Data wars: Return of the performance debate

Data wars: Return of the performance debate

Chris Higson, a professor in accounting at the Coller Institute of Private Equity at London Business School, and Rüdiger Stucke, a professor at the University of Oxford, last week published a report entitled ‘The Performance of Private Equity,’ in which they reiterated concerns first made by Stucke in December about the quality of Thomson Reuters’ data on a sample of US private equity funds.
Higson and Stucke claimed that in 2010, performance data for more than 40% of the private equity funds in a Thomson Reuters sample of US funds raised between 1980 and 2005 was out of date. They added that incomplete data on these funds had led to a downward bias, therefore making it easier for many funds to claim they outperform the index.
Higson said: “It turns out the [Thomson Reuters] data is wrong, significantly biased. As far as we can tell it’s that whoever was looking after the data simply didn’t update it.”
But Leon Saunders Calvert, head of global deals and private equity at Thomson Reuters, told Financial News this week : “We have already emphasised those claims are not substantiated and not valid. Coller appear to have taken the opportunity to highlight suggested problems which are unsupported by our data.”
He added that Coller had not “contacted us or spoken to us” and that Thomson Reuters continues to discuss its data with private equity firms to ensure it can “reflect their market accurately”.
Higson said in the report last week: “The performance is measured in terms of net asset values. Because there are so many incomplete records in Thomson Reuters’ [data], those net asset values got frozen and significantly understated the performance of the funds.”
Calvert said there had been no errors in its system and the incomplete data was as a result of its researchers being unable to obtain the latest cash flows of some funds. He said Thomson Reuters had criteria for what defined a so-called “stale fund” so they could be stripped out and its research currently included no funds it deemed to be stale. He added the company’s clients were aware the data’s methodology included some funds with incomplete data.
He declined to disclose the number of researchers responsible for updating the company’s system on the grounds that the information was commercially sensitive.
He added that because Thomson Reuters had not supplied Higson and Stucke with the underlying cash flows of the funds in its sample because they were confidential, “to come to some of their conclusions, which we know are wrong, they have to have made a number of assumptions about the data”.
The comment highlights the continuing debate in the buyout industry over the credibility of performance and valuation figures. Last week, members of the private equity industry criticised valuation methods following news that US regulator the Securities and Exchange Commission had launched an informal inquiry into how valuations are calculated.
In May, trade body the European Private Equity and Venture Capital Association for the first time made its complete market research publicly available as it attempts to improve its transparency and the credibility of its data.
–write to jennifer.bollen@dowjones.com
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Experts split over private equity

Pension funds allocating their assets to private equity have reaped little or no rewards on average, according to a Yale study.
Martijn Cremers, associate professor of finance at the Yale School of Management, concluded in a recent paper that returns on private equity over the last 10 years were no better than the stock market. Investments in public equity were on average unlikely to yield more profit than investments in stocks or bonds, because of their high management fees. However, some experts disagreed with the findings, saying that private equity is still a good option for asset allocation.
According to the paper, private equity funds had a spectacular run in the 1990s where it returned an average net return of 21.5 percent to its investors. Impressed by this performance, institutional investors increased their investment in private equity, bringing the total funds in private equity from $200 million to $2 billion in the last 10 years. But the Midas touch of private equity disappeared at the turn of the century and the returns fell to an average of 4.5 percent in the last 10 years, the paper said.
“If I had to summarize it in a nutshell, pension funds got similar returns to what they would have gotten had they invested in passive equities,” Cremers said.
Since private equity is more volatile than stocks or bonds, a portfolio with a large asset allocation in it would have a high amount of risk. For example, the paper said, the net returns from private equity fell from a profit of 36 percent in 2000 to a loss of 21 percent the next year.
Even as the profits in private equity took a hit in the aftermath of the dot-com bubble, private equity fees continued to climb. Cremers explained that in addition to taking a cut from the share of returns, known as the performance fee, private equity managers also charge an overall management fee on the invested capital. He said the average management fee has increased from 2.4 percent in 2000 to 4.2 percent in 2010. Private equity fund managers have taken 70 percent of the gross profits made in the last decade as fees, Cremers said.
Steven Kaplan, professor of entrepreneurship and finance at the University of Chicago, disagreed with the findings. According to his research, every dollar a pension fund put into private equity earned 20 percent more than it would have in Standard & Poor’s 500 index. Accounting for management and performance fees, he said, private equity funds have outperformed public markets by an average of three percentage points over the past 20 years.
Kaplan pinned the drastic difference in results on unreliable data.
“Cremers does not have particularly good performance data [but] we do,” Kaplan said.
In the past several studies have relied on commercial data sets provided by Thomson Venture Economics, which is problematic for analysis, Kaplan said.
Ayako Yasuda, associate professor of management at the University of California, Davis, shed light on the problems of gathering definitive data. Unlike pension funds, private equity funds are not legally required to disclose their activities, so all data available is based on voluntary disclosure, which is subject to bias.
“What’s missing is not just random noise,” Yasuda said. “Even a very small percentage of the missing data could mean that it is being systematically obstructed, which could create hidden bias.”
The difficulty in collecting data about private equity makes the field’s performance uncertain, if not controversial, Kaplan said.
Yasuda contended that the 4.5 percent average return, which Cremers calculated, is no worse than the turbulent performance of the stock markets in the last decade.
“It’s a period in which the benchmark also performed poorly,” Yasuda said.
She agreed private equity funds tend to have higher fees than other investment asset classes, but said the performance fees are typically structured to avoid consuming all the net returns for investors in low-performance funds.
In an underperforming market, private equity fees may seem exorbitant, but they are within reason during economic booms, such as the 1990s, Deputy SOM Dean Andrew Metrick said. Compared to a hedge fund, private equity charges a lot less, he said.
Metrick said that private equity funds also allow its institutional investors to invest in buyouts and ventures as partners, which means that pension funds may bypass a large portion of the overall fee. Such transactions are not included in Cremers’ data because they are not available to the researchers, Metrick said.
The key for pension fund managers is to find the right private equity investments, which requires enormous skill and long-term dedication, Metrick said.
For the unsophisticated investor, making investments in private equity funds is “like throwing darts at a newspaper,” he said.
The paper was co-authored by Aleksandar Andonov and Rob Bauer of Maastricht University in the Netherlands.
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Families of College Bound Students: Tips on Financial Aid Forms

