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After 50 years of providing higher education services, ITT Technical Institute closed its doors abruptly in September, without offering its students a fall semester. With more than 8,000 ITT Tech employees now jobless and all students left without a clear plan, this news comes as a shock to many.

Exactly What Happened?

In a news release on September 6, ITT Technical Institute expressed its great displeasure with the U.S. Department of Education. After two years of tumultuous dealings, the Education Department had banned ITT Tech in August from enrolling new students on federal aid. To put things into perspective, ITT Tech made 80% of its revenue from federal aid — such as Pell Grants and student loans — in 2015. So this ban came as a big blow to the school.

To make things worse, the Education Department required ITT Tech to post an additional letter of credit worth $153 million. This was on top of $94 million that the school had already guaranteed, beginning back in 2014. As one could imagine, these two hits were too much for ITT Tech to handle. The school had to permanently shut down.

What Does This Mean For The Students?

The school closing puts a lot of students in limbo. They had planned to complete their degree programs and enter the workforce. Now, they are left with course credits, and are unsure of what to do with them.

Fortunately, ITT Tech has retained a small portion of its staff to help these students. They will help students gather their records, and assist them in navigating their future educational plans. There are two primary options for these displaced students:

  1. Credits transfer: No matter what, students will not be able to finish their current programs at ITT Tech. If they wish to continue their education, they’ll need to enroll in a college that offers a comparable program. That school will evaluate ITT Tech’s coursework and decide which — if not all — credits can be transferred over. Most ITT Tech students will find better luck transferring credits to community colleges rather than private universities.
  1. Student loan forgiveness: Those students who do not plan on transferring their credits are eligible for student loan forgiveness. This option gives students the chance to start over and pursue their education elsewhere without the financial baggage of this abruptly-ended education. According to the U.S. Department of Education, one is eligible for 100% discharge of federal loans if the school closes while one is enrolled or within 120 days after withdrawal.

The U.S. Department of Education has provided resources to help former ITT Tech students navigate this whole process. There is a dedicated hotline (1-800-4FEDAID) where staff members are equipped to answer questions. The U.S. Department of Education is also hosting webinars throughout the month to educate former students on their options.

What You Can Do To Protect Yourself

With this news, you may be wondering what the best course of action is to protect your higher education. One recommendation is to avoid for-profit colleges if possible. For-profit colleges are attractive to some because they tend to offer more night and weekend classes. They also tend to offer more job-specific degrees and claim to have high job placement percentages upon student graduation.

Unfortunately, that isn’t always the case. In fact, there is a lawsuit taking place right now against ITT Tech for misleading students regarding its job placement success for a specific program. The recommendation to avoid for-profit colleges doesn’t come without merit: numbers show that enrollment in for-profit colleges is already dwindling.

Another rule of thumb is to stick to schools that have been around for a while. These colleges and universities — mostly non-profits — have a proven track record of success. They are much less likely to close down in the near future. For example, New York University was founded in 1831 and the University of California, Berkeley was founded in 1868. It’s doubtful that they will go anywhere in the time it will take you to finish your education.

On the other hand, for-profit colleges like the University of Phoenix and DeVry University were founded in 1976 and 1931 respectively. Having less of a track record makes these schools a bit more risky.

Wrapping Up

The news of ITT Tech’s permanent closing is unfortunate. The good thing is that there are options for those students who were displaced. They can either transfer their credits to a comparable program at another college or opt for complete student loan forgiveness.

For those of you concerned about the outlook of your higher education, you can protect yourself by choosing a non-profit college or otherwise sticking to colleges that have been around for centuries.


It’s late May, and a new crop of students is preparing to go on to college. One of my less pleasant memories was the agonizing process of securing financing so I could pursue my degree. Though it’s many years later, I’d like to share what I learned that can make paying student loans more manageable and less onerous.

Of course, it was much easier when I went to college than it is now. Even adjusted for inflation, college education was much less expensive then and student loans were a better deal.

