Posted On: 2006-01-10
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Good Tuesday, January 10,2006 episode 157 of the Financial Aid Podcast, my name is Chris Penn welcoming you to another episode. We have a lot to talk about today; we are going to do Part 2 of the Jay Fleischman interview from the debt podcast over at www.debtpodcast.com. We have got a whole bunch of financial aid news, scholarships, 10 of them for $10,000, and of course some Podsafe music from Miggs, so let's get started with the news. Quick show note news, I will be out of the office tomorrow so tomorrow will be an all music show; new music Wednesday of the Financial Aid Podcast. Topping the news, Colorado proposing changes to the formula for financial aid after the report came out that two thirds of Colorado students were eligible for state financial aid received nothing. There has been quite a debate in the Colorado Higher Education system. The proposals on the table right now, one of them includes creating a published fixed open scale of financial aid, so very easy charts for families to reference; it says you make this much in adjusted gross income, you get this much financial aid and so on and so forth. Actually a terrific idea, it would take so much complexity out of the financial determination process just to say if you make this, you get this, if you make this you get this and so on and so forth. Terrific idea.
One proposal, I don't know how I feel about, actually I do but I try not to offend too many people. One that was said was that the neediest students tend to apply the latest in the year, now the questions I have are; is that lack of awareness? Is it just that the students don't know that they are supposed to apply for financial aid before the deadline or is there something else at work here? I am going to get into so much trouble for saying this but, you know there are some people I guess who are in the financial aid world, who are so motivated to go to out pursue the dream of Higher Education that, bang! As soon as the doors open for a scholarship or the FAFSA or financial aid of any kind, they are there; they are the first in line. They got their paperwork all set and they are ready to go. They are not necessarily from middle class or upper class families or the lower class families, they are just motivated students. They are the ones who-they are so ready to take on the challenge of Higher Education; they don't want to miss a thing. Those are probably also one of the best performing students. The students who apply the latest, even if they are needy how motivated are they to complete their education? I would be very interested in seeing-again this could reflect badly, whatever; I would be very interested in seeing if there is a correlation between when a student applies for financial aid and their grades. I will be willing to bet, dollars to doughnuts the people who are at the front of the line, regardless of their income, regardless of their financial situation, their families financial situation; I would be willing to bet that those people probably also do very well in school.
I would also be willing to bet, that the people who apply the latest after deadlines and things they probably don't do so well in school. My question will be, do you want to award financial aid to people on the basis of need alone or do you want to do it as a combination of both in need and motivation. If you have two kids who come from identical financial backgrounds, say their parents both make $20,000 a year, so they both qualify for the same amount of aid, the kid who applies on January 2, should he get more aid than the kid who applies on July 2 when the deadline is April 2. That is a tricky question, but my feeling that to award not only those students who are in financial need but also reward those who are the most motivated because chances are they are going to be the one's who will also go on to make the most of their education and then go on after that to make the most use of their degree as a benefit to society. Very controversial I'm sure, hopefully-I hear groans from financial aid officers everywhere. There is also a debate going on in the state of Arizona whether to offer four year degrees at community colleges. Apparently Arizona has realized, the state of Arizona has realized that college educations are exceptionally expensive so they are starting a proposal to offer four year degrees at community colleges as a way of opening up a four year degree program to students who are in the greatest financial need who simply can't afford to go to a regular full time four year university program. It is a lower cost for students, obviously because a lot of community colleges are also commuter colleges so the room and board aspect is taken care of in that sense that the students can live with their parents, it is a very good idea.