For parents of college students and prospective college students (Fall of 2012), financial aid forms need to be submitted soon. Typically financial aid forms for prospective students are due in January or February, while forms for returning students are due in March or April. Be sure to check the deadlines for each school where the student is applying and/or attending. Depending on the school there may be multiple forms to fill out. The first step is to determine which forms are needed:

• Free Application for Federal Student Aid (FAFSA) Form: This is the basic form required for financial aid at all colleges including all federal student loans, such as Stafford Loans and PLUS loans. The FAFSA form asks for information such as student and parent income and assets, but does not take into consideration retirement assets or the equity in the primary residence. The FAFSA will determine the family’s “Expected Family Contribution”, which is the amount that the family is thought to be able to pay – often a higher number than the parent thinks they can afford! Information and forms can be found at www.fafsa.ed.gov . Even if the family does not think they are eligible for need-based aid, but wants to access Stafford loans and PLUS loans, the FAFSA must be filled out. Certain merit scholarships may also require completion of the FAFSA forms.
  
  • Stafford Loans: Most students who fill out a FAFSA form are eligible for unsubsidized Stafford loans. First year students can borrow up to $5,500. The interest rate on unsubsidized loans is currently 6.8 percent and is not based on the applicant’s credit score. Need-based subsidized Stafford loans now have an interest rate of 3.4 percent in 2011-12 and the interest does not accrue while the student is in school.
  • Federal Direct PLUS Loan: Parents can also borrow through the Direct PLUS program. Parents can borrow up to the cost of attendance less any other financial aid received. The interest rate is presently 7.9 percent and is charged beginning with the disbursement of the loan. Please note that certain fees apply to these lending programs, so read the details carefully.
• CSS PROFILE Form: Some private colleges use a different methodology for calculating financial aid and require the College Board’s CSS PROFILE form. A list of schools requiring the CSS PROFILE form can be found on the College Board website . The CSS PROFILE form asks more detailed and broader financial questions than the FAFSA and takes into account other factors such as the equity in your house. Some schools may also request a copy of a tax return, so if possible, try to get your taxes done early.
• Additional Forms: Occasionally a college may require supplemental information, so be sure to check with the school.

For divorced parents and parents who never married, the rules may vary as to what is required, so check with the school as well as FAFSA and CSS Profile.
For prospective students, beginning in the Fall of 2011 all colleges are required to post a “net price calculator” on their websites that help families figure out what freshman year will cost. The calculations are designed to be an estimate; the financial aid office will have the final say on the actual financial aid award. It is based on the “Expected Family Contribution” computed based on information on the FAFSA form.
The process of financial aid should also involve investigating grant opportunities from sources other than the college. There are numerous opportunities for scholarship and grants and many have a separate application process. School guidance offices are often the best place to start the investigation.
In addition to financial aid, there are several tax advantages for the families of college students. The American Opportunity Credit replaces the Hope Credit through 2012. The American Opportunity Credit is a maximum tax credit of $2,500 and has a higher income limit qualification than other tax benefits. Read IRS Publication 970, “Tax Benefits for Education” to determine if you are eligible. Other tax benefits may be available to you depending on your circumstances.
FPA Member Jeanne Gibson Sullivan, CFP®, is a financial planner and principal of Financially in Tune in Wakefield, MA and a parent of two sons – a freshman in college and a high school junior.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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Web chat focus was financial aid

