World’s Most Popular Online Course: Learning How to Learn (Free)

courseraThe NY Times highlighted what is “arguably the world’s most successful online course”, Learning How to Learn: Powerful mental tools to help you master tough subjects by Drs. Oakley and Sejnowski and sponsored by the University of California, San Diego. The course has been taken by 1.8 million people and it is free to access all the instructional materials ($49 to receive a certificate of completion).

The course provides practical advice on tackling daunting subjects and on beating procrastination, and the lessons engagingly blend neuroscience and common sense.

The course lasts 4 weeks and the time commitment required is estimated at 2-3 hours per week (depending on if you just watch the videos or complete all the exercises and additional reading). Also available in Spanish, Portuguese, and Chinese. While the production quality is “home-brew, not Harvard”, people seem to like it. (This is not meant to be offensive, but it sometimes reminds me of “Fun with Flags” from the Big Bang Theory TV show.) Here’s an intro video from YouTube:

The next session starts August 28th, and I’ve signed up and watched a few videos already. So far, I prefer using the Coursera app on my smartphone. I don’t know if I’ll be able to complete everything, but you can always extend into the next session. I hope to learn something for myself and also some tips to pass on to my children.

College Majors: Job Availability vs. Average Salary

gradcapThe American Enterprise Institute used newly-released New York Fed data in their article Major matters in the job market for college graduates. (They probably could have tried harder in their title choice.)

More specifically, they found that high employability doesn’t always match up with higher earnings. In the following chart, the plotted the percentage of recent college graduates with jobs requiring a college degree against the median wage of those recent graduates.

wage_employ

Here are some sample majors for each of the four quadrants:

  • High rate of “full” employment, higher earnings. Chemical Engineering, Nursing, Economics, Accounting, and most majors in the STEM fields.
  • High rate of “full” employment, lower earnings. Education-related majors.
  • Low rate of “full” employment, higher earnings. Political Science, Marketing, and International Affairs.
  • Low rate of “full” employment, low earnings. Theology, Criminal Justice, Performing Arts, English Literature, History, and Philosophy.

Solely following your passions sounds nice, but consider these survey results stating that English majors have the highest rate of regret. I plan on showing my kids this handy Venn diagram along with asking them the Three Questions That Will Guide You Towards The Right Job:

caddell620

Bottom line. The AEI article concludes with “Your college major matters. But it matters in more ways than one.” The data suggests the following warnings:

  • Just because there are lots of jobs in your chosen field, that doesn’t mean your job will pay well.
  • Just because your major has high average income, that doesn’t mean you’ll be able to find a job in that field.

Work + Skill + Luck + Risk = Big Success

barking

A new book called Barking Up the Wrong Tree by Eric Barker promises to reveal surprising facts about what really determines success. The publicity tour has generated several articles about how high school valedictorians are less successful than you might think:

Beyond the clickbait, what really happened? I haven’t read the book, but I did learn that Dr. Karen Arnold of Boston College tracked 81 high school valedictorians and salutatorians for 14 years after graduation. Here are some of the findings of this study:

  • 95% went on to graduate college.
  • The average college GPA was 3.6.
  • 60% went on to receive graduate degrees.
  • 90% were in professional careers.
  • 40% are in highest tier jobs (not exactly sure what this means).

Apparently, none of the subjects became billionaires or “changed the world” in a meaningful way. Why not?

The theory is that high grades are a product of conformity and obedience, while being “successful” is about mastering a unique skill and non-comformity. Research has found that high grades are only loosely correlated with intelligence. In addition, out of a survey of 700 millionaires, the average GPA was only 2.9. If you are devoted to a single passion, it can be hard to have good grades in all subjects; thus you tend to struggle in high school.

My question is – How you define “success”? If it’s a respectable career with above-average income, it seems that being valedictorian gives you a much higher chance for that. There’s a reason why many parents want their kids to get good grades and become an engineer, doctor, accountant, or lawyer. You are playing the odds. There are many starving artists and writers, but not many starving nurses.