The interest rates were actually fairly similar to today’s; but I attended college back when mortgage rates were around 15 percent, so low, single-digit student loan rates represented much more of a discount.

Because student loan debt was less burdensome when I graduated, despite the fact that I took on the debt in a desperate and disorganized way, I was able to pay my loans off early, within five years. These days, the financial stakes are higher, and it takes more planning to make student loan debt manageable.

How to reduce student loan debt

Here are some things students and their parents should consider to reduce student loan debt in the first place:

  1. Consider value for your education dollar. Education is a wildly inefficient market. By that, I don’t mean that the schools themselves are disorganized. What I mean is that if you think of education as a consumer market with heavy competition for student dollars, it is amazing how wide the cost differences are. Even if you excuse the cost of elite colleges as the price you have to pay for a premium product, looking at more run-of-the-mill colleges one finds huge cost differences — sometimes representing tens of thousands of dollars a year — which do not seem generally to correlate with differences in quality. The nice thing about inefficient markets is that they make bargains available, but only to discerning consumers who take the time to shop around. Cheap should not be your primary criterion for choosing a school, but value for money should be high up on your list.
  2. Understand the qualifications needed for what you plan to do. One reason it is not out of place to think of education as a consumer market is that there is so much hard selling of degree programs these days. Often times, colleges heavily advertise degree programs that relate to a trendy career choice, but those degrees do not represent the full qualifications necessary to compete in that field. Don’t just choose a degree program because it sounds like something you’d like to study; think ahead to what you would like to do for a living, and then work backward to identify the degrees necessary to get hired in that field.
  3. Know what the market is for your planned career. Speaking of thinking ahead, research what demand there is for your planned career. The Bureau of Labor Statistics is a good source for information on hiring trends by occupation. I’m not saying you can’t choose more of a niche field because it is something you love, but you should know what your odds of making a living in that field are before you spend time and money preparing for it.
  4. Explore all your financial aid options. The federal government has a program called Free Application for Federal Student Aid, or FAFSA. This is a good clearing house for information and application materials for several types of student financial aid, so you can find the resources you need and choose the best ones for your situation.
  5. Prioritize your financial aid types. If there are grants or scholarships available — sources of aid that don’t require repayment — make the most of those before you borrow money. Then, choose federally-backed student loans first, because these offer good loan terms and some repayment flexibility. Private student loans should be your last priority.
  6. Use savings resources wisely. If you have saved money for college, put it in vehicles that will make it available when you need it and yet earn you the most interest in the meantime. You’ll find that if you are able to plan six months or more ahead, you can find CD rates that will do better for you than what you could earn in a savings account.
  7. Check how your repayment schedules add up before you borrow. Every loan you sign up for will probably provide a repayment schedule, but the reality check is to see how those repayment schedules add up as you take on multiple loans. Graduating students are often shocked by the burden they are facing, but there is no excuse for taking on obligations you won’t be able to meet.
  8. This time is too expensive to waste. Don’t be intimidated by the financial responsibility facing you, but respect it and use it for motivation. Blowing off classes and prolonging your time in school is an awfully expensive luxury. Getting your degree on time can save you a great deal of money.
  9. Remember the bigger picture cost of failing to pay. There is a lot of resentment among recent graduates about the financial burden they’ve taken on with student loans, and this is often expressed as talk about not paying back those loans — either by taking advantage of government forgiveness programs, lobbying for student loan relief, or simply defaulting. Just remember that every student who fails to pay back a loan makes it harder for subsequent students to get those loans. If you approach taking on and paying back loans responsibly, you can make the system work for you and future generations of students.

When you think about it, financing college represents a sort of hand-off of responsibility from the parent’s generation to the student’s. The parent often helps pay for college and guides the student in finding and organizing financing. In the long run though, it is the student left making the student loan payments for years to come — often until he or she has kids and has to start thinking for their college education.

That passing down of financial responsibilities between generations makes this an ideal time to work together to find and plan educational financing, so the older generation can share what they’ve learned and the younger generation can step up and make informed decisions about the process rather than just going along for the ride. Given the nature of the challenge involved, both an older person’s knowledge and a younger person’s eye to the future can bring valuable perspective to the process.