Finally, a state appropriations notice. State appropriations for Higher Educations will top $66 billion for 2005-2006 academic years. This is actually good news. There is a 5.3% increase over the previous years funding from states. The structural deficits that the states have been having in the last couple of years seem to be turning around slowly and more money seems to be coming back into Higher Education from the states. That is a very positive note. On a side note, Mac world, the keynote is today, hopefully Steve Jobs will announce some fancy new machinery so that I can go run out and get one, because I am really excited about the idea of a Mac Mini in the living room, with the current one is just not cutting it. Let's move onto a scholarship update. Our good friends at Google have announce the 2006 Anita Borg scholarship. This is a scholarship for $10,000 they are going award probably 10 of them. They have awarded 10 in the past to women in technology. Dr. Anita Borg devoted her entire adult life to revolutionizing the way we think about technology and dismantling barriers that keep women and minorities from entering computing and technology fields. Her combination of technical expertise and fearless vision continues to inspire and motivate countless women to become active participants and leaders in creating technology. As part of the ongoing commitment to furthering Dr. Borg's vision, Google is announcing the 2006 Anita Borg's scholarship for $10,000. Scholarships will be awarded based on the strength of candidates' academic background and demonstrated leadership. A group of female graduates and undergraduates student finals will be chosen from the applicant pool. The 10 scholarship recipients selected from the finals will each receive a $10,000 scholarship for the 2006-2007 academic years. All finalists will be invited to visit Google Headquarters in Mt. View California in April for networking retreat in which they can meet and share their experiences. The retreat will include workshops with a series of speakers, panelists and break out sessions and social activities, not to mention getting a first hand look at what you can do at Google. You can bet if you are one of those finalists, that you may depending on your academic background, you may even be in line for an internship there. Definitely a great scholarship program.
The deadline for this program is very soon, it is January 20, 2006. The application however is fully online, there is no paperwork to send nothing to get lost in the mail, because of course it's Google, and they are going to do everything online. You can find more information this scholarship including the online application at our website, the free scholarship website at www.studentscholarshipsearch.com making today's scholarship update the Anita Borg scholarship from Google, 2006. That brings our scholarship update database by the way, up to $266, 737,023. That is the number of amount of awards that we have in our database, so definitely check it out. All right let's move onto Part 2 of the Jay Fleischman interview from yesterday. If you are just tuning in Jay Fleischman is consumer and debt, bankruptcy attorney in the state of New York. He runs the Debt Relief Law Center of New York at www.drlc.com, and more importantly he is the producer and host of the Debt podcast. Yesterday we did Part 1 of the interview, check it out on the feed of course and today is Part 2.
CHRIS PENN: I was reading an example that came into one our mailboxes which is a little frightening. A family of two, a husband and wife working, had a mortgage for $3,400 a month and their monthly income is $4,500 a month. So they are already pretty well leveraged. They have $30,000 in credit card debt. Their adjustable rate mortgage adjusted on January 1, and their mortgage went from $3,400 to $6,800 a month.
JAY FLEISCHMAN: WOW!
CHRIS PENN: They are now very far under water and no amount of trimming on your cell phone plan is going to make up for effectively, you are almost doubling your mortgage payment.
JAY FLEISCHMAN: Well in that respect absolutely, and I think that those sorts of adjustments are going to become more than the rule to the acception. $30,000 worth of credit card debt, you have to remember at 2% minimum payment that is $600 a month that maybe tough, but at a 4% minimum payment you are $1200 a month on your credit cards alone. In that instance, you could have taken the credit cards out of the picture, these people are still going to be under the water, $6,800 a month is more than they are making. I don't know what sort of equity they have, but regardless if that fact they may really want to consider down sizing their living situation. Sell the house, cash out as well as they can go into a rental that is probably going to be far less than $6,800 a month and using-hopefully they have been able to get some gains out of the real estate. Even not, take a loaf at a time a really concentrate on re-building their personal financial position. I think that again we are going to be seeing that a lot, certainly as '06 goes through, and even into '07. That is going to be a lot of people impacted for the next 18 months.
CHRIS PENN: It will be very interesting to see how it all shapes out. What is your take on the world of lending and how it is changing this year?