If “success” is becoming a billionaire, then yes it seems that being a valedictorian may not match up with that. If you want to get rich quickly, you’ll need to start your own business and take some sort of ownership stake. The richest people all own something – music copyrights, book copyrights, businesses, real estate, something.

The difference is taking risks. By definition taking a risk means there is the chance of failure. A small business can make you rich, but most small businesses end up failing. However, you’ll only get graduation speeches from the winners. This is called survivorship bias, as this XKCD comic explains:

survivorship_bias

There is no direct formula for success, but you can still break it down into the required parts:

Work + Skill + Bad Luck + High Risk = Failure + Experience

Work + Skill + Good Luck + High Risk = Success + Experience

No Work + Good Luck = Failure

The takeaway is that you need hard work, valuable skills, taking a risk, and some luck. Luck plays a role, but you need the other three or you have no chance at all.

If you can be a high school valedictorian, I feel you are able to do hard work and thus have the ability to develop valuable skills. That’s a good base. The difference is… will you take the risk? Will you risk putting all your time and energy into developing a skill or a company that may or may not result in something valuable? Will you accept that chance of failure? Or would you rather go with the odds and do something with more reliable results? Perhaps statistically valedictorians take less risk than other groups.

I plan on advising my kids to take calculated risks when they are young and can devote 70 hours a week to a single task. That’s possible when you aren’t taking care of your kids (or your parents). However, I would also teach them that a reliable stream of above-average income plus a high savings rate equals financial freedom, aka early retirement in 10-20 years. (Getting rich via ownership just accelerates the process even further.) Once you have that financial freedom, you can do whatever you want with your life. Start a charity, write a novel, spend time with family, travel the world. Living a lifestyle aligned with your values certainly sounds like “success” to me.

How Much Do Other Parents Help Pay For College Tuition?

captuition

As the school year ends, I am reminded that my children are another year closer to college. I still remember paying off my own $30,000 in student loan debt, and now I am worried about saving up for their tuition. While I still maintain that parents should secure their own retirement needs before worrying about their kid’s college bill, what if you are doing okay and want to help out?

Priceonomics and student loan marketplace LendEDU did a survey of over 1,400 college graduates between the ages of 25 and 54. They found on average, people graduated college initially with roughly $40,000 in student loan debt and currently still maintain a balance of roughly $30,000.

Of these college graduates, how many people receive financial help from their parents? How much assistance did they get? Here are the results.

whopays

The survey also asked questions about gender, race, and the extent to which debt hindered their ability to cover daily expenses, save for retirement, or start a small business. The article focused on the differences, but overall I saw more similarities than differences. In all the cases, between 50% and 71% of people felt that their student loan debt hindered them in all three scenarios.

There are many (terrifying) projections about how much college will cost in 2035. I’ve seen numbers over $100,000 per year for private tuition/housing and $50,000 per year for public tuition/housing in today’s dollars. However, according to this survey only 9% of parents paid for most and 11% paid for half of their kid’s tuition. 80% of parents either paid nothing or “a little”. It’s hard to reconcile these two stats. Are students in 2035 really going to graduate with $100,000 of debt? Something is going to have to give.

Don’t Trust Your Student Loan Servicer, Especially Navient

gradcapIf you don’t understand why having a fiduciary requirement matters in terms of financial advice, read this Bloomberg article about student-loan servicer Navient. Learn about the sad behavior of a company that services the student loans of over 12 million people.

Here’s what Navient CEO Jack Remondi says in public:

At Navient, our priority is to help each of our 12 million customers successfully manage their loans in a way that works for their individual circumstances.

Helping our customers navigate the path to financial success is everything we stand for.

Here’s what Navient supposedly did:

In January, the CFPB sued Navient in a Pennsylvania federal court, alleging the company “systematically” cheated student debtors by taking shortcuts to minimize its own costs. Navient illegally steered struggling borrowers facing long-term hardship into payment plans that temporarily postponed bills, the government alleged, rather than helping them enroll in plans that cap payments relative to their earnings.

