I t
is estimated that 60% of the people who call themselves “College Planners”
or some other “College ______” are actually “wolves in sheep’s clothing.” In
my own experience, I have encountered dozens of organizations that Pose,
Promise, and Pick Your Pocket.
These organizations
Pose as some type of college-funding company. They
Promise
to secure huge amounts of “funding” for your student to pay for college.
Indeed, many even “Guarantee” a specific amount of college funding. Then they
go forth to “Pick Your Pocket” to get
you to pay them to deliver on these “Promises.”
The vast majority of these people are actually selling insurance! Yes, you
read that correctly—insurance.
I want to preface my comments by stating very clearly that this group of
“College Planners” comprises a very small percentage of those in the insurance
and financial planning industry. True professionals in the financial services
and insurance industry have legitimate college investment and savings programs
as part of their services, and do not have to resort to deceptive practices or
have to hide behind a “College Planner” disguise to offer their financial
planning and insurance services. I work with many of these professionals, who
refer their clients to me when it comes to genuine college preparation and
readiness.
How Did This Happen?
“College Planner” Version 1
In the late 1980s, many in the insurance business were going through a slump.
With the deregulation of the banking and financial-services industries during
the Reagan administration, the insurance business had morphed into the
“financial services” industry. Banks and large insurance companies could now
offer a wider range of financial services to include investments, mutual
funds, and an entire array of very creative financial plans (many of which got
us into the trouble a decade later).
The typical insurance agent—who for years had been able to provide home, life,
and auto insurance—was now rapidly losing market ground. Several of the
leaders in this industry sought the counsel of one of the major marketing
gurus of that day. This guru spawned the idea that typical life insurance
salesmen reinvent themselves as “College Planners.”
These “College Planners” would show their prospects a way to reorganize their
finances: take out a life-insurance policy with a savings plan, take out
zero-interest Stafford loans to pay for college, and use the cash value of the
savings plan to pay back the loans.
This was actually a very sound, legitimate strategy to use. Indeed, I was
brought in as a consultant for a life insurance company that did this. In the
early 1990s a student could afford to attend a state college on Pell grants
and a Stafford loan, and pay the loan off in a few years.
Then What Happened?
Two things happened to cause everything to go malignant to the point it is
today.
First, in order to make college more affordable, the federal government
created new college funding programs—mostly in the form of loans—providing
federal guarantees so that banks would provide these loans at lower rates.
This caused a supply of cheap, easily accessible money for students to pay
for college.
Any Macroeconomics 101 student could tell you what would happen next. A
supply of cheap, easily accessible money creates inflation. Colleges began
to rapidly increase what they charged in order to take advantage of
students who could borrow huge sums of money to pay for college. The cost
of college began to increase at 4 to 5 times the rate of inflation.
Students would take out loans, parents would take out loans, and students
could get even more loans, going into debt up to their eyeballs . . . and
most of these loans were guaranteed by the government. With
government-guaranteed loans, banks could not give away the money fast
enough.
Massive Increase of the Cost of College
Let’s put today’s cost of college into perspective:
- The cost of college for one child exceeds the median cost for a home in
the US.
- The average annual cost for college exceeds the annual median income of an
American family.
- College debt is the single largest segment of personal debt. It’s greater
than all automobile debt, all credit card debt, and
the total national debt of Canada!
- The latest college-loan program was sneaked into the Obamacare bill during
the reconciliation process with no debate and only a majority vote. Most
politicians who voted for it didn’t know it was in there!
“College Planner” Version 2
With the mounting concern about college debt, families began to search for
alternatives to pay for college. Never missing an opportunity to make a fast
buck, some managed to reinvent the whole “College Planner” myth by using
better marketing and a significantly different strategy to put more money in
their pockets.
Most of the people in this business have virtually no experience in college
planning. Indeed most of them have not even attended college. All that is
required is to pass the Life and Health Insurance Exam, hook up with a
“College Planning” company, get some cards printed, and voilà . . . we have a
“College Planner!”