BY CATHY JETT
Michael Farris fielded a variety of financial aid questions during the monthly Money Talk$ webchat Tuesday on fredericksburg.com.
Below is a sampling of the inquiries and the answers provided by Germanna Community College’s coordinator and director of financial aid. A complete transcript of the webchat is archived at fredericksburg.com/News/chat3/Archive?chat_id=140.
;”>My daughter is headed to Virginia Tech next year, and financing it will be a stretch for us. Our FAFSA [Free Application for Federal Student Aid] indicates that our EFC [Expected Family Contribution] is well beyond what we will pay, but we don’t have anywhere near that much money set aside.
Are there any good ‘tricks of the trade’ you can offer? Should she get her own apartment next summer to get the aid based off her own income vs. her parents?
–TS in Spotsylvania
Unfortunately, there are no “tricks” to gaining eligibility that way. Her dependency status is not associated with her place of residence or whether or not she earns an income of her own. It is based on her age, primarily. It is very difficult for a student under the age of 24 to gain independency for aid eligibility purposes.
I would recommend her possibly pursuing on-campus student employment for her first year, and maybe balancing that with a low-interest student loan. There are also parent-specific student loans that are available to folks in your situation.
This is a great opportunity to reach out to the folks in the financial aid office at Virginia Tech for more detailed information about what types of aid they have to offer.
Tip: There is no substitute for engaging the financial aid office at the school that the FAFSA is being sent to. Having worked in several different financial aid offices, at schools on both the East and West coasts, I know how critical the conversation between student and family and the college or university is. Plus, each school awards its financial aid differently. As soon as the FAFSA has been completed, call the school.
;”>Do parents’ financial obligations and credit histories have a significant impact on what financial aid is available to their children?
–KD in Fredericksburg
As a rule, no. The FAFSA examines income and assets as opposed to credit scores and familial expenses. The exception would possibly be if a parent is trying to borrow a parent-specific student loan on behalf his or her son or daughter. Federal parent loans require a credit check.
;”>What about students with disabilities does the state work with the college to fund someone that is physically disabled and has no income? Does the college offer funding for disabled students?
–BA in Stafford
Great question. In short, yes. The Federal Application for Aid takes this into account, and is able to identify and assist students with documented disabilities and supplement any existing federal or state disability benefits with additional federal funds for eligible students.
Cathy Jett: 540/374-5407
Email: cjett@freelancestar.com

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William P. Carey, Leader in Commercial Real Estate, Dies at 81

William P. Carey, who played a leading role in the early use of the commercial real estate transaction known as the sale-leaseback as he built a fortune in investment management, died on Jan. 2 in West Palm Beach, Fla. He was 81 and lived in Manhattan.

The cause was cardiac arrest, his brother and only immediate survivor, Francis, said.
Mr. Carey was the founder in 1973 of W. P. Carey & Company, an investment management firm in New York with about $12 billion in assets around the world, among them nearly 1,000 retail and industrial sites totaling about 120 million square feet.
In the early 1980s the company closed transactions that were considered innovative in their use of the sale-leaseback model. The sale-leaseback is a form of financing in which a company sells its property for cash while remaining as a tenant under a long-term lease it signs with the buyer. It is often used by companies that are having trouble obtaining traditional financing.
In 1982, to finance its leveraged buyout of Gibson Greeting Cards, the Wesray Corporation, the investment company headed by William E. Simon, a former Treasury secretary, sold three Gibson manufacturing and warehouse buildings to Carey & Company.
Of the many sale-leaseback deals the company has arranged in the last 38 years, a prominent one came in 2009 when it bought 21 floors of the 52-story headquarters of The New York Times on Eighth Avenue in Manhattan for $225 million. The Times, which entered into the transaction to pay down debt, has the option to buy back the space in the 10th year of a 15-year lease.
Mr. Carey, a leading philanthropist as well, donated more than $100 million of his wealth through the W. P. Carey Foundation, which he established in 1988. The gifts primarily went to promote business education.
The foundation gave $50 million to the Arizona State University School of Business in 2002. Five years later, it donated $50 million to Johns Hopkins University to create the James Carey Business School, named for Mr. Carey’s great-great-great-grandfather, a shipper in Baltimore in the early 1800s.
Last year, the foundation established a $30 million endowment for the Francis King Carey School of Law at the University of Maryland, named for Mr. Carey’s grandfather, a graduate of the school.
William Polk Carey was born in Baltimore on May 11, 1930, to Francis and Marjorie Armstrong Carey. Business acumen came early to him. As a boy, he sold soda on the streets near his home and ink he made in his basement.
Mr. Carey graduated from the Wharton School at the University of Pennsylvania in 1953 with a degree in economics. After serving in the Air Force for two years, he worked at a car dealership owned by a relative in New Jersey. At 28, he owned a company in Plainfield, N.J., that leased foreign cars. It was there he learned the basics of the sale-leaseback.
Mr. Carey’s middle name, Polk, is an acknowledgment that he was a descendant of the 11th president of the United States, James K. Polk.
“He was very proud of that,” Mr. Carey’s great-nephew, William Polk Carey II, said last week. “He liked to hand out those $1 gold coins with engravings of his Uncle Jim. That’s what he called him
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Schulte Roth & Zabel LLP Announces Election of New Partners and Promotion of Associates to Special Counsel