When I first began reading that President Obama was considering reducing the tax benefits for savers who make use of 529 plans and other education savings accounts to reduce the cost of education-related expenses, I was surprised. It has been my understanding that 529 plans, all though I do not have one, are intended to help the middle class by encouraging tax-efficient savings for education.

According to the statistics on 529 plans and Coverdell Education Savings Accounts, these college savings plans have not lived up to the expectations. The middle class has mostly ignored these options for preparing for their children’s and grandchildren’s education. Those taking advantage of the tax benefits might be families who may not need the incentive.

The tax benefit for 529 plans is simple. The growth in these accounts will accumulate tax free, unlike growth in regular investment accounts. When you sell investments and withdraw that proceeds from a regular investment or savings account, you owe income tax on gains and interest. You will also owe income tax if your regular investments offer any dividends. This is not the case with 529 plans. You can withdraw your investment or savings for education expenses tax-free, according to how the law is written today.

Most startling when reviewing the demographic statistics was the fact that families with 529 plans or Coverdell accounts have, on average, twenty-five times the median net worth of those families without education savings plans. Those with the accounts have three times the median income of the others, or $142,400 versus $40,300.

So while in theory, the 529 account could save the middle class money, it’s generally not working out that way. Despite the popularity of 529 plans among financial writers and advisers, it just hasn’t caught on among the middle class. That probably could have been expected; wealthier families generally are in a better position to take advantage of all that is presented to everyone. The same criticism can be made regarding 401(k) plans, which have been around much longer than 529 plans.

The middle class was so slow to adopt 401(k) plans that companies started automatically enrolling employees in the retirement plans to jump-start their savings. This, while beneficial to some employees, was a bigger win for 401(k) plan administrators and managers of the (usually expensive) funds included in 401(k) plans. In this “win-win” scenario, middle class investors receive a supposed benefit, while the financial industry feeds off a growing source of revenue.

There are a number of specific reasons that 529 plans have failed to take root in the middle class investment and savings portfolio, according to reports by and discussions with 529 plan officials.

The middle class has difficulty saving. Whether this is true from a financial perspective or just a matter of mindset, in general, the middle class sees saving for their children’s future needs for funding of higher education an unattainable goal. In many cases, families believe they need to choose between saving for retirement before saving for their children’s education, and saving for retirement is a necessity that can’t be fulfilled. Thus, the priority is always one’s own retirement.

The hierarchy of needs is real. Especially through the recession, the financial focus of the middle class has been on basic necessities, even more basic than one’s own retirement. It is impossible to make saving for the children’s future when there isn’t enough income to cover food and shelter. If you have to choose between paying the mortgage and investing for any other purpose, whether one’s own retirement or in a 529 plan for the children, the mortgage always comes first. Urgency trumps importance.

The industry hasn’t done a good job of marketing to the middle class. Half of all parents of future college students just don’t know what 529 plans are. Financial aid is complicated even without the inclusion of 529 plans, so there are two paths that one can arrive at the idea that middle class families don’t understand 529 plans. Either they are just not receiving the marketing message, or they are receiving the message, but it’s drowned out by the complex industry surrounding the financial requirements of a college education.

Parents underestimate the cost of a college education. It’s possible that many parents in the middle class don’t anticipate their children’s future expenses being so large that they would necessitate advance planning. They could be underestimating the cost (and annual increase in cost) of tuition or overestimating the amount of financial aid available in the form of loans and scholarships. Parents may be unaware of how the burden of student loans has grown significantly over the last generation.

If these numbers were illustrated better, even though some in the financial industry are continuing to attempt communication, perhaps the middle class might be motivated to think about the future needs of their children.

Is Obama’s proposal to limit the tax benefits of 529 plans and Coverdell Education Savings Accounts the right solution? At this point, we’d probably be better off working on how to encourage higher education through tax policy than discouraging it. Right now, wealthy families are more likely to take advantage of these tax benefits, so solutions should be focused on how to encourage middle and lower income families to save more.

