The following is an unverified transcript of the conversation with Christopher Penn that aired on January 14, 2009.
Chip Griffin: My guest today
is Christopher Penn. He’s the producer of the Financial Aid Podcast
and, probably, one of the more informed people I know about the state
of financial aid in this country. I welcome him to the show.
Chip: With colleges everywhere
making budget cuts to deal with the economic situation, the stock
market in the tank, banks being tight on credit, the real estate market
suffering so that home equity is hard to find, this doesn’t seem like a
recipe for success when it comes to financial aid.
Listening to you rattle off that list makes me want to go get a drink.
Chip: Let’s assume that I’m a
high school student, so I can’t legally drink. So that’s not an option
for me. Should I just pack it in and say, “OK, I’m going to the
cheapest school I can find,” and be done with it? Or are there still
ways to find financial aid out there?
Christopher: There is still
financial aid available, absolutely. That said, I think you raise a
valid point, where students absolutely must question whether the price
of a college education is worth paying — certainly paying sticker
price or top-tier price. It does not make me popular among my peers.
But one thing I have said many times is that for a bachelor’s degree, a
bachelor’s degree is essentially a commodity now in that so many people
have them that the brand of degree that you have isn’t as important as
having one. It’s sort of a necessary credential. So really not
something that I personally would want to spend hundreds of thousands
of dollars on.
had people call into my podcast saying, “Hey, would you recommend going
to this school? I will graduate with $160,000 in debt.” Of course
that’s just lunacy.
Chip: So it comes down to just
having that parchment on the wall, really. That’s the most important
thing that you get from a college education.
Christopher: I think there’s a
couple of things you get. You obviously get a certain type of
community. Being in social media, of course, we all understand that
community is very important. And it is a benchmark. It is a heuristic.
When an employer looks at two resumes, a college education or a college
degree indicates that you have at least some minimal level of
competence at passing things of intellectual rigor. The degree of rigor
that schools subject students to used to vary a lot, but not as much
any more. Really, it is just a quick mental shortcut for an employer to
go, “OK, this guy has a degree. This guy doesn’t. Let’s hire this guy.”
It’s not the differentiator that it used to be when a far smaller percentage of the population went to college.
Chip: Setting aside which
school I choose, because, obviously, that is a good way to drive how
much money you need and all that. What resources are there available to
students, whether they are already in college or whether they are soon
to be in college, that are available to them? I know that you have a
lot, through some of the things you’ve done. Why don’t you talk a
little bit about that, but also what else out there.
Christopher: Sure. First,
there are scholarships. Despite the economy, there are still a decent
number of scholarships. We’re talking somewhere on the order of $20
billion – with a pinkie to the mouth billion – in scholarships are
floating around out there. Everything from the national ones, like the
Pell Grant and the ACG, the SMART grant, to private ones like the Gates
Big stuff like that all the way down to some of the most obscure
scholarships you can possibly imagine. There is a tall person’s
international scholarship, where you must be 6′ or above if you are
male, or 5’10” if you’re female. There’s a left-handed scholarship at
Juniata College. There’s a David Letterman scholarship at Boston
University, but there’s a maximum GPA of 2.0.
[laughs] So, it’s not that you watch Letterman, although that may be contributing to your grade point average, I suppose.
No. His scholarship is for people who are creative but have more diverse interests while in college, as he did.
I like “diverse interests.” That is a good way to put it.
Christopher: [laughs] There
are scholarships for people who are exotic dancers. There are
scholarships for people who are single mothers, people who are senior
citizens who want to go back to school. I have even seen scholarships
for people who live in nudist colonies. There is a little bit of
Chip: How do I find out about
these things? That’s really the challenge, right? There are all of
these things out there, but is there one place that I can go to find
all of this? Or I just have to do a lot of Google searching?
Christopher: That one place
is, in fact, Google. There is a tremendous amount of scholarship stuff
available freely on the Internet. One thing I would advise is not
paying anyone to do any scholarship hunting. You can do it all on
If you go to one of my websites: studentscholarshipsearch.com/ebook,
there is a completely free book on different queries you can use in
Google that will get you to these different scholarships, ways to sort
of narrow down the results. Scholarships, really, is where you want to
start. It’s free money. It’s money you don’t have to repay. So they’re
the first places to go.