NEW YORK–(BUSINESS WIRE)– Schulte Roth & Zabel LLP is pleased to announce the election of Eric A. Bensky, Jennifer Dunn, Christopher S. Harrison and David J. Karp as partners. The firm also announces the promotion of James T. Bentley, Michael G. Cutini, Farzad F. Damania, William I. Friedman, Frank J. LaSalle, James Nicoll and Leonora M. Shalet to special counsel.
Eric Bensky is resident in the firm’s Washington, D.C. office. The other new partners and special counsel are located in the firm’s New York office. David Karp is resident in both the New York and London offices.
“We are very proud of these individuals who have distinguished themselves through their contributions to our clients and the firm,” said Alan Waldenberg, a member of the firm’s executive committee. “The depth of their knowledge and experience greatly enhances the value of our legal services and reflects the firm’s commitment to providing the highest level of guidance and client service.”
PARTNERS
Eric A. Bensky, a partner in the litigation group, focuses his practice on securities litigation, including civil, disciplinary and criminal proceedings and investigations before federal and state courts, the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), various stock exchanges, and arbitration panels of FINRA and other self-regulatory organizations. He received his B.A., with high honors and high distinction, from the University of Michigan and his J.D., with honors, from the University of Chicago Law School.
Jennifer Dunn, a partner in the investment management group, advises hedge funds, private equity funds, hybrid funds, funds of funds and investment advisers in connection with their structuring, formation and ongoing operational needs, general securities laws matters, and regulatory and compliance issues. After obtaining a B.A., cum laude, from the University of Pennsylvania, Jennifer received her J.D. from Columbia Law School.
Christopher S. Harrison, a partner in the M&A and private equity practices of the business transactions group, concentrates his practice on hedge fund mergers and acquisitions, private equity transactions, and domestic and cross-border mergers and acquisitions. Christopher also serves as an adjunct professor at New York University School of Law. He has a B.A. from Friedrich-Schiller-Universität and a J.D., cum laude, from New York University School of Law.
David J. Karp, a partner in the business reorganization group, focuses his practice on corporate restructuring, special situations and distressed investments, distressed mergers and acquisitions, and the bankruptcy aspects of structured finance. In addition, David leads the firm’s distressed debt & claims trading practice, which provides advice in connection with U.S., European and emerging market debt and claims trading matters. He received his B.S. from Cornell University and his J.D. from Fordham University School of Law.
SPECIAL COUNSEL
James T. Bentley, a special counsel in the business reorganization group, practices in the areas of distressed mergers and acquisitions, debtor-in-possession financing, corporate restructuring, and out-of-court workouts. James received his B.A. from Boston College and his J.D., cum laude, from Brooklyn Law School. After earning his law degree, James clerked for Chief Judge Carla E. Craig of the Eastern District of New York Bankruptcy Court. Prior to joining SRZ, he was an assistant vice president in Citigroup’s Global Corporate Banking Group.
Michael G. Cutini, a special counsel in the litigation group, focuses his practice in the areas of complex commercial and business, securities and shareholder, and bankruptcy litigation on behalf of privately and publicly held companies and financial services industry clients, including hedge funds, private equity funds, and prime and clearing brokers, as well as advising clients on compliance with antitrust laws, particularly in the context of mergers and acquisitions. He received his B.A., summa cum laude, from the State University of New York Fredonia and went on to obtain his J.D., cum laude, from Syracuse University College of Law.
Farzad F. Damania, a special counsel in the business transactions group, focuses his practice on capital markets and securities law, mergers and acquisitions and general corporate law. Farzad received his B.A. from St. Xavier’s College and his LL.B. from Government Law College, both in Bombay, India, and he received his LL.M. from Chicago-Kent College of Law, Illinois Institute of Technology.
William I. Friedman, a special counsel in the litigation group, concentrates his practice on AML, OFAC and FCPA issues and other regulatory areas. Prior to joining SRZ, William was with the New York Stock Exchange, where he served as special counsel in its Division of Enforcement. After graduating with honors from Brandeis University, he earned his M.B.A. from Baruch College, CUNY, and received his J.D. from Brooklyn Law School. After earning his law degree, William served as a law clerk to the Hon. Bernard J. Fried of New York County, Supreme Court, Criminal Branch.
Frank J. LaSalle, a special counsel in the litigation group, practices in the areas of complex commercial, securities, corporate governance, accountants liability, intellectual property, real property, class action defense, bankruptcy and creditors rights litigation, and securities regulatory investigations and examinations. Frank earned his B.A. and M.A. from Miami University and his J.D. from University of Akron School of Law.
James Nicoll, a special counsel in the business transactions group, focuses his practice on corporate finance transactions, counseling corporate clients on compliance with the federal securities laws and on general corporate matters, venture capital and mergers and acquisitions. He holds a B.S. from Cornell University and a J.D. from the University of Pennsylvania Law School.
Leonora M. Shalet, a special counsel in the investment management group, focuses her practice on advising investment funds (including hedge funds, private equity funds, hybrid funds and funds of funds) and investment advisers in connection with their structuring, formation and ongoing operational needs, general securities laws matters, and regulatory and compliance issues. Leonora earned an LL.B. in Law with French Law from Birmingham University, Birmingham, England as well as a French Law Diploma from Limoges Law School, France (ERASMUS). Leonora is also a graduate of the Legal Practice Course from Nottingham Law School, Nottingham Trent, England.
About Schulte Roth & Zabel LLP
Schulte Roth & Zabel LLP (www.srz.com) is a full-service law firm with offices in New York, Washington, D.C. and London. As one of the leading law firms serving the financial services industry, the firm regularly advises clients on corporate and transactional matters, as well as providing counsel on securities regulatory compliance, enforcement and investigative issues. The firm’s practices include investment management; M&A securities & capital markets; litigation; business reorganization; distressed debt & claims trading; employment & employee benefits; environmental; finance; individual client services; intellectual property, sourcing & technology; real estate; regulatory & compliance; structured products & derivatives; and tax