Today the most prevalent college funding scam is the
Mortgage—Insurance
scam. The strategy works like this:
- An invitation is sent out “To the parents of _______.” They get your name
and your student’s name from an address service and mail out thousands of these.
They target upper-middle-income families who they hope have significant equity
in their homes.
- You are invited to a workshop where they are going to show you how to get
money for college. They emphasize that seating is limited and there is not very
much time to sign up.
- At the workshop, they give a very stirring presentation about the crisis
of college debt, that scholarships are only available to a handful of students,
and they have a unique solution that will enable you to pay for college with
“little or no out-of-pocket expense.”
- They offer you a free consultation on how they can help you . . . and of
course, many people are eager to find a way to pay for college and sign up.
There is usually a $2,000–$5,000 fee presented at this meeting.
What Happens During the “Free Consultation”
During the interview they place you into one of two categories.
The first group can have their finances manipulated to qualify for need-based
aid for federal grants and Stafford loans. The goal is to move as much of your
assets as possible into some form of a life-insurance policy, the value of
which is not used in the calculation of need-based aid. Of course, they
receive a commission on the sale.
The second group makes too much money to qualify for need-based aid (these are
the people they really like). Here the primary strategy is to get you to pull
the equity out of your house. You refinance your house with a new mortgage,
place that equity into some form of life insurance, and you borrow against the
cash value of that policy to pay retail for college. With you putting a huge
chunk of money into a life insurance policy, they get a handsome commission.
So, you have cash to put your kid through college, you have a new 30-year
mortgage, and you have a life-insurance policy that you have to pay back.
On the surface, it looks like a good financial deal.
In reality you end up paying for college three times:
once to the college, once to the insurance policy, and once to the mortgage.
As I indicated earlier, most of these people have not even gone to college!
Their total professional credentials consist of a license to sell life and
health insurance. It is a very easy business to get into with a lot of easy
money to make . . . and it’s perfectly legal!
Pros Package Students. Flim-Flammers “See What Happens.”
I catch a lot of refugees fleeing these people. Most are parents who have
students with good grades and high test scores who should be able to qualify
for scholarships yet these “College Planners” have no idea what to do with the
student who could qualify for scholarships, much less know where the
scholarships are. I could fill several pages of this magazine with stories
from these refugees.
OK, here’s just one example. I had a particular refugee. I actually knew the
“Planner,” who had been a professional photographer for over 20 years before
he sold his business and jumped into this one because it was easier money. I
asked him what his company’s strategy was with a highly qualified student. He
replied, “Well, we send in their SAT scores and see what happens.” I worked
with that refugee and she ended up at MIT!
Genuine, legitimate, professional college consultants do not need to sell
insurance. In my own business we
Prepare students to qualify for scholarships, we
Package them to make it easy for the institution to admit them and qualify
for scholarships, and we
Position them to receive the best range of Options,
Choices, and Opportunities for college.
How to Tell the Pros from the Flim-Flammers
There is a simple test to determine if you are working with a true
professional. Ask these questions:
- Do you have a college degree and where is it from?
- How many of your clients have received full scholarships to college and
can you provide documentation?
- How many clients have you placed into Ivy League, Tier 1, and Service
Academies?
- Can you name the Ivy League colleges? (Most high-school counselors cannot
answer this one)
- Can you name all of the Service Academies? (Ditto high-school counselors
and most college consultants)
- Can you name the colleges in the United States that are absolutely free?
(Ditto for most counselors and consultants)
- Do you sell insurance or any other financial instruments?
If you get the wrong answer to #1, leave immediately. If they can’t rattle off
4, 5, & 6, it’s like going to a doctor who can’t name the organs in the
digestive system. If they answer yes to #7, you’ve just waited longer to
leave.
I travel a lot, and there are times where I stay at the hotel where these
“Planners” are holding one of their workshops. I see long lines of desperate
children seeking some sort of miracle to pay for college. The truth is you do
not need a miracle. All you need are good grades, good test scores . . . and
advice from a professional who knows what to do.