Scholarships are available for kids as
young as fourth grade. You know, Johnny’s talent competition has a $500
savings bond that you park for ten years and then roll over to an
investment plan. That’s the first place to go.
The second is cash
and savings. It’s money that you have put aside over the years. It’s
the next place to look for making college affordable. Because even
though it is money out of pocket, it’s money that you don’t need to pay
interest on and repay. That means less debt in the future.
the biggest concerns is kids graduating with huge amounts of debt, debt
that is comparable in size to someone’s mortgage. That’s not something
that you want to try and start your workforce career in.
Chip: Maybe we should talk a
little bit more about some of the options for raising money while
you’re still in school. Are there any options after you’ve gotten out
and you’re saddled with all of this debt? Or are you pretty much just
stuck with it?
Christopher: There are some
programs out there. They are loan forgiveness programs. If you are an
educator or a medical or legal professional who is willing to work in
what are called “opportunity zones” or “enterprise zones,” basically
parts of the country where services are desperately needed and the
federal government is willing to write off a percentage of your loan
balances in exchange for you spending some time there.
Chip: That would be an option
once I get out of college and I find myself just covered with debt,
that I can at least extract myself from that hole a little bit. But
it’s better to not come out of college with that much debt, right?
Christopher: Exactly. The
third thing we tell people, when it comes to borrowing there are
federal student loans. There is the Stafford Loan at staffordloan.com, Parent Plus Loans at parentplusloan.com.
Federal student loans offer pretty generous terms and predictable
interest rates — which in this day and age is a good thing — on
It’s a good choice for most students, especially the Stafford Loan
which has no credit criteria whatsoever. If you’ve done the financial
aid paperwork, the FAFSA, they have an application for free federal
student aid. You will probably qualify for at least one or more forms
of the Stafford Loan.
that, I like to tell people that working is a good idea. Working during
college in moderate amounts is a great option for helping defray some
expenses, particularly discretionary stuff like text books, computers,
iPods, things like that. Working is a good option for paying as long as
employment does not interfere or impact your studies because,
obviously, you’re paying to go to school.
Also, working too much
over a certain dollar amount can potentially disqualify you for some
need-based financial aid, if you qualify for need-based aid. So that’s
a consideration, too.
Chip: Of course, the ideal
would be finding a job where you actually built some decent experience,
too. A paid internship perhaps, or something that at least would start
to give you some idea of the kinds of things you might want to do in
College is one of the best times to do that. You work during summers
and things, and you find different experiences and different kinds of
companies and different industries.
It’s a good time to do some volunteer projects as well, because all of
those things are huge resume builders later on. If you can demonstrate
with complete clarity that you’ve got a great set of skills — if you
maybe spend a couple of months at a non-profit during the summer and
you are able to run a huge fundraiser or an event or something — that
is concrete stuff that you just can’t get out of a college education.
You can’t get that in the classroom.
Chip: With the evolution of
technology and all that, is it harder or easier these days? I assume it
should be easier these days to actually apply for financial aid?
I guessed wrong, I guess, huh?
Christopher: The front end,
the applications themselves and things — of course many of these
things are online, and that is simpler. But the process itself is still
pretty arcane. It has not changed substantially since 1965 when the
Higher Education Act was first implemented. There have been changes
over the years, but the most recent example is the 2009-2010 FAFSA. The
government simplified it by adding seven questions.
That’s typical of the government, yeah.
And four of the questions have 10 parts.
That was a great simplification, I am sure. I’m sure the parents particularly appreciate that.
Christopher: Oh, everyone just
loves it. [laughs] I am for those who cannot see me on camera being
The last two options for paying for college are private student loans,
which are non-government loans. You could find a directory to compare
it at privatestudentloans.com.
But those are not your first best choice because they tend to have
variable interest rates. They tend to have higher interest rates than
the government loans, and they are not as good typically. Some are;
some are not. You’ve got to shop around and be smart.