JAY FLEISCHMAN: The world of lending in what respect? [laughter] Are we talking the predatory lending laws, are we talking pay-day loans, there is so much out there. The predatory lending laws that are coming through Congress now, I think are largely means for the big ticket lobbyist to mute some of the states laws that have started to crop up over the course of the last couple of years. There are a lot of state laws that put limits on flipping, put enhanced disclosures in place and I think that the Federal Laws that are winding their ways through now, I think they are designed largely to take some of those consumer protections away. I think that-not to get up on a soap box, but in a lot of respects, consumers have been faced with Congress that hasn't really been consumer friendly.
CHRIS PENN: [laughter] No kidding.
JAY FLEISCHMAN: I am understating it, I am trying to keep away from politics. It has been a train wreck for consumers, it has between bankruptcy laws, between the changes to the financial aid interests, it's coming up the predatory lending laws, there is grumblings about pay-day lending it's just been horrible. What interests me also all of these big corporations are constantly coming out, I feel like every week or every two weeks we find another report of another big company that has miss placed consumer information that has-H&R Block came out with a statement yesterday it was saying that they had inadvertently sent out packages to a significant number of their former customers telling them to come back to H&R Block.
CHRIS PENN: [laughter] Nice job guys.
JAY FLEISCHMAN: On the labels they had printed the consumer's social security number. It's fantastic. What did they say, what was their excuse, well sorry, it won't happen again but we really don't think that anybody is going to negatively affected by it. I don't' see that. I don't see Congress stepping up to bat to go and legislate against this sort of activity, this compromising of personal identifying information that is just leaking out there. You've got Citibank giving a tape to a courier last year the guy dropped it out of the back of his bag, and Citibank lost a couple of million records of people's personal identifying information and didn't really do anything about it. There were some modest overtures to provide people with free credit report monitoring for three months but that doesn't really do anything. You've got the big companies that have run rough shot over the American consumer and Congress has stood with the people who quite frankly are paying to the lobbyists. I think that that is a shame.
CHRIS PENN: Well the question for the I guess the average consumer then-this is something that we've talked about a lot on our show as well as how do you-money is obviously going to be the motivating factor for getting any elected official to do what you want them to do, so what's the answer for the average consumer, I know Bruce Schneider over at [14:41] has been talking a lot about saying, what really needs to be done is you hold the financial institution liable for their mistakes and then presumably when they realize that they owe X trillion dollars to the consumers for dropping tapes out of backs of trucks, they will make an effort to secure things. But in the interim, what do you do?
JAY FLEISCHMAN: In the interim, first and foremost I think that the American consumer needs to actually vote when there is an election.
CHRIS PENN: [laughter]
JAY FLEISCHMAN: Pay attention I think that would really be a good first step. So many people are being so taken advantage of, by people that nobody voted for. The voter turn out gets lower and lower and lower every four years. Every four years they come out and they say, well the youth are going to be the ones who are going to vote this time and they are going to pull us out of this. First of all they are not coming out in droves; nobody is coming out in droves. First and foremost they have to vote. Second of all they have to pay attention to the issues; they have to pay attention to the people who are actually being voted on. Let not only your elected representatives know where you stand but also let the people who are running for office know where you stand. Say to them listen, I'm going to vote for you, but this is what I need you to do and if you don't do it, I'm going to hold you responsible and you are not going to be sitting in Washington for all that long.
The American consumer needs to take control of its own destiny. I think that that is really the most important thing. As far as holding corporations liable, I think that that is also crucial; I think that the consumer needs to pay attention. I think that every consumer should pull all three of their major credit reports, I tell my clients once every quarter. Every three months pull your three major credit reports, you get one free from each one, pay for the other three buy yourself a little peace of mind. Make sure that you know what's on your credit report at all times. If you don't take the steps necessary immediately to correct those issues, and if you can't do it on your own, get in to sit down and talk to a lawyer who deals with the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act, FACTA. This is important so many Americans don't read their credit reports which is why 8 out of 10 Americans have errors on their credit reports and some of them are fairly significant enough to take a credit score out of prime lending and into sub prime lending, so that hurts your wallet in a long term process.