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Financing College Costs in 2012: Smart Tips

Most likely, your 529 plan and equity in your home are still down, but tuition keeps rising. Still, there’s money out there for students who need help with college financing. Here are 12 tips to help you attend school for less in 2012.
Go to college despite the job market
The year 2011 provided several arguments to skip college — high unemployment rates, tuition hikes and a harsh job market for grads. Go anyway.
“The jobs that are growing, the industries that are growing and the markets that are going to be available to students are those that require higher education,” says Brittania Morey, spokeswoman for the Iowa College Access Network. “Students who are choosing to go to college are preparing themselves for the work world of tomorrow.”
According to a 2010 report by Georgetown University, 63% of jobs offered by 2018 will require postsecondary education. Morey says students can cut college costs by searching for scholarships early and investigating awards in their community.
Don’t eliminate yourself
The biggest mistake students make is believing they’re not eligible for college aid. A 2009 study by Finaid.org showed that 2.3 million students who would have been eligible for the federal Pell Grant missed free college cash because they didn’t apply.
While students attending pricey institutions frequently apply for aid, the likelihood is lower at cheaper schools and community colleges, says Diana Fuentes-Michel, executive director of the California Student Aid Commission.
“That’s where folks tend to believe that they wouldn’t qualify for financial aid because of the low cost,” she says.
The U.S. Department of Education reports that all students, regardless of income or financial assets, are eligible for up to $27,000 in federal Stafford Loans over four years.
File for FAFSA fast
The Free Application for Federal Student Aid, or FAFSA, qualifies students for federal grants, loans and work-study jobs as well as some private and state-sponsored awards. Filing it as close to Jan. 1 as possible maximizes your college aid eligibility, says Lynda Forster, CEO of the financial aid consulting group Collegiate Capital Corp. in Mineola, N.Y.
“Most (families) think that financial aid forms must be completed after the tax returns are done, and that is not accurate,” she says. “You cannot wait until April. All of the money is already awarded.”
Since federal grants are distributed on a first-come, first-served basis, Forster recommends that families file the form using estimates of their income and assets. If they need to change something, families can file corrections at FAFSA.ed.gov.
Choose your major carefully
From private loan-forgiveness programs to state and federal grants, there’s money available to students majoring in high-demand fields. While the federal government offers up to $4,000 per year to future educators through the Teacher Education Assistance for College and Higher Education, or TEACH, Grant Program, individual states offer similar college financing initiatives for up-and-coming teachers, nurses, fire and emergency medical technicians, public defenders, child care employees, health care workers and those pursuing jobs in other fields.
Students who know their major can check with their school’s financial aid office to see if there are awards available in their fields. Professional organizations and nonprofits, such as the National Restaurant Association and the National Environmental Health Association, also offer awards to students in specific fields of study.
Find a ‘safety’ school
Guidance counselors recommend that students apply to an academically safe school. Martha Savery, director of community outreach for the Massachusetts Educational Financing Authority, recommends that students apply to a financially safe school, too.
“We always tell families (not to) self-select based on the cost that you see in the admissions material because many colleges and universities are able to provide a substantive financial aid package,” Savery says.
As of Oct. 29, all institutions that receive federal funding are required to post a net price calculator on their website that can help families estimate college costs with aid factored in, according to the National Center for Education Statistics. Students also can compare net prices of different schools by income level on the NCES website.
Meet the deadlines
With more students vying for aid, there’s stiff competition for dollars. Don’t eliminate yourself by missing a deadline, Savery says.