Simplify the options. In its current form, each state can support its own 529 plan, plus there is a 529 plan that relates to private colleges specifically. States usually partner with one specific provider in the industry. For example, New Jersey partners with Franklin Mutual Advisors (a branch of Franklin Templeton Investments). Vanguard is a partner with several other states including New York and Nevada to provide qualifying 529 plans in those states.

On the one hand, choice is limited depending on the state in which you live (if you want to save money on state income taxes), but on the other hand, the information is often presented in a way that makes it difficult for investors to choose plans. If 529 plans were presented more like IRAs, some confusion might be eliminated. You can open an IRA with almost any investment company and receive the same tax benefits. 529 plans could theoretically work just as easily.

Another way to simplify would be to offer one 529 plan across the entire United States. All investors would invest in the same plan, and this would eliminate the problem of choice. Earnings could be tax-free at the federal level and in every state.

Offer more incentives. In order to encourage more middle class and low income families to save for their children’s education — an even more important goal among low income families because a college education is a necessary part of moving out of poverty — the government can change the way incentives are presented for saving. For example, the government could match, in the form of a credit into the account or in the form of a tax credit, contributions into 529 accounts made by families whose household income falls below a certain level.

Also, the government could consider a contribution into a 529 account a tax deduction, so a family that has an income of $40,000 and chooses to deposit $1,000 into a 529 would be taxed only on $39,000. That tax deduction could be limited only to households that fall below a certain income level.

Another potential incentive would be for the government to automatically create an account for every newborn child, with an initial deposit that can only be withdrawn after at least fifteen years and only for higher education expenses.

Increased communication. Regardless of how the government, the financial industry, or society at large decides to improve the feasibility of 529 accounts for moderate and low income families, the communication needs to improve before more people adopt these plans. Not only does communication need to be clear about the benefits of 529 accounts, but there needs to be a stronger effort to promote the necessity of a college education.

It’s difficult to see children from struggling families believe that college will never be an option for them, particularly when children find themselves needing to contribute as soon as possible to their families’ household income.

If education isn’t a priority, whether out of necessity or out of ignorance of its social and financial benefits, saving for education can never be a priority.

Do you invest in a 529 plan for your children or future children? If not, why not?


We expect much from people we see on television. And it’s worse when we perceive someone to be smart and talented, even if they’re speaking beyond their area of expertise.

We think someone who is a great community leader or someone who is a great business leader will make a great President of the United States. We see the similarities in roles and responsibilities and believe that intelligence and talent in one area leads to success in another. The same bias happens in ourselves. Why else would Donald Trump, a successful business person who doesn’t appear to have interpersonal communication skills based on his public statements and television appearances (I don’t know him personally) believe that he could be a successful politician?

And success that takes the form of money often empowers one’s belief that their ideas on any topic are worthy of attention. It’s easy to fall into this trap, because there are many people who idolize financial success and seek out these people for leadership. It’s a self-feeding cycle. The more we seek out “advice” from people who have lots of money, the more individuals feel they have something important to say, the more they put themselves out there, and the media are happy to oblige.

So when Mark Cuban, a billionaire who built and sold a major online property, diversified his wealth, owners a basketball team, participates in a popular prime-time television program, and can easily afford a four-year education at any of this country’s top universities, feels like speaking about a topic, the news media is right there to give him an even more prominent place from which to address the country than his own blog. One topic on which Cuban spoke recently is the practice of allowing taxpayers in the United States to subsidize the higher education of its citizens — student loans.

Student loans represent an important piece of a system that allows expanded access to education. Having a highly educated citizen base allows the United States to stay competitive. There are a number of initiatives in place to improve education in this country, and the media loves the soundbites that compare citizens of the United States with the progress of other countries in science, technology, engineering, and mathematics. The general impression is that the United States is failing to keep up with the progress of other countries, and that has inspired governmental action in all levels. It may not be successful, but at least it brings the issue of education to the fore, inspiring spirited discussions about how we can ensure we are providing the best education to as many of our citizens as possible.