CHRIS PENN: Will there be a debt podcast, do not vote for these officials mid-term election card?
JAY FLEISCHMAN: [laughter]
CHRIS PENN: Because you know there is going to be a financial aid one?
JAY FLEISCHMAN: Sure. [laughter]
CHRIS PENN: Saying here are the people who have raised your interest rates think about giving them a job.
JAY FLEISCHMAN: There will definitely be a-we've already started to compile a list of representatives and senators in Washington who have been in the pocket of lobbyists who shall we say we are not really happy with right now and industries that we are not real happy with. As time gets closer I think you are going to see a lot more action, we are going to be using-this is a pulpit in a lot of respect. I think that it's important for people to know who it is that they have voted for and what they have done in the past. I know Massachusetts is blessed with some really good people in Washington, I also know that not every place on the side of the American consumer. Same as New York, I think that every state has that some more than others but New York at least has been-is in a very consumer friendly senator. Our senators are fantastic for the American consumer. We've got Charles Schumer, we've got Hillary Clinton and I think both of them are doing a bang up job. Our representative kind of swing the other way, I'm not real thrilled with a lot of them. So we are going to be talking about them in a little bit.
CHRIS PENN: Well I think that Mark Yirashamota Nemkoff would say that probably the biggest part of the problem is going to be those fly over states, that what he calls them. [laughter] But, no the area that I heard most about this coming year in terms of companies trying to expand corporate profits is in the sub prime lending market.
JAY FLEISCHMAN: The sub prime lending market which always comes to light only when the economy starts to going south, only when the economy takes a hit do we look at the sub prime lenders. We've been seeing this for years. There are lenders out there that are flipping loans left and right and have been, equity stripping has been off the charts. You bring a consumer in who is very house rich, cash poor, you make them an offer to $20,000 in their pocket if they are signing on X, Y, and Z line, and you tell them not to pay any attention to what's on the bottom line of their HUD, on their settlement statement. Which is going to miraculously disclose $20,000, $30,000, $40,000 worth of mortgage broker, mortgage lender fees that otherwise wouldn't be there. I think that is what people are going to realize once their property values take even a 5% hit. Unfortunately I think that regardless of what the FTC is undertaking now in terms of their investigations, I'm not so sure it's really going to go anywhere. I think that long term sub prime lending is going to continue to be a problem going forward.
CHRIS PENN: And not much to be done about it.
JAY FLEISCHMAN: Well I don't know that is not much to be done about it, I think again that it is important that when somebody presents you with an offer that may be too good to be the likely hood is that it is too good to be true. You should always read the fine print. I think that it is important to contact our representatives and our senators and let them know that they need to get behind this. I think that one of the reasons why bankruptcy reform passed this past year was because it was difficult to mobilize people, by the time we got people mobilized, it was too late. Senators and representatives had already been paid for. MBNA and Capitol One had already footed the bill for the bankruptcy bill. By the time the American public woke up it was too late. I think that people need to take action before it becomes a problem. Take a look at your closing documents, if there is a problem with it, if you think that there is something, that there is a problem with, call your representatives, call your senators, they are remarkably easy to get through to especially in this day and age when you have the internet. It has never been easier to get in contact with the people that you have put in Washington. Let them know what is going on in the trenches; most of them don't really understand it.
CHRIS PENN: That's true though, I only know of two senators actually that even have podcasts and one of them we haven't really heard from in a while, so we shall see.
JAY FLEISCHMAN: I only know of one senator whose the other one?
CHRIS PENN: Barraco O'Bama and John Edwards.
JAY FLEISCHMAN: I knew John Edwards, I did not know that Barraco O'Bama had podcast, I've got to check that out.