“If your child was applying for admission to XYZ university, you would not contact that admissions office and say ‘You know, I’d like just three or four more days just to tweak my essay,’” she says. “(Families) need to look at the deadlines from a financial aid perspective in exactly the same way.”
Ask the boss
A 2010 study by Business and Legal Resources, a compliance consulting firm in Old Saybrook, Conn., showed that nearly 85% of U.S. companies offer tuition reimbursement to employees. That’s up from 52% in 2007.
There are some pretty big catches. More than 75% of employers require that course work be job-related to qualify for reimbursement. Companies also may restrict how much reimbursement employees can get, require a certain grade point average or limit reimbursement to employees at a certain job level. More than 60% of companies offering reimbursement require employees to stay with the organization after completing study.
Go federal first
Federal loans are still the cheapest student loans. Through June 30, subsidized Stafford Loans will carry a 3.4% fixed interest rate. All Stafford Loans — subsidized, unsubsidized and grad loans included — disbursed after June 30 have a 6.8% fixed interest rate, according to the Department of Education. Stafford Loans are capped at $27,000 over four years for dependent students, but Morey says that federal loans to parents can help.
Through the Parent PLUS Loan, families can borrow up to the cost of attendance minus financial aid the student has received, and they’ll only pay 7.9% in interest — a rate that’s far below those of many private loans, according to DOE.
Cap those loans
Federal student loans also can be capped at 15% of a student’s “discretionary income.” That’s defined as earnings above 150% of the poverty line. For 2011, discretionary income would include earnings above $16,335 for a family of one, according to the Department of Health and Human Services. Earn less than $16,335, and the federal government won’t charge you anything for your student loan as long as your income stays below that threshold.
A double bonus is that students who make consecutive loan payments for 25 years will have their debt forgiven, according to the Oakland, Calif.-based Project on Student Debt. The time frame is reduced to 10 years for students who work in public-service professions such as teaching or social work after graduation.
Despite the tremendous potential savings, research shows that few students take advantage of the program. A White House fact sheet from October says that only about 1.3% of students with federal loans opt for income-based repayment.
Fight the hikes
Thanks to state budget cuts, tuition and fees at the average two- and four-year public institutions rose by about 7% this year, according to the College Board in New York. But in states such as Florida and California, prices at undergraduate state universities rose by 15% or more.
“The immediate kind of response to (tuition hikes) is to put it on a credit card or to look to their parents to try to get them to take a loan out,” says Fuentes-Michel.
The problem is that parents frequently can’t take on additional debt, and credit card interest rates are substantially higher than those of federal student loans. Instead of falling in the plastic trap, Fuentes-Michel recommends that students look to federal loans, private scholarships and part-time employment for college financing.
Save the right way
One of the strangest loopholes of financial aid is that how you save can impact your aid just as much as how much you save.
“Money put into a student’s name is not the place where you want to park it,” says Forster. “A student’s assets and income (are) counted much higher than a parent’s.”
While assets saved in a parent’s name can subtract up to 6 cents for every dollar from your federal need-based scholarships and grants package, every dollar of student assets takes away 20 cents, according to the White House’s National Economic Council. Money saved in a grandparent’s or relative’s name won’t count at all. However, 529 plans are one exception. Funds stored in a 529 plan in the student’s name count as parental assets, according to FinAid.org, the college financing resources website.
Reconsider 529 college savings plans
Many 529 plans lost value when the market dipped in 2008, but they’re coming back — this time with more conservative investment options. In the past two years, states including Nebraska and Indiana have added financial options insured by the Federal Deposit Insurance Corp. that allow parents to access 529 tax incentives without taking any market risks.
On top of providing federal tax-free growth, certain states also provide state tax incentives and matching grants to encourage account holders to save.
Copyright 2012, Bankrate Inc.