Why? Because Navient makes more money when you apply for temporary forberance as opposed to income-based repayment.

In July 2013, when Navient was the servicing arm of Sallie Mae, Remondi said in an earnings call that “it’s very expensive work, for example, to enroll a borrower into something like an income-based repayment program … which we are doing. But we don’t actually get paid for outperformance in that side of the equation.”

How much more did borrowers pay? From the CFPB press release:

From January 2010 to March 2015, the company added up to $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances. The Bureau believes that a large portion of these charges could have been avoided had Navient followed the law.

Here’s Navient’s quiet response in court:

Instead of “No, we didn’t do that horrible thing!”, it was “So? Why would you expect otherwise?”

Borrowers can’t reasonably rely on America’s largest student loan servicer to counsel them about their many options, Navient said on March 24 in a motion to dismiss the case, because its primary role is, after all, to collect their payments.

There is no expectation that the servicer will act in the interest of the consumer,” Navient said in response to the litigation filed Jan. 18 by the U.S. Consumer Financial Protection Bureau.

Navient does not have a fiduciary duty to the borrower. As a result, even if Navient says they will act in your interest, they don’t have to actually act in your interest. This is an important lesson.

If you have student loan debt, don’t trust your servicer. Apparently, their advice is (allowed to be?) heavily biased. Do your own research on student loan repayment options. There are many options that cap your payments based on income and some even include debt forgiveness options.

In terms of the bigger picture, don’t blindly trust anything in the financial industry. If they want your money and they aren’t a fiduciary then they have no legal requirement to act in your best interest. They can sell you horrible things and it is perfectly legal. If I was ever to let anyone else manage my hard-earned money, it would have to be in a fiduciary relationship. That’s just a minimum to even be considered.

Morningstar Top 529 College Savings Plan Rankings 2016

mstarlogoInvestment research firm Morningstar has released their annual 529 College Savings Plans Research Paper and Industry Survey. While the full survey appears restricted to paid premium members, they did release their top-rated plans for 2016. This is still useful as while there are currently 84 different 529 plan options nationwide, the majority are mediocre and can quickly be dismissed.

Remember to first consider your state-specific tax benefits that may outweigh other factors. If you don’t have anything compelling available, you can open a 529 plan from any state (although I would only pick from the ones listed below). Also, if you grab some tax benefits now but they are discontinued later, you can roll over your funds into another 529 from any state.

Here are the Gold-rated plans for 2016 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

Newcomer Virginia529 inVEST was upgraded from Silver to Gold, helped by a recent management fee reduction. Missing from last year are the T. Rowe Price College Savings Plan of Alaska and the Maryland College Investment Plan (T. Rowe Price), which were downgraded from Gold to Silver. Reasons for this include fees staying average when the competition overall got cheaper, while at the same time some of the underlying actively-managed funds received lower Morningstar fund ratings.

Here are the consistently top-rated plans from 2010-2016. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2010 through 2016.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)

The trend here is consistency. There was no change in either of the lists above as compared to last year. Utah only missed on out the consistent list because they weren’t top-ranked in 2010.

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term? Is it judged likely to continue?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

A broad recommendation is to simply stick with one of the plans listed above unless your in-state plan is offering significant tax breaks. Many other state plans may have specific investments that will work just fine as well. Here are my personal favorites, and why:

  • The Nevada 529 Plan for its low costs, variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. The Vanguard co-branding is also a sign of positive stewardship.
  • The Utah 529 plan has low costs, includes a nice selection of Vanguard and DFA funds, and is highly customizable for DIY investors. Over the last few years, the Utah plan has also shown a history of passing on future cost savings to clients.

I feel that a consistent history of consumer-first practices is important as the quality of all 529 plans can change with time. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?

Follow-up: Georgia Tech Online Master’s Degree in Computer Science for $7,000

gtomsI’m always fascinated by the potential power of cheap, accessible education. Back in 2013, I wrote about how Georgia Tech planned to offer an online master’s degree in Computer Science for only $7,000. Three years later, the NY Times has a follow-up article on the program. Here are my notes in case you’re stuck behind a paywall.