But at the same time, an anti-education movement looks critically at the state of the university system, and identifies some problems. While access to education is a key factor in eliminating poverty and allowing breakthroughs into the middle class, those who start off in the middle class may not be getting all that they once were able to receive from a four-year college education. It certainly feels that way when so many college graduates are still out of work in this recovering economy. (Keep in mind today’s college graduates are still much better off economically than those who did not graduate college.) Another criticism points to the outliers who are able to build significant companies and effect the economy in powerful ways without completing a college education, but those are clearly not the norm.

Combine a tough job economy with growing student loans and you have a hot button issue that is perfect for attention from someone like Mark Cuban, who because of his success in business believes he might have some insight on public education and economic policy. His approach to higher education is to boil all the complicated variables into one concept: easy money.

As the government made it easier for all citizens to attend a college by backing student loans — loans that can’t be eliminated through bankruptcy like most other loans — it gave colleges guaranteed income. Because the money was coming in so freely, colleges could raise tuition without the increase affecting enrollment numbers. They could increase salaries for administrators (while adjunct faculty salaries remain an affront to education) without any damage to the budget.

Students take student loans so easily, but then have such a difficult time dealing with them once they need to start repayment. I went to school with student loans, and despite the initial orientation and exit interviews, my low salary in the nonprofit sector didn’t give me much of an opportunity to both pay off student loans and save for the future. I did neither, at least not well, for many years. And I had the benefit of at least being employed.

Cuban argues, perhaps correctly, that if students did not have such a financial burden upon graduation, they might be using their income to contribute to the economy (which probably means buying tickets to Maverick games or buying houses). If we could cap student loans to $10,000, the burden would be less, and with less free-flowing money, colleges would have to lower tuition to maintain enrollment.

None of this will work. It’s a very short-sighted approach. College graduates earn so much more than those without a degree, even in a difficult job economy. The best thing for the economy in the long term is to make sure as many people as possible, those who have the capacity to develop lucrative skills, get those college degrees. Reducing access to college will send this country’s competitive stance and overall level of production down, inside and outside of the United States.

Furthermore, in today’s economy, having students graduate with less debt is no guarantee they’ll still be generating income to spend boosting the economy. Low-income or no-income graduates can take advantage of deferment or income-based repayment plans. These program lower the immediate financial burden, so if there was to be any boost by limiting student loans to $10,000, we would already be seeing that today. The bigger problem is that graduates are still unemployed or underemployed (though less so than non-graduates).

Colleges are not going to lower tuition just because the government might not be backing as much in loans. If government loans were limited to $10,000, the most likely scenario is that private lenders take up the slack. And even if they didn’t, the best that could happen is that the rate of tuition increases slows down. That’s a good thing, but not nearly a strong enough reaction that would allow the same access to education, all other things being equal.

Germany took the opposite approach recently, announcing that all public colleges universities would eliminate tuition entirely for all domestic and international students. Almost 95 percent of colleges in Germany are public colleges and universities. In the 2000s, German states wrestled with the German federal government to win back control of education, and in doing so, the federal government needed something to do with the money it had been setting aside for education priorities while the German states began funding loans and grants to students.

Because of higher education’s positive effect on the economy, and because a higher-educated populace is culturally and socially important, universal access is a worthwhile goal, and that is why there is a tax system in the United States. There are certain things that are good for the country — and the world — as a whole. There’s no denying there needs to be improvement. Institutes of higher education are businesses, though, despite their charters. They need to operate on a budget. They need to generate profits to pay employees.

There should be institutional reform to make sure these businesses are running efficiently, and those reforms could open the opportunity for using available funds in ways that directly help students and increase the value of a college degree. Limiting government-backed student loans to $10,000 is the wrong approach.

Am I wrong? Is Mark Cuban right? Do you believe colleges (which are still businesses) will lower tuition if student loans were to be capped at $10,000?


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