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Digital Classrooms: Is The Investment Paying Off?

Guest post written by Chuck Dietrich
Chuck Dietrich is CEO of SlideRocket.

Chuck Dietrich: Learning 2.0.

There is a raging debate about the effectiveness of the ‘digital classroom’ – with arguments solely focused on the $31.2 billion education technology market and whether the investment is delivering a return to cash-strapped school districts.
In the heated discussion over education technology, we are missing out on a crucial component of education – the ethos of how to work together. Collaborative technology is a valuable aid in teaching students to engage in meaningful discussion, take responsibility for their own learning and become critical thinkers in a rapidly-shifting world – skills necessary for success in the 21^st century workforce.
The collaboration revolution has entered the workplace in full force, ushering in ‘a new way to work’ – and now it needs to head to the classroom. Studies have shown that students learn best when they’re actively involved in the process and engaged in interactive group work. Today’s student is gathering information from a variety of sources and their access to each other and to their instructors extends way beyond the classroom.  The development of tomorrow’s successful leaders requires cultivating skills that master how to work with people in a dynamic and effective fashion.
The national organization, The Partnership for 21st Century Skills (P21) understands that it is time for “a new way to educate.” The organization advocates new ways of thinking in order to prepare students to compete in a global economy. The institution provides tools and resources to help the U.S. education system keep up with global competitors by combing the traditional 3Rs with the 4Cs (Critical thinking and problem solving, Communication, Collaboration, and Creativity and innovation). P21 views all components as interconnected in the process of 21st century teaching and learning.
The 4Cs emphasized by P21 are the framework of the modern, global workplace. An educational system that emphasizes this framework prepares students for the world beyond the classroom while embracing an educational method that taps into a more natural method of learning.
The 4Cs are a cornerstone of the modern workforce revolutionized by cloud based technology. Cloud-based technology has facilitated dynamic interactive collaboration between location- dispersed teams. Ideas are created, shared and revised, emulating the collective learning common for the classroom. The standard model of education is a passive one, where success is measured by memorizing rote facts, and figures. Leveraging 21st century workplace skills cultivates a new way of educational thinking that makes learning both active and interactive, essential for life outside of the classroom.
In this new model of educational thinking, educators and students tap into the cloud to build, collaborate, share and manage media rich lessons and curriculum. In some classrooms this revolution is already underway. The Open High School of Utah (OHSU) is a fully online charter school that has traded chalk and blackboards for digital tools that foster collaboration and interactive education. The school has fully integrated Google Docs and uses open course management system Moodle. Students create more than 150 presentations per year using SlideRocket; often collaborating remotely in teams to share and organize data.
The OHSU model is an example of how to employ real world technologies which focus on collaboration. The return on investment is not a result of the technology, but how that technology is effectively implemented in education.
The real value of education is not really what we learn; it’s how we learn – which involves the effort and process that goes into the act of learning itself.   No matter how many new digital tools come out, the common denominator is still people.  And it will always be people.  The new collaboration revolution in education technology places people squarely at the center of the equation, making it easier to connect and produce solid results.


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India tycoon’s got tons of cash, nowhere to invest

“I love India, but my customer is not going to wait” … Ajay Pirama. Photo: AP/Rafiq Maqbool

Ajay Piramal is sitting on a mountain of cash. Yet the billionaire Indian tycoon, working in one of the world’s fastest growing economies, is struggling to figure out what to do with the money.
The problem isn’t opportunity, he said. It’s India.
“Every large investment, there was no transparency,” Piramal said.