  • Georgia Tech has a Top 10 CS program, according to U.S. News & World Report. Their online version offers lectures from the same professors, the same homework assignments, and the same exams.
  • A few other top universities have online versions of their masters programs, but they charge the same tuition as in-person ($40,000+). Georgia Tech’s online masters can be completed with only $7,000.
  • Through the use of online discussion software, a CS professor claims he now interacts with online students more often than with on-campus students.
  • A study found that this program attracted students that would not otherwise study for a master’s degree. This could be due to cost, geographical limitations, current employment, or other factors. Most enrolled students were older and currently employed while taking courses.
  • The first students started in 2014, and the first class of 20 graduates got their diplomas in December 2015. The current enrollment is over 3,000 students.
  • The Georgia Tech diploma will read “Master of Science in Computer Science,” exactly the same as those of on-campus graduates. There will be no “online” designation for the degrees of OMS CS graduates.

Promotional video below:

It’s still unknown whether this online degree will have the same impact as a traditional on-campus degree. For now, Georgia Tech is still the only university to offer a prestigious, high-quality computer science degree that is both convenient and affordable. The OMSCS program states their $7,000 tuition is priced to just barely cover their costs. Will any other university attempt an “at-cost” pricing model? What if someone extended that model to undergraduate programs?

On a related note, Khan Academy is trying to combine their free online educational materials with “internationally-recognized diplomas that provide direct access to economic and educational opportunities.” I think they should pursue accreditation, which I imagine would require human graders at the very minimum even if they used video lectures and community-based teaching support. Perhaps they can form some sort of volunteer network to keep costs low. Proposal video below:

Private College Tuition Discount Rates to Sticker Price Still Rising

captuitionThe National Association of College and University Business Officers (NACUBO) recently released their 2015 Tuition Discounting Study. While the average quoted “sticker price” tuition went up again as expected, so did the “tuition discount rate”.

For academic year 2015-16, the average institutional discount rate—or the percentage of total gross tuition and fee revenue institutions give back to students as grant-based financial aid—was an estimated 48.6 percent for first-time, full-time freshmen and 42.5 percent for all undergraduates. In other words, these private colleges put about 42 cents on every dollar of tuition and fee revenue toward scholarships and grants.

NACUBO found that 88% of first-time, full-time freshmen and 78% of all undergraduates were awarded some amount of aid. The amount awarded was roughly half of the sticker price for freshmen. The tuition discount rate has been rising rather steadily over the past decade or more:

naubo2015_1

Now, I am not saying college tuition is cheap. However, I do think that knowing how these things work can make parents and students smarter consumers. Even though we often think of universities as benign non-profits, in reality many are quite aggressive marketing machines. I’ve written more about tuition discounts before, but here are my brief takeaways:

  • Don’t immediately write off private colleges with high sticker prices. The total costs may be much lower than you think. Private colleges have a lot of discretion, and your application may fit their desired characteristics.
  • Always apply for financial aid. Odds are that you’ll get something, and you could get a lot if they like you for whatever reason (academic numbers, sports, special interests and extracurriculars, other background factors).
  • Your freshmen aid package may be much more generous than in future years. Try to Always get your future aid package amounts in writing.
  • You can even negotiate your aid package with them further after getting your acceptance letter. The worst they can say is no.

529 Plan Interactive Comparison Map and Tax Deduction Calculator

The Vanguard 529 College Savings Plan (based in Nevada but open to all state residents) is one of the consistent Morningstar top-ranked 529 plans and one of my three personal finalists when choosing a plan for myself.

While poking around the site, I also came across this interactive map tool that helps you compare your in-state plan with the Vanguard/Nevada plan. Although created by Vanguard, it still offers a lot of useful information and I’m okay with then Vanguard plan being used as a benchmark.

vg529map

Below is an example screenshot for Utah. Note that it will tell you if you have an in-state tax benefits, and also if that tax benefit is restricted to contributions to your in-state plan only. Where applicable, it also links to Vanguard’s 529 tax deduction calculator. Finally, if you click on “Full Comparison” you can dig even deeper.

vg529map2

As an example of why Vanguard is highly-regarded, I was recently notified that Vanguard once again lowered the expense ratios on many of their 529 investment options. This matches the same trend with their regular mutual funds and ETFs.

