Caitlin Pickavance’s parents have spent approximately $12,825 on their daughter to make her a more competitive applicant when she applies for colleges and universities this year. The twelve grand have gone to things such as a private college coach, tutors, prep classes, and two trips abroad: a good-will mission to Belize and summer classes at the University of Salamanca in Spain ($7,000, the bulk of the spending). Now, most people would say that spending close to $13k just to make your child more competitive is ridiculous (that’s why it’s a story on CNN Money), but I say why not?

When it comes down to it, what’s the reason why you earn money in the first place right? You go to work so that you can provide for you and your family. Whether that’s a fancy new car or summer classes at the University of Salamanca in Spain, ultimately you’re doing something for someone that you love. In this particular case, I’d argue that spending the $7k for classes is better than a lot of things you could do with that money.

As for preparation, we’re a competitive society (every society is a competitive society, socialism is dead and hippies smell) and any leg up you can give someone in your family on the competition (everyone else) is one that you try to get. One could easily argue that you don’t need to spend thousands in order to do well (the only SAT prep I had was a $25 Real SATs book, but don’t ask what my score was, I turned out alright ) but some people do need that course to help turn on the light bulb, and it’s okay to spend that money.

According to the SEC, 529 plans are tax advantaged education plans, legally called “qualified tuition plans,” designed to spur people into saving for future education costs, i.e. kids (don’t read anymore into that!). Sponsored by government agencies, they’re authorized by Section 529 of the Internal Revenue Code, hence their name. The 529 plans come in two varieties - a pre-paid tuition plan and a college savings plan. Prepaid tuition plans are exactly what they sound like, they let you prepay tuition or credits at participant colleges. The college savings plans are a little broader and are essentially plans where the saver can save and invest money for a future student beneficiary, independent of which school they go to. The trade off is of school choice and the ability to lock in tuition in today’s rates, with the savings plan you get choice but not rate lock and with the prepaid plan you get rate lock but limited choices.

The tax benefits of participating in a 529 plan are decent but not incredible. Earnings are not federally taxed and usually not state taxed if you use it for education purposes; if you don’t, they are taxed at your marginal rate plus a 10% penalty (the standard penalty for these types of things). The states themselves may also add in a financial incentive to participate such as grants or matching funds but many of them only do that if you use their state’s 529 plan.

In Maryland, the two different plans are called the The Maryland Prepaid College Trust and the Maryland College Investment Plan. The Prepaid College Trust is the pre-paid tuition plan and the College Investment Plan is the college savings plan, each are managed by T. Rowe Price, more on those two plans in a later article.

No one read anything into this… just looking ahead.

Thinking about college? Good for you! College is very important and it’s something everyone should consider, whether or not you end up attending one, but before you make that decision, I think it’s important for you to know that you don’t need college to succeed in life. This isn’t going to be an article where I redefine success as having a happy and healthy family (which is one very good definition of success for some), no, by success I mean financial success. Financial success differs from one person to another but at the most basic level it means you have enough money to do whatever you want, within reason. Based on that definition of success, I believe you don’t need to attend college to be successful.

College Doesn’t Guarantee Success, It Guarantees Debt
Compared to not having a degree, graduating college gives you a better chance at landing a job, that point is not disputed. However, a degree does not guarantee anything except the fact that you’ll have paid thousands of dollars and likely be in debt. According to the National Center for Education Statistics, the average annual cost (tuition + room & board) for a 4 year public institution for the 2004-5 academic year was $11,441/yr, for a 2 year public institution it was $6,334/yr. At a 4 year private institution, the cost jumped to $26,489/yr and at a 2 year private institution you could expect to pay about $19,899/yr. (Source) That puts the total price of a four year institution on average anywhere from $45,764 (public) to $105,956 (private)!

On The Job Training
In school I learned all sorts of algorithms, discrete math problems, and numerous other theoretical constructs of computer science - in three years I’ve only had to use one sorting algorithm I remembered in college. With the advent of Google and other powerful searching engines that have opened up the world of knowledge to me and the average worker, if you’re smart you can learn something quickly and on the job. Everything I’ve learned about blogging was learned as I went along. The college education I received personally was invaluable but not indispensable. While it did prove I had the fortitude and determination to solve a seemingly insurmountable problem (I had more than a few of those in college, not one of which was convincing my current fiancee to go out with me), that alone isn’t a requirement of success. It may be a necessary but not a sufficient precondition of success (I once was going to fence, yeah with foils, a logic professor of mine and when I asked him if I needed to let him win to pass the test, he told me ‘that’s a necessary but not a sufficient condition’… it’s an awesome line for all you nerds out there).