CHRIS PENN: It's pretty good; it's usually about six to eight minutes, once or twice a month. Usually after a major piece of legislation goes through. One thing that I thought, I don't know if it was made-I don't think it has been made real clear in all the talk about interest rates for student loans, but ability to refinance a student loan was converted from something you can do pretty at will to one shot deal only as of July 1, so you have only one chance to do that consolidation and then you are stuck with who ever you decide to go with.
JAY FLEISCHMAN: And is limited to only one type of student loan, is it only Stafford's, and GSL's or can you do it with any sort of government financial aid at all? Is there a limit on the types?
CHRIS PENN: There is no limit on the types, in fact, if you have multiple types consolidating together will give you one payment to make but what happened last year is that the Department of Education kind of had an amnesty period. They said, well you know what? There was 80,000 people applied for consolidation in June 30 and we recognize the intent to consolidate and as long as you have filed an application, we will honor it. Because there is so much lee time with this new pronouncement you may not get that this year and consolidation can take anywhere from 30 to 90 days to clean up; something that people need to be thinking about, file an application really today, even if you don't want to go through with it until you graduate, get the paperwork done. It's just a matter of saying "go," when you put the cap and gown on. If you are already in repayment, just do it now, there is no exception just do it now.
JAY FLEISCHMAN: If you are not in repayment you can submit your paperwork now and just have the lender hold onto until such time as you come into repayment?
CHRIS PENN: Depends on the lender. Funny the Student Loan Network, we will hold it or we can actually go ahead and process it. There is currently-the current law allows you to consolidate while you are still in school. A lot of lenders don't do it because it is a royal pain in the butt to do the paperwork for it. In terms of-also by the way it is less profitable for the lender if you do do it while you are in school.
JAY FLEISCHMAN: Well because the government pays the interests during the terms that you are in school correct?
CHRIS PENN: For subsidized loans yes, for unsubsidized loans, the consumer is the one who pays the bill on it but at six months after you leave school, under the current law your rate goes up. So, if you can get somebody to hold out and wait until after that grace period ends, as a lender you get to make more money, if you are a consumer, obviously it's in your best interest to do that before that grace period ends but Congress took care of that too, there is no more grace periods. Students in school, they don't get a break.
JAY FLEISCHMAN: There is your consumer friendly Congress at work yet again.
CHRIS PENN: Your tax dollar is working for someone else. That concludes the second part of the Jay Fleischman interview. That is the summary of the interview, so hopefully you enjoyed it. If you want to get more information about Jay's podcast it is over at www.debtpodcast.com, it's a terrific show and definitely subscribe to it, it is of course as all podcasts currently are free. Let's move onto Podsafe music I believe it's "I Believe," by Miggs.
"I Believe," from Miggs from the Podsafe Music Network at www.music.podshow.com. All folks that is going to tie it up for this Tuesday's edition for the Financial Aid Podcast as I have said at the beginning of the show, actually in the news section, tomorrow will be an all music show, to the fact that I will be out of the office, so definitely stay tuned if you enjoy Podsafe music. If you don't then I will catch you on Thursday for resumption of our regularly scheduled broadcast. If you have comments or questions about anything in today's show e-mail me at email@example.com and I will be more than happy to take a look at what you have to say and possibly answer it on the air. I probably answer it on the air actually; you can find show notes including links to everything we have talked about today at www.financialaidpodcast.com that is our website. You will also find information on how to subscribe there, if you are not subscribed to the podcast, if you are listening to this on myspace, or just in general, and you are not subscribed via the RSS feed, definitely do that way you will never miss an episode and you will get freebies that we throw in the feed as well. The directions are also on the website but it boils down to install the latest copy of iTunes from www.itunes.com then click on the "add to my" iTunes link on our website. All right it is 7:35 in the morning, and we are going to get this show out the door and get the office warmed up so I hope you have a great day and I will catch you tomorrow for some Podsafe music. Take care everyone, bye-bye.