Effective May 3, 2016, the expense ratios for all Vanguard 529 Plan investment options went down, affirming Vanguard’s ongoing commitment to lowering costs for our clients. Now you’ll be saving even more. The cost of our age-based options decreased from 0.19% to 0.17%, which is 67% less than the industry average.* And the expense ratios of our individual portfolios dropped from a range of 0.19% to 0.49% to a range of 0.17% to 0.45%.

Here are some similar resources I’ve shared before: 50-state 529 tax benefit comparison (uses a common hypothetical family) and SavingForCollege tax benefit calculator.

Ask The Readers: Refinancing Student Loan Debt?

college_shirtSometimes I get questions about dealing with student loan debt, but I no longer feel well-qualified to answer. I graduated in 2000 with roughly $30,000 in student loan debt myself, but I never participated in any government-backed repayment plan, nor did I refinance it into a lower interest loan. Roughly 70% of students are graduating with debt today as opposed to 60% in 2000, according to this NPR chart:

eduloans1

Once I started earning income, I did the “live cheap like a student” thing (not hard, I was a grad student for most of the time) and paid off the debt in about four years. If I had a bigger balance or a tighter budget today, I might do things differently given the current options. I know there are smart readers out there with more recent experience, so I ask you:

How did/are you handling your student loan debt?

Perhaps one of these government-backed repayment plans? If so, which one did you pick and why? Some limit your payment due to 10% to 20% of “discretionary” income, and some will even forgive the remaining balance after 20 to 25 years.

  • Pay As You Earn Repayment Plan (PAYE)
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)

Did you refinance your loan privately through a student loan start-up or traditional bank? Why did you pick yours over the competitors? Some examples:

  • SoFi.com
  • CommonBond
  • Earnest
  • Local community bank or credit union
  • National bank or credit union like Navy Federal

Please share your experiences, positive or negative, in the comments. It will help me focus my own research. You can also .

SavingForCollege.com Top 529 Plan Rankings 2015

sfc5capSavingforcollege.com is a popular privately-run site for researching and comparing 529 college savings plans. They released their updated ratings this month, which represents their “opinion of the overall usefulness of a state’s 529 plan based on many considerations.” The judgement criteria include:

  • Performance. They selected similar “apples-to-apples” portfolios with 7 different asset allocations from each plan and rated them based on historical performance. Rankings are updated each quarter.
  • Costs. Total average asset-based expense ratios among plans are compared, in addition to separately considering program manager fees, administrator fees, and annual account maintenance fees.
  • Features. This includes other factors that affect participants, including the ability of the plan change their investment options quickly if called for; creditor protection under the sponsoring state’s laws; availability of FDIC-insured options; minimum and maximum contribution restrictions.
  • Reliability. The appears to measure the likelihood of a good plan staying a good plan. Do they have experienced program managers? Does the plan have a good amount of assets? What is the quality of the documentation and reporting? How restrictive are the withdrawal and rollover processes?

Here is the full list of 5-Cap Ratings for each state, on a scale of 0 to 5 Caps. Note that there are separate ratings for in-state and out-of-state residents. The following plans received a 5-Cap Rating for in-state residents (alphabetical order):

  • California: The ScholarShare College Savings Plan
  • Colorado: Direct Portfolio College Savings Plan
  • Colorado: Scholars Choice College Savings Program – Advisor Plan
  • Illinois: Bright Start College Savings Program – Direct Plan
  • Iowa: College Savings Iowa
  • Maine: NextGen College Investing Plan – Direct Plan
  • Maine: NextGen College Investing Plan – Advisor Plan
  • Michigan: Michigan Education Savings Program
  • Nebraska: Nebraska Education Savings Trust – Advisor Plan
  • Nebraska: Nebraska Education Savings Trust – Direct Plan
  • New York: New York’s College Savings Program – Direct Plan
  • Ohio: Ohio CollegeAdvantage 529 Savings Plan
  • Rhode Island: CollegeBoundfund – Direct Plan
  • South Carolina: Future Scholar 529 College Savings Plan – Advisor Plan
  • South Carolina: Future Scholar 529 College Savings Plan – Direct Plan
  • Utah: Utah Educational Savings Plan (USEP)
  • West Virginia: SMART529 WV Direct College Savings Plan
  • Wisconsin: Edvest