You Can Succeed Without College
Bill Gates (Harvard). Steve Jobs (Reed College). Michael Dell )University of Texas). Rush Limbaugh (Southeastern Missouri State University). Tom Hanks (CalState Sacramento). F Scott Fitzgerald (Princeton). There are plenty more… a college degree is not a prerequisite for success.

College Is For Networking As Much As Learning
I had a friend whose brother attended Harvard and everyone he knew was either the son/daughter/nephew/niece of a Senator, Representative, officer in an armed service, or otherwise famous individual; or an All-American athlete; or, and this was a smaller group, brilliant. There was and still is grade inflation (who wants to give Senator XYZ’s son an F?) and college life is essentially one giant networking session designed to put the children of those people in the system in touch with each other to build that network. While there is much learning involved, that network is the most valuable thing you leave college with.

What this means is that if you’re good at networking, you don’t need to go to college. If you’re capable of finding ways of extending your network, you don’t need to go to college in order to build that solid network from which you can reach out to in your times of need. My first internship was at a company that my high school friend’s dad worked at. Sure I had to prove I had the skills to do the job, at least marginally well considering, but I basically got that job because of my friend’s dad… otherwise I wouldn’t have had the opportunity. My second and third summer internships were also through friends I met in college. History is full of these types of stories and mine is not atypical.

As a result of working in the defense industry, I’m very cognizant (as is anyone who works in this industry) of the impropriety of any sort of kickback, whether it’s something minor like lunch or something huge like … a job. However, kickbacks are a way of life in the private sector and so it’s always surprising when you see a story about something semi-private get busted for accepting kickbacks. In the last year, you’ve seen lots of 401k plan administrators come under the microscope for accepting kickbacks for offering certain funds… but most recently, it look like eight universities have been settled allegations for accepting “payments, travel and other perks” from lenders.

My fiancee used to work at L’Oreal in their purchasing department (she was a trained biomedical and chemical engineer, but go figure how big companies do business) and would get free lunches all the time from vendors selling things like labels and plastic bottle caps (she worked in hair coloring). I spent a few months working as a materials manager (rotational program and that rotation, not doing software development, was probably the best rotation I ever had…) and had to be very cautious in accepting anything from anyone because kickbacks are a huge no-no and being caught accepting one had serious repercussions.

I only had government backed loans (Stafford, Perkins) in college but this probe investigates the “private” loans, those that aren’t backed by the government, and so it’s appropriate that universities don’t receive kickbacks for offering a particular bank’s loan - especially if that loan isn’t in the best interests of the students. I didn’t even know that universities accepted kickbacks but I think that was naive of me. If there is every a gray area and an opportunity to exploit it, someone will until an attorney general shuts it down (way to go New York! Eliot Spitzer really set the tone… and now Andrew Cuomo is continuing the tradition).

I’m glad someone with visibility into these types of issues is able to watch the consumer’s back.

The writer of Blueprint for Financial Prosperity will accept kickbacks in the form of “payments, travel and other perks” and it is not illegal for me to do so. So please, someone send me two tickets to somewhere warm and sunny.

One of the biggest scams in education, besides shelling out thirty grand a year for a private university (just kidding Mom and Dad!), is the college bookstore. They sell textbooks at full price and then, at the end of the year, offer to buy back that textbook at a fraction of the price. Buy a copy of Machine Learning, new, for $153.44 and then they’ll offer to buy it back for around $20 at the end of the semester! It’s a racket!

What you should do instead is buy a used copy of Machine Learning for a 79.99 and tell the university bookstore to go screw themselves and their monstrous profit margins.

Some people have reservations about buying textbooks online because they don’t like the idea of buying something sight unseen. I share those reservations if the item is something that’s thousands of dollars (I did buy two cars on eBay, so maybe I don’t share it quite so much) but we’re talking a savings of 50% on something as dull as a textbook. However, given those reservations, here are a few tips I have for buying textbooks online.

1. Read seller’s feedback - There are a number of sellers who are businesses selling used textbooks, one example is “ecampus_com” on Amazon who has over 69,568 ratings (86% positive). Go with these larger sellers (some are often stores or other websites using the Amazon Marketplace to unload inventory. I find that feedback through Amazon’s system is much more accurate than on Ebay because the buyers aren’t afraid of retaliation if the transaction goes sour (eBay recently changed this but the historical records still remain under the old system).
2. Use a reputable site with a strong mediation program - If the book doesn’t come, you want to make sure the website handles the problem. I’ve had people on Amazon not ship a book. I reported that the book never arrived, received a refund, and bought another one from someone else. It’s harder to do that on Ebay, Amazon requires only a simple explanation and a few mouse clicks. (which I suppose is bad for sellers, but whatever)
3. Buy a book at the bookstore, return it when the cheaper one arrives - If your bookstore has a liberal return policy, allowing you to keep the book for a few weeks, take advantage of it. Most stores offer liberal return periods because many students don’t drop a class until they’ve tanked the first test, bookstores are very understanding in this way.
4. Use a credit card - Instead of a debit card for your online transaction, use a credit card. If you’re balance is close to $0, having a textbook’s charge sitting in limbo limits your financial flexibility. Don’t put yourself in that situation.
5. At least buy from an online bookstore - While Machine Learning is an awful example because Amazon offers no discount on the retail price, at least look online to see if their prices are cheaper. Use resources like AddAll, a textbook search engine, to find the best price.
6. Don’t buy it online, buy it from another student - Rather than buy the textbook from a website, hit up your school’s bulletin boards or For Sale message boards to see if someone is selling that book on the cheap. You can often save on shipping charges and even get yourself a better deal. Remember, the seller is trying to get more than $20 for the book and you’re trying to pay less than $200, a happy medium can be found somewhere in there.

