Thursday, April 25, 2013

Student debt worries? Options for paying it off

Story originally appeared on USA Today.

Opening up the mailbox to find those long-awaited college acceptance letters is one of the high points for high school seniors. Incurring student loan debt, however, is the reality for millions of these young students who need a way to finance their education.

According to a TransUnion study, student loan balances increased a whopping 75% from 2007 to 2012. The average debt per borrower increased by 30% to $23,829.

There is some good news, however, for those who have taken out federal student loans. The interest rates on those loans are lower than private loan interest rates.Borrowers also have more legal rights with federal loans than they do with private loans. Here are some important rights to be aware of:

1. The Right to Defer Payment. Say you're in graduate school or the military. You can defer loan payments until you are out. You can also defer payments through a hardship deferment if, for example, you are sick and unable to work.

2. The Right to Pay Based on What You Earn. One such program is the "pay as you earn" plan that puts the monthly payment at 10% of your discretionary income based on your income and family size.

3. The Right to Loan Forgiveness. For those who work in areas such as early childhood education, law enforcement, public health, emergency management, the military or government positions, they may be eligible to have their student loan balances forgiven … if they've made 120 payments under the Public Service Loan Forgiveness Program.

4. The Right to Change the Payment Schedule. For those graduates making less than they thought upon graduation, they can elect to change their payment schedule from the standard schedule of 10 years to an extended repayment plan of up to 25 years. Doing so will, of course, decrease the monthly payment, but increase the overall interest paid on the loan.

Perhaps one of the best ways for today's students to manage their money wisely is through personal finance classes in high school. Such classes provide students with critical guidance on finances and areas such as how to handle all those tempting credit card offers. Yet, according to research from the Council for Economic Education, just 22 states required a high school course in economics in 2011, and only 14 states required that a course in personal finance be offered.

By educating themselves on their student loan rights and responsibilities, borrowers can find themselves on more solid financial footing after graduation.

Ex-CIA chief David Petraeus to be N.Y. college professor

Story originally appeared on USA Today.

NEW YORK (AP) — Ex-CIA director David Petraeus is replacing one kind of intelligence work with another.

Macaulay Honors College at City University of New York said Tuesday the retired four-star general has been named a visiting professor for public policy. He starts Aug. 1.

Petraeus has a doctorate from Princeton University and has written widely on international relations, military strategy and tactics and national security issues.

He says in a statement released by Macaulay that he's pleased to teach at the college, where most students are children of immigrants. He says he looks forward to leading a seminar on the global economic slowdown.

Petraeus was a hero of the Iraq and Afghanistan wars. He left the CIA in scandal last November after it was uncovered he'd had an affair with his biographer.

Lawrence teachers file labor complaint against state receiver

Story originally appeared on the Boston Globe.

The teachers union in ­Lawrence has filed two labor complaints against the state-run city schools, contending that ­receiver Jeffrey Riley is violating Massachusetts law by refusing to negotiate the terms of a new contract.

The state took control of the struggling public school system in 2012 and plans to implement wholesale reforms starting with the next school year, including a new performance-based salary structure and extended school days.

Education officials say that under the state’s 2010 education ­reform bill, Riley is authorized to make the changes outside collective bargaining. But Frank McLaughlin, president of the Lawrence Teachers Union, said Riley and the state are overstepping their bounds.

“The receiver is giving himself absolute power to make all decisions regarding the state of education in Lawrence, power the law does not grant him,” said McLaughlin.

The takeover followed years of poor academic performance and marked the first time the state had assumed full control over a local school district. Under the 2010 law, the education commissioner can alter contract provisions to “maximize the rapid academic achievement of students,” giving the receiver far more authority than superintendents.

Mitchell Chester, the state’s commissioner of elementary and secondary education, said the Legislature made a point of giving education officials broad powers to overhaul chronically poor schools.

“I think the statute is quite clear, and that’s exactly the author­ity we are exercising here,” he said.

The labor complaints mark the first time the landmark 2010 law has been challenged, and if upheld could have far-reaching implications in the ­debate over the role of teacher unions in reforming poor public schools.

McLaughlin said Lawrence teachers have gone three years without a new contract, and he accused administrators of not bargaining in good faith. Teachers unanimously voted to take legal action at a meeting earlier this month.

The complaints were filed with the state Labor Relations Board, which will investigate the matter. If an investigator determines there is probable cause of a violation, the case goes to a hearing.