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His dilemma is a worrying sign for India. With the country mired in corruption, bureaucratic red tape and unclear and changing government policies, many of the men who made their billions here are saying maybe it’s time to quit India. It’s got to be easier to do business elsewhere.
In May last year, Piramal’s healthcare business sold its generic drug operations to US pharmaceutical giant Abbott Laboratories for $3.8 billion. Piramal, a tall big man in a country that still measures prosperity by girth, was eager to set that cash pile to work. He wanted to expand one of his chemical plants, but was told it would take five years.
“The same plant could be set up in China in two years,” he said. “I love India, but my customer is not going to wait.”
India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
In part this reflects the confidence and aptitude of India’s maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India’s big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
The frustration of India’s business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles – to pick a few of the top complaints – has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s. “If you are an honest businessman in India, it’s very difficult to start up anything,” said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. “Companies are going to operate where they see the best opportunities and efficiency for their capital.”
Increasingly, that’s outside India.
In 2008, foreigners poured roughly twice as much direct investment into India – $33 billion – as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad – twice as much as foreigners invested in India – a trend that’s continued this year.
There is another, unspoken element to all the complaints. To the extent that business in India ran on corruption, some of the old, dirty ways of doing things are being disrupted, freezing India’s already glacial bureaucracy, business leaders say.
Scandals in the staging of the Commonwealth Games, the pilfering of homes meant for war widows and the irregular auction of cellphone spectrum that cost the country billions has sent parliamentarians and even a Cabinet minister to prison.
With Indians tiring of the incessant graft, tens of thousands of middle-class protesters poured into the streets and pushed an anti-corruption bill onto the floor of Parliament.
Steelmakers can’t get enough iron ore because a massive mining scandal in the southern state of Karnataka prompted a court to order the closure of illicit mines that account for a fifth of iron ore production in the country.
The bureaucrats – even the honest ones – are reportedly so scared of being punished they are refusing to make the decisions needed to make the country run.
Piramal is not unpatriotic. Each room in his executive suite is named after an Indian epic hero: Arjuna, the most pure; Dhananjay, acquirer and master of wealth. There’s a quote from the Upanishads scriptures on the wall.
His office sits in a one million square foot office park in Mumbai his family built. The buildings around him – white with blue glass that flashes back the unforgiving sun – bear his own name in large black letters: Piramal Towers.
Piramal had the will and the means to build power plants and roads.
Instead, his Piramal Group’s largest investment to date has been in one of the office park’s tenants: the Indian subsidiary of the British telecom giant Vodafone Plc.
Last September, when he got the first payout, of $2.2 billion, from Abbott, the phone started ringing.
“Because people knew we had money, we had so many people approaching us for projects in the infrastructure sector,” he said. “These people had no experience and no knowledge and no track record of having built a business in any area. And yet they were coming to us saying we have licenses and approvals. That just didn’t sound right or smell right.”
Each day, they paraded through his office: The investment banker who decided to build a 500 megawatt power plant, the coal trader assured of a government coal allocation, small-time miners with pretty presentations promising land, licenses and financing.
“They’d name politicians from the center and the state who had it all tied up for them,” he said. “It didn’t sound right. Obviously there were things going on in the system.”
Road and port projects weren’t much better, he said.
Piramal also looked at investing in engineering and infrastructure services companies, but couldn’t make sense of their books.
“We couldn’t find anything,” he said. “People get greedy. In their desire to get good valuations they resort to, if I can say, creative accounting.”
Today, India’s infrastructure companies are known as great wealth destroyers.
“Infrastructure investment has become untouchable, a sure way of losing money,” said Jagannadham Thunuguntla, head of research at SMC Global Securities. He calculates that four of India’s top infrastructure companies – GMR Infrastructure, GVK Power and Infrastructure, Lanco Infratech and Punj Lloyd – have lost over 80 percent of their value since 2007. A fifth, Larson & Toubro is down 50 percent.
Piramal may have dodged a bullet, but shareholders in Piramal Healthcare aren’t happy. Despite a $600 million special dividend and share buyback, the share price has sagged since the Abbott deal was announced on May 21 last year. They’d like to see the Abbott cash productively deployed. Instead, much of it is sitting in fixed deposit accounts.
Piramal said he really does want to run a pharmaceutical company and be the first Indian company to discover a world-class drug – despite his dabbling in telecom, financial services and real estate financing. It’s just that pharma can’t absorb all his cash. He plans to sell the 5.5 percent stake he picked up in Vodafone Essar for $640 million in a few years, when Vodafone Essar issues shares in an initial public offering, he said.
He has also launched Piramal Capital, to make real estate and infrastructure loans, and spent about $50 million to acquire IndiaReit, a real estate investment company.
Meanwhile, his thoughts have turned to Boston, where he set up IndUS Growth Partners with a professor from Harvard Business School to look for buying opportunities in the US, in security, financial services and biotechnology. And he said he’s still planning to spend over a billion dollars on biotechnology acquisitions in North America and Europe.
“India was going more towards capitalism than socialism,” Piramal said. “I think we’re going back. Capitalism went to too much excess. Corruption levels went to the extreme.”
He said he’ll announce his first overseas acquisition by March.
AP
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