Most parents would love to send their kids to college for free but probably don't believe it's possible. It is—if you know where to look
BusinessWeek
By Alison Damast
Tim Stroud's alarm goes off at 3:40 a.m. every weekday morning, a time when most of his classmates at the College of the Ozarks in Point Lookout, Mo., are fast asleep. By 4:30 a.m., he is out in the pasture in his work boots gathering the college's herd of 50 Holstein cows into the barn for their morning milking session. His unusual campus job—working in the dairy 15 hours a week—is a small price to pay for what he sees as one of the best deals today in higher education: a free degree.
At the College of the Ozarks, all students' tuition costs are offset by a mandatory work-study program. "If I was going to go to school, I was going to try to do it with the least amount of debt possible," said Stroud, a sophomore from Hume, N.Y., who wants to pursue a career in agriculture.
The cost of college is a red hot issue today, with students and parents fretting about how they will be able to foot the skyrocketing tuition bills at many private and public colleges. The College Board reported on Oct. 22 that tuition at public and private colleges for the 2007-08 academic year continued to outpace inflation (BusinessWeek.com, 10/22/07). Tuition prices at private colleges and universities average almost $24,000 this year, and that's not including room and board.
Focusing on Specialized Education
Stroud is one of several thousand students in the U.S. taking advantage of colleges that come with no sticker shock. 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.
They range from an urban college like the Cooper Union in New York's East Village to Deep Springs College, a remote, all-male school deep in the California desert. Many are specialized institutions, often focusing on engineering, such as the F.W. Olin College of Engineering in Needham, Mass.; or on music, like the Curtis Institute in Pennsylvania. A handful—the College of the Ozarks or Berea College in Kentucky—have mandatory work-study programs. Perhaps the most well-known of them is the U.S. Military Academy in West Point, N.Y., which offers free college tuition in exchange for five years of service after graduation.
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."
Salvation for Parents Who Didn't Plan
Though finding tuition-free schools can take some legwork, parents and students say the payoff is worth it in the long run.
Pamela Clemens, the mother of Erin Clemens, a college senior, said she still remembers how relieved she was when her daughter received an acceptance letter from the College of the Ozarks. Clemens and her husband, a self-employed handyman in Lebanon, Miss., had failed to save properly for their daughter's college education and were frantic about how they were going to foot her tuition bills, she said. "We were free from the burden of figuring out where we were going to get the money or take out loans for my daughter's college education," Clemens said. "Just knowing we won't have to deal with that for all these years is just such a feeling of freedom."
Tuesday, 17 February 2009
Wednesday, 11 February 2009
The way out of the credit crunch
We know we're in a financial bind, but the ins and outs are hard to understand. Here are 5 things you need to know, including how to escape the mess.
MSN money
By Minyanville
Hopes that the credit crunch is nearly over continue to be dashed with regularity.
Where we're really at is stage two, the Main Street impact from the collapse of the Wall Street debt bubble. Here's how to decipher the mess -- and a way out of it.
1. What is a credit crunch?
The simple answer is that a credit crunch is a general decline in the supply of and demand for credit.
Under ordinary circumstances, the market, and sometimes the Federal Reserve, can induce a decline in the supply of credit by raising interest rates. This makes money more expensive for borrowers and slows the growth of and demand for available credit.
But a credit crunch occurs when banks become more risk-averse -- less willing to lend -- even though interest rates may remain the same or, in extreme cases, even go lower.
This risk aversion on the part of lenders makes it more difficult for even the most creditworthy borrowers to obtain money at reasonable terms. In effect, interest rates -- the cost of money -- can become infinitely high for many borrowers. As a result, it becomes difficult to fund projects and investments, which can slow economic growth, which can make lenders even more unwilling to lend -- a vicious cycle of economic pain.
2. Why does credit growth matter?
Because in our fiat-based monetary system, economic growth is dependent upon credit expansion.
What does that mean? And why is it a problem?