McLaughlin said teachers have been increasingly discouraged, and they believe that the receiver is effectively dismantling their rights as a union.

“He’s exceeded his authority,” McLaughlin said Monday. “He’s trying to take away all of our collective bargaining rights, and this was not the intent of the Legislature.”

Chester said that under the law, the receiver can make changes to the compensation structure without the union’s approval and said he was not surprised by the complaints.

“I anticipated the changes we’re implementing in ­Lawrence would make many people uncomfortable, especially those with a vested interest in the status quo,” he said.

Riley said the education overhaul law was enacted to “make possible the very changes happening in Lawrence ­today.”

“This became the first and still the only community in ­receivership because it failed too many students for too long, and dramatic new approaches are needed,” he said in the statement.

Riley said administrators have asked the union to work with them on various efforts, but were rebuffed.

“Not only did leadership ­refuse to participate, they chose to litigate to preserve a failed system,” he said.

In the two complaints, the union says the receiver is failing to bargain in good faith and created a new stipend program for teachers without bargaining.

Chester said the new pay scale will reward the best teachers and will increase pay across the board. On average, salaries will rise $3,000, he said.

The new merit-based system is a marked departure from the traditional “step and lane” ­approach, in which raises are largely determined by years of service.

“A new teacher could be at the top of the scale within five years,” Chester said.

The state education board will discuss the receivership in Lawrence at its regular meeting Tuesday.

McLaughlin said teachers broadly support the effort to improve the schools, but said the union needs to retain its rights.

“We’re open, we’re reasonable,” he said. “But there’s a clear anti-union agenda here.”

Monday, April 15, 2013

Investigators uncover financial aid fraud ring at Contra Costa College

Story originally appeared on Contra Costa Times.

SAN PABLO -- Nearly two dozen people face charges related to a widespread financial aid scam in which they received money to attend Contra Costa College but never went to class, a prosecutor said Thursday.

About 20 of those phony students -- some charged in the scam, some not -- received As, Bs or Cs in drama classes in which they apparently never set foot, triggering an internal investigation at the college district centering on the drama department.

Longtime drama department chairman Clay David, who was later placed on leave, filed a claim against the college alleging he was punished for speaking out against homophobia on campus. He no longer works at the college and district officials would not say Thursday what led to his being placed on leave.

The scheme, known as a "Pell runner" scam, has plagued colleges across the country, with the abuse of financial aid money costing taxpayers untold millions. But it is believed to be the first of its kind in Contra Costa County.

"I'm sure there are other people who are doing this that are getting away with it," said Contra Costa prosecutor Dodie Katague, who is handling this case. "The scam is easy to commit: you just have to lie on your application that you are broke, get a check and after you get a check you withdraw from the classes. It's very hard to catch because the record-keeping is lax."

The elaborate fraud ring at the San Pablo community college campus, according to prosecutors, was hatched by a Richmond couple in 2011. Authorities say ringleader Yvette Hummel, 45, and her boyfriend David Murphy, 54, ran the scheme like a business, using fliers and contracts to recruit people for their scam. Hummel would obtain personal information from the recruits and use it to enroll them in college classes and apply for financial aid, court records show.

In exchange, Hummel asked for a 25 percent slice, about $675 of the $2,775 a student on financial aid receives per semester, and offered a $50 referral fee, records show. None of the alleged scam artists is younger than 30, and many are in their 50s, 60s and 70s.

The fraud was uncovered after one student came forward, Katague said. Investigators, including the FBI and the Department of Education, realized all 22 people involved were sharing the same two addresses belonging to Hummel.

Criminal charges were filed in November, but the case remains active, with authorities searching for eight suspects. Four suspects, including Hummel and Murphy, have taken plea deals that include jail time and probation; Hummel must pay $83,740 in restitution to the college. The 10 remaining suspects have court dates this month.

The fraud was limited to the college district's San Pablo campus, officials said, and did not occur at either Diablo Valley College in Pleasant Hill or Los Medanos College in Pittsburg.

The scam isn't the first for the college district, however. In 2007, dozens of students in the college district, most of them at DVC, were charged with felonies involving a cash-for-grades scheme. Most pleaded no contest to reduced charges, and some were expelled from school or had degrees rescinded.