I like to
say they are good for bridging the gap between scholarships and federal
aid and the bottom line on the tuition bill, especially if you’re
living off campus or other non-mandatory expenses. If you don’t have to
borrow them, you shouldn’t. If you do have to borrow them, borrow them
Of course, the last is the consumer debt like
credit cards and home equity loans, which if you pay for college you’re
better off taking a semester or a year off than using those. You don’t
want to go there. That’s just a bad idea.
Chip: Now we talked a little
bit about the government. But obviously with the change in
administration coming up, there’s been some talk of increasing funding
for Pell Grants and other things.
What do you see on the horizon there as potential new sources or
increased funding sources for students that may be coming from the
Christopher: Unfortunately, I
don’t see a lot of new investment coming to higher education at all.
For example, even in the last few years, the last two or three years
when the government has made all of these promises and announcements
about increased federal aid, it came at the expense of the Federal
Student Loan Program. So the government didn’t actually put a single
new dollar in any of the student aid programs, they just moved money
around from one place to another.
That’s one of the reasons why student loans were last year and continue
even to a degree this year to be hard to get, because the government
made student lending so unprofitable that a lot of companies said, “You
know, it’s not worth our time to make this a business any more,” and
left the program. The money the government supposedly saved, they did
put back into things like the Pell Grant and stuff.
don’t see a whole lot of stuff happening on higher education, because
for good or ill our focus as a nation has been elsewhere. And I don’t
see that changing soon because of the state of the economy, with things
like employment and stuff taking a much higher priority.
certainly would not bank on any additional aid. I would not anticipate
any additional aid. If we get it, fantastic. Great, we’ll celebrate.
But if you’re planning for the future now I would actually assume that
you’re going to get less aid because we’ve already seen in the first
two weeks of this calendar year, we saw one state university burn
through all of its scholarship funding in 11 days, the first 11 days.
seen financial aid applications from mid-year students, students who
are currently enrolled in school, go up 41% at a local school here. In
Boston we have seen lines out the door on the first administrative day
of school, not even the first day of classes which are a week or two
away. But just lines out the door at financial aid offices here in the
Northeast on a day that should essentially be where the office is dead.
know on our websites — on our scholarships that are on our FAFSA site
— we’ve had triple-digit growth in terms of number of emails and
questions from customers. Normally on my show, the Financial Aid
Podcast, I get two or three questions a day or so. I came back just
from New Year’s and had 35 to 40 pieces in my inbox. It’s like, holy
smokes. Somebody turned the awareness switch on.
Chip: I imagine part of it is
all these stories of the endowments at major universities, including
places like Harvard that are renowned for their ability to build an
endowment and continue to grow it. These are all taking serious
financial hits, in part because of the stock market and in part because
they, too, have had some sort of creative investments over the years.
I know that universities are very aware of this. I’m very involved with
my own alma mater and I know that at that school we’re paying a lot of
attention to this and trying to figure out ways to address it. But is
there any hope that universities will be able to more creatively create
financial aid packages or more creatively price things or anything like
that in a meaningful way that will help students?
Christopher: The trouble with
a lot of this is you see a lot of the big headlines — you know,
Harvard with a $30 billion endowment — and a lot of schools really
don’t have a lot of money set aside. They are operating close to the
red line just like everyone else is. So they don’t really have that
much more flexibility to work with.
I think what you’ll start to see — we’re seeing it to a degree already
— are students sort of trading down. You know, going from a more
expensive school to a less expensive school. I think that’s a perfectly
reasonable thing. The trouble is, we’re going to run into a capacity
University of California System announced this week that they’re
reducing the incoming class size by 6% because they can’t afford to run
the school at full capacity.
Think about that. That’s a state school!
Chip: Yeah, and that’s
normally where you turn if you have a financial problem, right? That’s
what we were just talking about, that you find the lowest cost option.
But if even the lowest cost options are feeling the pinch and trying to
cut back, you’re right, that does leave you out in the cold somewhat.
Christopher: Yeah. I mean, the
community colleges here in Massachusetts are bursting at the seams.
I’ve had a number of colleagues say, “We don’t know where to put all
these extra students.” We’ve got all of these extra students who have
suddenly enrolled. And by law in some states, community colleges and
state schools have to accept a decent number of in-state residents. So
it’s really a tricky situation.