Out of the 100+ different plans they rated, here are the 4 programs that attained the top 5-Cap Rating for out-of-state residents (alphabetical order):

  • California: The ScholarShare College Savings Plan
  • Maine NextGen College Investing Plan – Direct Plan
  • New York’s College Savings Program – Direct Plan
  • Ohio CollegeAdvantage 529 Savings Plan

Consistently top-rated plans. The last time I noted these rankings was 2012, and the following plans were 5-Cap rated back then and also now: California, New York, and Ohio.

I should point out that the SavingForCollege Top-rated 5-Cap plans are different than the Morningstar Top-rated Gold plans. In fact, there is no overlap at all! Two of my favorite Gold-rated plans, the Vanguard 529 Savings Plan (Nevada) and Utah Educational Savings Plan received 4.5 out of 5 Caps, although I am not exactly sure why.

However, in general the top 15 or so plans are pretty much the same for both. With that in mind, I see nothing wrong with most Morningstar Silver Plans and/or the 4.5 Cap SavingForCollege plans, if their investment options meet your needs. Here were my personal finalist 529 plans and asset allocations.

Finally, here is another resource about comparing the state-specific tax benefits that may be available to you.

529 Plan Qualified Expenses Now Include Computer Hardware, Software, and Internet Access

macbook_smallThe government just passed the Protecting Americans from Tax Hikes (PATH) Act of 2015, which had a few notable provisions for 529 college savings plan participants. Some of them need to be taken advantage of quickly.

  • Laptops, computers, and related technology and services are now a qualified higher education expense. As defined by the new IRS code, this includes peripheral equipment, computer software, and internet access. They must be purchased for use primarily by the beneficiary of a 529 college savings plan during any years the beneficiary is enrolled at an eligible educational institution. Previously, certain computer purchases counted only when they were explicitly required by the school for course enrollment.
  • You are now allowed to re-contribute qualified withdrawals from a 529 plan that are later refunded by an eligible educational institution into a 529 plan without tax penalty. For example, you may receive a tuition refund after leaving school due to sickness or other reason. Except for a special case for 2015 (see below), you have 60 days from the date of the refund to redeposit the money.
  • Accounting rules were updated to eliminate distribution aggregation. This mainly eases burdensome recordkeeping requirements for plan administrators. Hopefully this will lead to lower administrative expenses for accountholders.

All of these actions are retroactive to January 1, 2015. So if you’ve already made a qualifying computer, software, or internet access expense in 2015, you can take out some more money tax-free. You must initiate this withdrawal by December 31, 2015.

Account owners who received a refund of Qualified Higher Education Expenses between January 1, 2015, and December 18, 2015, the date the law was enacted, have until February 16, 2016 — 60 days from the enactment date for the PATH Act of 2015 — to redeposit the money. Account owners who receive a refund of Qualified Higher Education Expenses on any date after December 18, 2015, have 60 days from the date of the refund to redeposit the money.

Qualified expenses for 529 plans still include tuition, fees, textbooks, supplies and equipment. Room and board also counts up to the greater of (1) the school’s official housing cost estimate or (2) the actual cost of school-operated housing. In all cases, keep good receipts and/or documentation.

The American Opportunity Tax Credit was also made permanent. This provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses on up to 4 years of post-secondary education, and increased the phase-out limits to $80,000 (single) and $160,000 (married filing jointly) of modified adjusted gross income.

Sources: CollegeAdvantage, Kansas City Star, UESP e-mail to accountholders.