In the "Pell runner" scam, students apply for the aid with a federal agency, which sends reports to the college detailing who is eligible for the money. District spokesman Tim Leong said all the students on paper appeared to be eligible for financial aid, and so were sent checks.

The investigation found that drama instructors did nothing criminal, Katague said, but raised questions about grading in the department, which resulted in the district-led investigation.
Said prosecutor Katague, "They were good at drama and lousy at bookkeeping."

During the investigation, the college district placed David on administrative leave based on accusations of misconduct and unprofessional behavior, but did not elaborate on the allegations. The district and David signed a settlement agreement in February in which David resigned but remains eligible to keep his retirement benefits.

David, a tenured professor who has taught and directed theater on campus for 19 years, declined to comment, citing a clause in the settlement agreement.

David, who is openly gay, said in his October 2012 claim against the district that the campus has a history of homophobia. The claim seeks an amount in excess of $25,000 from the district, saying he was subject to harassment, including gay slurs and threats by students in class, and that his pleas for help were ignored by administrators.

Mich. sea cadets send SOS in wake of federal budget cuts

Story originally appeared on the Detroit News.

Harrison Township — As a member of the Great Lakes Division of the Navy Sea Cadets, Jon Allen spent thousands of hours during his childhood working aboard the group's training vessel Pride of Michigan. With the cadets, he had the chance to experience things most youngsters never will.

"I learned to drive the 80 foot long Navy ship at age 13, a year before I learned how to drive a car," said Allen, 20, who rose through the ranks and became the ship's Chief Petty Officer. "That's not something that you normally get to do."

Allen is now in his third year at the Milwaukee School of Engineering working toward a career in civil engineering, a subject that he first became interested in because of his time on the ship.

"Just being on board and getting that hands-on experience, that made a difference," said Allen. "The ship is definitely the biggest asset the program has."

But as a result of federal budget cutbacks, the program that has helped hundreds of youngsters find career paths could be left without the funds to stay afloat.

It's part of the trickle-down effect of the $1.2 trillion sequestration. The Great Lakes cadet program currently relies on $40,000 to $50,000 in annual funding from the U.S. Navy, which provides money to sea cadet divisions throughout the country.But this year, says Lt. Commander Luke Clyburn, the money never came.

"We put in a request like we do every year," said Clyburn, who has led the cadets for 40 years. "They said they wouldn't be giving out the money this year."

Although the program receives donations from various organizations, the immediate absence of the majority of funds has left these cadets in the lurch. Representatives from both the Naval Sea Cadet Corps and the Office of the Chief of Naval Operations did not return requests for comment.

Parents are concerned

More than 30 youths between ages 11 and 17 work on the ship, used in the 1970s by the Navy for training midshipmen, throughout the year. It's one of three Navy vessels being used by such cadet groups.

The cadets use Pride of Michigan for everything from practicing ceremonies and repairing engines to diving shipwrecks and conducting research in the Great Lakes, said Clyburn. The goal is to prepare the young men and women for roles in the Navy, the U.S. Coast Guard, the Merchant Marines and for professions in engineering and marine biology. There is no military commitment for cadets in the program.

Because the program is funded by other sources, parents pay only $350for their child to join the cadets, which in many cases wouldn't even cover the cost of scuba diving certification.

Currently, the cadets are preparing the ship for dry dock repairs and inspections. But once they get it back in the water, the group's organizers and parents are concerned they may not have the money to keep up the programs and maintain the ship.

"I don't even want to think about it. It would be devastating," said Amie MacDonaldof Madison Heights, whose son Billy, 14, is in his second year with the cadets. "Their future would look a lot different. I would hope that it would be all positive, but you don't know."

Funding for the program has come from many sources throughout the years, but over the past decade, it's been primarily federal funds distributed to the Navy for recruiting and research, said Clyburn. He says being forced to find funding closer to home could actually strengthen the program in the long run. But he's concerned about maintaining it for the short term.

"It's going to be tough to keep up with everything we've been able to provide these years," said Clyburn.

Fundraisers, lobbying planned

Having the practical experience on a ship helped Commerce Township resident Dennis Moore's son Kyle earn a spot in the U.S. Naval Academy Summer Seminar, a prestigious program for high school students interested in attending the academy in Annapolis, Md.

Attending the academy has been a lifelong dream for the 17-year-old junior at Lakeland High School in White Lake Township, and the camp could help make that possible.