What I think you’ll see – and what I hope is obvious to a lot of school
administrators — is that they need to move some of their programs and
some of their stuff online. When you have an online course the number
of extra seats doesn’t require extra buildings on campus.
Chip: Right. I know that
you’re a very close follower of market conditions and I know that you
frequently update others on what the market is doing and what the
leading economic indicators say. From reading those tea leaves, is
there anything that you see that shows even the faintest glint of
sunshine on the horizon or perhaps a silver lining in the clouds? I
mean, can we take anything hopeful away from this or really are we just
left to just kind of keep weathering this massive storm?
Christopher: I don’t want to
depress people, but 2009 you’re basically going to write off. The year
as a whole is projected to do very, very poorly. Unemployment is
trending downwards and unemployment is the battleship in the sense that
it is the most important thing for the economy. Because without
employment — without jobs — consumers can’t spend, but also
employment is very slow to turn around. It is one of those things that
IS exactly a battleship: it takes a long time to turn it around and has
a lot of momentum once it starts going in a certain direction.
Chip: But in some respects
it’s actually a lagging indicator, right? I think that’s where you see
the slowness, because people tend to get laid off after the real
economic problems have begun, it then makes it worse and that’s why
it’s then slower to come out. But the economy may be improving even
when jobs aren’t being created, right?
Christopher: It’s both a
lagging and a leading indicator. It’s a lagging indicator for the
initial wave — as you mentioned — but it’s also a leading indicator
for consumer spending which, if something isn’t done on that front to
turn unemployment around, is going to just make the business-side
indicators even worse. The credit markets have actually kind of sort of
stabilized but I’m not optimistic about them.
Really 2009 is about preservation of capital, preservation of
employment if you’re lucky enough to have a job. It is about looking
for opportunities if you’re sitting on money, if you were prudent and
you saved up your money during the boom. It is a great time to be
looking at acquisitions on the cheap.
you are a consumer it is a great, great time to be looking and pushing
hard for deals. If the current conditions continue you could probably
negotiate with Walt Disney World to get a seven-day package for the
price of a cup of coffee by the end of the year! [laughs]
But that’s probably not going to help you afford college though, right? [laughs]
Christopher: No. And with
college, in all honesty, if you have to take a semester or a year off,
that is better. I personally think that is better than putting yourself
into a financial situation that will really harm you down the road. If
you have to take some time off, that’s fine as long as you have a job
or something lined up.
There’s no clear, obvious answers to what someone should do and it
really is on a case-by-case basis based on your own personal finances
and where you are personally.
thing I would suggest that everyone do is if you’re not already a
member a small community bank or a credit union, to join one locally.
Because many of these places, in addition to having better service than
a mega-bank, also have financial planners on staff who are either free
or at a very, very nominal cost.
They are not commission-based
folks so they have no interest in recommending one thing over another.
These are the kind of folks that you will bring your year’s finances to
maybe after tax season. They will sit down with you and go over things
and make recommendations like: “You should be saving more here, here is
some discretionary stuff you can trim out.”
I like to think of it
as a “financial checkup,” just like you go to the doctor for a physical
checkup. A financial checkup is a good idea and your local bank or your
credit union has the people who will not charge you an arm and a leg or
try and push you into investments that will make them money.
Chip: I think that’s great
advice. I know we’re almost out of time here so why don’t you tell
folks where they can find the Financial Aid Podcast and what sort of
resources you all might be able to provide.
Well, the Financial Aid Podcast is fortunately at financialaidpodcast.com. And my company’s stuff — all of it — is at studentloannetwork.com. But really, if you’re listening to the show and you want some questions answered, just shoot me an email at [email protected]
and I’ll do my best to answer them. I’ve got a bunch of e-books and
things that’s all on the podcast’s website so please stop by and check
it out. Subscribe to the show — it’s a weekly show — and, more than
anything, just do your homework.
It doesn’t matter whether you listen to my show or you listen to
someone else’s show but do your homework and be smart, because this
year is going to be about who can last the longest and who can make the
smartest decisions financially.
Chip: That’s a great wrap-up.
My guest today has been Christopher Penn, producer of the Financial Aid
Podcast. Thanks for joining me.
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