First, a fiat-based monetary system is simply the name economists give to a system in which money is created through fractional reserve banking, the practice of issuing more money than a bank holds in cash reserves.
In a fiat-based monetary system, if risk appetites are supportive -- that is, if borrowers are willing to take on debt -- then credit expansion can feed into normal risk-seeking behavior. But credit expansion, if excessive, can foster unsustainable booms, as we saw with dot-coms and with housing.
As long as credit expansion and demand for credit continue at an accelerating pace, the appearance of prosperity continues as asset prices increase.
The "accelerating pace" aspect is critical. It is the key to maintaining the boom.
As Michael Darda, the chief economist for MKM Partners, told The New York Times: "Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit."
3. What do we mean by credit expansion?
First, credit is not in and of itself necessarily a bad thing. Capitalism thrives on the productive use of credit. But what has transpired over the past decade is that credit has increasingly been used to mask weak economic growth.
Since the early 1990s, new money was created by the banking system and offered at artificially low interest rates and, later, to borrowers with increasingly low credit quality. By offering willing borrowers money at artificially low rates, this encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened.
This is how debt was pyramided to such an extent that one small setback -- in subprime borrowing, for example -- can result in a widespread problem that quickly spreads to other, supposedly safe credit risks.
Offering willing borrowers money at artificially low rates encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened. This money was then over-invested and misallocated by investors into dot-com ventures and houses.
MSN money
By Minyanville
Hopes that the credit crunch is nearly over continue to be dashed with regularity.
Where we're really at is stage two, the Main Street impact from the collapse of the Wall Street debt bubble. Here's how to decipher the mess -- and a way out of it.
1. What is a credit crunch?
The simple answer is that a credit crunch is a general decline in the supply of and demand for credit.
Under ordinary circumstances, the market, and sometimes the Federal Reserve, can induce a decline in the supply of credit by raising interest rates. This makes money more expensive for borrowers and slows the growth of and demand for available credit.
But a credit crunch occurs when banks become more risk-averse -- less willing to lend -- even though interest rates may remain the same or, in extreme cases, even go lower.
This risk aversion on the part of lenders makes it more difficult for even the most creditworthy borrowers to obtain money at reasonable terms. In effect, interest rates -- the cost of money -- can become infinitely high for many borrowers. As a result, it becomes difficult to fund projects and investments, which can slow economic growth, which can make lenders even more unwilling to lend -- a vicious cycle of economic pain.
2. Why does credit growth matter?
Because in our fiat-based monetary system, economic growth is dependent upon credit expansion.
What does that mean? And why is it a problem?
First, a fiat-based monetary system is simply the name economists give to a system in which money is created through fractional reserve banking, the practice of issuing more money than a bank holds in cash reserves.
In a fiat-based monetary system, if risk appetites are supportive -- that is, if borrowers are willing to take on debt -- then credit expansion can feed into normal risk-seeking behavior. But credit expansion, if excessive, can foster unsustainable booms, as we saw with dot-coms and with housing.
As long as credit expansion and demand for credit continue at an accelerating pace, the appearance of prosperity continues as asset prices increase.
The "accelerating pace" aspect is critical. It is the key to maintaining the boom.
As Michael Darda, the chief economist for MKM Partners, told The New York Times: "Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit."
3. What do we mean by credit expansion?
First, credit is not in and of itself necessarily a bad thing. Capitalism thrives on the productive use of credit. But what has transpired over the past decade is that credit has increasingly been used to mask weak economic growth.
Since the early 1990s, new money was created by the banking system and offered at artificially low interest rates and, later, to borrowers with increasingly low credit quality. By offering willing borrowers money at artificially low rates, this encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened.
This is how debt was pyramided to such an extent that one small setback -- in subprime borrowing, for example -- can result in a widespread problem that quickly spreads to other, supposedly safe credit risks.
Offering willing borrowers money at artificially low rates encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened. This money was then over-invested and misallocated by investors into dot-com ventures and houses.
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