"When you submit the application for the summer seminar, they look for what they call demonstrating interest," said the Dennis Moore. "Being in the sea cadets program was a way of demonstrating that interest."

Another cadet, Nicholas Ratinau, 17, of West Bloomfield, is preparing to begin school at the Webb Institute of Naval Architecture in New York in the fall to study engineering.

"The more I got involved with the cadets and the more I learned about it, the more I got to like it," said Ratinau, who has been a cadet for five years and is the lead petty officer on the ship. "I wouldn't have taken this path if the cadet program wasn't available."

To make sure the program will be around for years to come, parents and volunteers are working to put together fundraisers, lobby businesses and organizations for donations and gather items for an auction.

On Saturday, they found out the cadets would be taking part in the Celebrate the Lake" festival on June 8.

"We're going to do anything we can do to make this program continue. I promised my son," said MacDonald.

One of the newest cadet recruits, 13-year-old Gage Dyer, hopes the program can continue because he feels it will help him accomplish his career goal of becoming a marine biologist.

"To learn scuba diving at 13, that on a resume alone would show them this is what I want to do," said the Milford teen who says he already knows he wants to attend Texas A&M for college. "I'm hoping I can continue in the program until I graduate. This is what I want to do and there's a great opportunity here."

Is a mortgage a smart way to pay for college?

Story originally appeared on USA Today.

Money Watch, a personal finance column that runs every Saturday, features a financial planner from the National Association of Personal Financial Advisors answering reader questions about saving, protecting and growing your money.

Q: My wife and I have no debt. Our home, cars and credit cards are paid off. We make the maximum contributions into our 401(k) plans, although we don't take advantage of catch-up contributions. But because our kids will be going to college in four years, should we take out a home mortgage now to lock in a low rate and deduct the interest payment? This way we will have some money to pay for college without borrowing from our 401(k) plans.

A: Congratulations on being debt free! That is a huge accomplishment, and one that you should be proud of.

I agree that you need to find a way to help pay for your kids' college expenses without tapping your 401(k) plans. Even if you have the best intentions, if you are ever laid off or quit you will have to pay back the 401(k) loan immediately or face stiff taxes and penalties. And it may not be the best time to have to pay back a loan, having just lost your salary.

MONEY WATCH: Pay down mortgage or save for kids' college?

I am not sure taking out a home loan to pay for your kids college education is the best decision, either. You would be putting your home at risk, which isn't a good idea. And never let the tax benefits influence your financial decision. You can only deduct the interest on your mortgage if you are itemizing your deductions, and even then you would only benefit from the amount of deductions that are greater than the standard deduction ($11,900 for 2013). This means if you take out a mortgage and then have $13,000 of itemized deductions, you really only benefit from a $1,100 deduction. Multiply this deduction by your tax rate to get the actual tax benefit, and you will find that it really isn't all that much.

If you decide that using a mortgage is the way to go, one option would be to take out a home equity loan. The interest is still deductible, the upfront costs are typically lower, however the interest rate will probably be higher so you will need to ask your mortgage lender about your options.

I would start by determining your financial goals. When do you want to retire? How much money do you want to have for living expenses each year? Be sure you take into account health care expenses, car replacement, travel and any other financial goals you have. Determine how much you need to save each year in order to accomplish those goals.

Next, see what is left over. Although it can be difficult, you must put your own financial goals first. Your child can always take a year off from school to save money, or use student loans to pay for college, but there are no loans for retirement. If you don't save enough, you will put your kids in the position of having to support you later in life. I bet they would rather pay for their own education than have to pay for your retirement!

If you need to reduce the amount you are saving for retirement, be sure you at least take full advantage of your employer match.

If after you fully fund your own goals you find that you have some money left over each month, you can use a 529 plan to save for your kids' college expenses. Some states provide an income tax deduction to contribute to a 529 plan; however, there is no federal deduction for contributions. Check with your state-sponsored 529 plan to find out if there is a deduction available. The money in the 529 plan will grow tax-free, and can then be taken out without taxes to fund college expenses. You can even continue to contribute while your child is in college in order to get the tax deduction and some tax-free growth.

Finally, sit down with your kids today and let them know what they can expect in the way of college funding from you. They may have to take their second choice college, or put in the extra hours so they get a scholarship, but either way, they will be OK! Involve them in the discussion so there are no surprises. This will also be a perfect opportunity to teach them the value of planning for their personal finances.