warranty at the minimum. This is what makes education purchases from Dell really expensive. I don’t want your “3 year warrant with NBD onsite with 3 year Gold Tech Support”..I just want a plain 1 year warranty! (btw, NBD stands for Next Business Day..more jargon)

What’s going on with Dell?

After going through all that, I was able to get a Pentium D 945 Processor (3.40GHz), 2 GB RAM, 17″ Flat Panel Analog Monitor, 16x DVD+/-RW, and two hard drives - 80 GB each, for around $1180 (no tax for universities). I looked up this deal at Best Buy which has a better configuration than the Dell we ordered and for much cheaper price (may be another $80 for an additional hard drive). Well, looks like we just bought some “preferred” crap from Dell.

Consider this post as a continuation of my earlier post “Tuition and Fees: The Cost of Higher Education“. I dug out some old data on the tuition and fees for graduate students in our university and made some quick graphs. These are shown below. The first graph shows the increasing trend in fees from the academic year 1997-98 through present. The cost has been rising pretty fast in the last few years…although the rate of increase is showing signs of easing a bit.

In the second graph below, I have just included a simple linear regression fit (available in Excel) with this data (the red line is the fit) and made a prediction after 10 more years. Please note that this is as absolute simplistic as you can get with predictions…it won’t be very accurate, but will give a general idea of where things may be heading.

According to this crude prediction, in the next 10 years, our tuition will rise to approximately $19,500 ! Man..people are going to have a hard time encouraging young students for higher education.

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See here for research on the tuition and costs associated with distance education degrees from online universities.

Here are some interesting amounts that I and my fellow graduate students face, at the beginning of every semester, at our university. If you take a look at our tuition and fee statement, it’s very plain and simple with just two entries and looks like this:

We get such a bill for 3 times a year: fall, spring and summer. The above amounts are for 9 credit hours that I took this spring. The summer tuition comes out to be slightly lesser because we are required to take just 6 credit hours instead of 9. The required fees are almost the same for all three semesters (only slightly less in summer). Also, note that it’s a public university, ranking among the best in the country for most areas of study.

The current annual amounts for graduate studies in this university look like this:

Tuition: $4236.30 * 2 (fall + spring) + $4236.30 *(6/9) (summer) = $11,296.80

Required fees: $908.97*3 = $ 2726.91

Total = $ 14,023.71

I work for the university as a research assistant (sometimes as teaching assistant), and that takes care of my tuition (just the tuition, not the required fees)…but I do get a bill for the full tuition due. If I have a research or teaching assistantship, my department pays that bill for me. But, that’s beside the point of this post. Back to the cost of education…

That entry in the fee statement “Fees required of all students” is a blackbox with a lot of charges. Here is what comes under that category per semester, rounded to nearest whole number (annual amounts are in brackets):

1. Advising fee: $80 ($240)
2. Bursar fee: $5 ($15)
3. Computer Access fee: $170 ($510)
4. Energy fee: $99 ($297)
5. Medical Services: $60 ($180)
6. ID card: $3 ($9)
7. Library: $197 ($591)
8. Software licensing: $11 ($33)
9. Sports center: $98 ($294)
10. Student services fees: $126 ($378)
11. Transportation fees: $60 ($180)

I can understand some of the fees, but others are just ridiculous. In my case, the major wastage occurs with the “advising fee” (I still don’t know what are these for), “student services fees” (again, no idea), transportation fees (I live very close to campus), medical services (haven’t used the facility even once since I started grad school). Also, library access ($591) and computer access ($510) are really very steep. Also, none of these fees are optional.

If you add housing and boarding expenses to the above numbers, the total annual expenditure will be in the range of $20,000 ~ $25,000, depending on your style of living (spending).

So there you go..that’s what most grad students will be paying for their education. I am also almost sure that the above numbers are on the lower end of the spectrum as compared to the rest of the country….and I am not even talking about private schools here. There are ways to reduce this burden considerably, but that is a subject for another post.

Btw, when I joined grad school a few years ago, the annual expenses were in the range of $15,000~18,000…and have never stopped rising since then.

Some finer points: I have just mentioned the “nonresident” tuition in above numbers. “nonresident” meaning your hometown and your university are not in the same state. Most grads will choose schools according to their interests..(not just because it’s close to their home), so they may end up as nonresident students in other states. These nonresident numbers will also apply for international students….and there a lot of international graduate students in this country. For resident students, the annual tuition and fees expenses at our school are about $10,000 instead of $14,000. For undergrads, the numbers are slightly higher because most of them enroll for a lot more credit hours per semester than grad students.

Care to share what the cost of your education is (or was) ?

With this post, I don’t intend to generalize the spending habits of all students, but I do wish to draw attention towards this growing tendency of “I want that cool stuff…right now” among a large number of students. What worries me is that most of these students are supporting their education through some kind of student loans, but they behave as if they have absolutely no responsibilty towards it. Sometimes it makes me wonder whether they aware of the fact that they have to pay the damn money back after a few years.

I can understand education loans burdening undergraduate students while they are studying (funding opportunities for undergraduates are generally limited), but I have seen some graduate students on a healthy stipend get into student debt. One of the main reasons for this is reckless spending at every available opportunity. It’s not like they don’t have the money, they have it, but most of them end up spending it on the wrong things, at the wrong time, and then, before they realize it, they don’t have enough money to pay the tuition and fees for the next semester …! Sounds familiar?
The worry is not that students are buying stuff…the worry is that they are buying a lot of expensive stuff that they don’t “need” and cannot afford. The worry is the underlying financial irresponsibility. Here are a few examples of some stuff I have seen some of my fellow students (undergraduates and graduates) buy, when they were relying on a student debt from at least one source and had almost empty bank accounts.

There are a lot more of such examples, but I think the point has been established here. It’s important for students to be tech-savy…but they should try to be tech-savy within available financial resources. Show some respect towards your student debt; don’t fall into the “when-I-get-a-job-after-graduation-I-will-pay-everything-off” trap. Student life is meant to be enjoyed, but be discreet in how you choose to enjoy it; if you are not careful enough, that enjoyment is going to bite you hard for a long time to come.

[Btw, I have had my share of some related foolishness in this matter, but fortunately it didn't blow out of proportions and I was able to recover quickly...but let's not talk about that right now ]