There you go, my tips for buying textbooks (or any book) online.

(Photo by larissa72350)

I receive the following email the other day and I am posting it to see if anyone else has some advice for a fellow reader with regards to his situation:

From: Dave
Subject: Tax Breaks for Student Loan
Hi Jim,

I’ve got a question on a difficult situation.

My girlfriend’s brother exited an Indiana university early with a 4.0 GPA several years ago, and when he wanted to go back he didn’t have the resources to get started. My girlfriend got a $3k student loan for him, as well as a laptop she put on her Discover card, with the idea that he would buy books and give her the rest back to immediately pay back Discover. Long story short, he never paid her back, ended up running away to the Southwest, and pawned her laptop. There’s not much that the authorities can do, since she applied for the loan and essentially gave him a gift on her credit card, but I was wondering if there was anything that she could redeem from the student loan on her taxes. All police reports have been filed at present.

Any help, as you could imagine, would be an enormous help. We have a mortgage to pay and would like to afford to have a child. I just want to see some of that back, if at all possible.

My response:

Thanks for the email and that’s unfortunate what’s happened between your girlfriend and her brother, but sometimes that’s life. In general, student loan interest is deductible if you make under $50,000 (after adjustments) and I would think that since she is a cosigner on a student loan, she could claim the deduction as long as she’s not a dependent on someone else’s claim (her parents?). If she just got a regular loan from the bank (not a student loan), and lent it to him, she may not have any options in terms of deductibility.

Anyone have any thoughts?

If you have a student loan and recently starting taking advantage of your employer’s education reimbursement program, you’ve probably heard the words deferment and forbearance thrown around quite frequently and you probably aren’t 100% sure what the difference is (unless you were a wordsmith/geek and knew what forbearance meant). Due to a mix up with Johns Hopkins, they reported me as less than part time and my deferment became a forbearance, which resulted in about $340 of interest that accrued during that period of forbearance (which led me to research the difference). While it’s not a thousands of dollars, I’m not paying $340 when I don’t have to (no one should).

Webster Dictionary Definitions:
Forbearance - a refraining from the enforcement of something (as a debt, right, or obligation) that is due
Deferment - the act of delaying or postponing

So, how does this affect you, a student loan holder? In both cases, you will no longer be required to make your regularly scheduled student payments. With a forbearance, the interest accrual process still continues, you simply aren’t required to make any additional payments. As interest accrues, you may decide to pay that off or not, that option is left up to you. Any unpaid interest that accrues and isn’t paid off within the period of forbearance is capitalized (made part of the principal). With a deferment, your loan is frozen in time - interest doesn’t accrue and you aren’t required to make any payments.

(read full article…)

My friend Perry recently had a legitimate charge on his card, for a Mac Book Pro which retails for around two thousand bucks, trip a red flag with his credit card company. They did the reasonable thing by calling him up and asking if the purchase was legitimate, he said yes, and the charge was processed. While he was surprised, I wasn’t because most personal credit cards have a liability limit of $50 (some have a liability limit of $0, because, honestly, customer satisfaction is worth more than $50) and so it is in their best interests to monitor potentially fraudulent behavior and stop it before they pay out.

I had a personal experience with this just recently when I paid for two classes (about $3000) at Johns Hopkins on my Citi Dividend Select card except Citi summarily rejected the charge on the basis that they believe it was fraudulent. No phone calls or emails either. I only knew about the rejection when Johns Hopkins sent me a letter that my account was past due (no monetary penalties, I just couldn’t register for the next semester until I paid). So, right before I pressed SEND on my online payment, I called Citi and let them know that a $3000 charge was coming through from a well known educational institution and they should process it.

So, the lesson of the day is that if you are going to use your card in any atypical manner (charging a large amount, charge amounts in a geographic area you normally aren’t in, etc.) then let your credit card company know… otherwise they’ll think someone stole your card (even if you’re paying for classes!).