Colleges Scramble as Fund Is Frozen

Some 1,000 Schools Find It May Take Years To Recover Money Placed With Wachovia

A fund that invests cash for about 1,000 colleges and private schools suddenly froze withdrawals this week, leaving school finance managers scrambling to make sure they have enough money for payroll and other bills.

For 34 years, colleges and schools parked cash in the now $9.3 billion fund, which offered returns slightly above U.S. Treasury bills. That it now might take years for the institutions to get all of their money back shows how widely credit-market woes are reverberating beyond Wall Street.

Monday, Wachovia Corp., the fund's trustee, said it was terminating the fund, liquidating its assets, distributing the proceeds and resigning as trustee, "to ensure that all investors would get equal treatment and that there would be orderly and equal distributions," says Laura Fay, a Wachovia spokeswoman. That stunned some of the colleges, which had believed they could get immediate access to the money if needed.

Wachovia became concerned that there might be the equivalent of a run on the fund, given recent woes with other short-term debt funds, Ms. Fay says.

The Short Term Fund is offered by Commonfund, a Wilton, Conn., nonprofit that advises colleges and schools on money management. Verne O. Sedlacek, Commonfund's chief executive, says 85% of the fund was in "high-quality" commercial paper from blue-chip issuers. The rest is largely in securities backed by assets like mortgages -- the kind of investments that are being especially shunned in the credit crisis. He estimates those are selling for about 89 cents on the dollar.

The shutdown of the fund came just as the government facilitated a sale of the bulk of Wachovia to Citigroup Inc. Ms. Fay said that the decision on the fund didn't have any connection to the Citi deal and that the part of Wachovia that handled the fund isn't moving to Citigroup.

The fund's fate shows how investors who stretched for a modestly better return by taking on what they thought was almost no additional risk have been burned. At first, colleges Monday were told they could redeem only 10% of their holdings, but the figure has since risen to 33%. Schools will be able to withdraw at least 57% of their money by year end and the rest in installments through 2011, Commonfund says.

In central Kansas, Bethany College, a Lutheran school with 600 students and a $12.5 million budget, has $700,000 parked in the fund. "Wall Street has hit Swensson Street," says Edward F. Leonard III, Bethany's president, referring to a street that runs through the campus.

Dr. Leonard says the school has four to six weeks to figure out whether it has enough cash for coming bills and, if not, to identify alternatives, such as securing bank lines of credit or tapping into the school's $25 million endowment, which he says could amount to a "long-term hit" on the school's finances.

Commonfund says none of the securities have defaulted, and the fund should be able to return the money to shareholders as the securities mature. The firm says it is working with clients to try to find them lines of credit.

Several Minnesota schools and some Michigan colleges had money in the fund, including Macalester College. Spokeswoman Barbara Laskin said the school had a modest amount invested with the fund and the developments won't affect day-to-day operations.

Grinnell College in Iowa had about $5 million in the fund, but the school also has a $1.5 billion endowment. Russell K. Osgood, Grinnell's president, says the school established a variety of new accounts over the summer to make sure it was diversified and that no one fund could lead to a cash crunch.

Amy Falls, chief investment officer for the endowment of private high school Phillips Academy in Andover, Mass., pulled money out of the fund a year ago and put it in Treasurys, she says. "In times like this, you want cash."

By: John Hechinger and Craig Karmin
Wall Street Journal; October 2, 2008

Avoiding College's Plastic Hangover

The immediate gratification of using plastic to buy an iMac, tickets to a Coldplay concert and nights of bar hopping has a way of coming back to haunt college students after graduation.

Despite their lack of a credit history and sizable federal student loans, most college students can get their hands on credit cards with as much ease as a swipe. And they're often lured into doing so with awards like free T-shirts. Along with the freebies, however, come some not-so-pleasant surprises: high interest rates and a range of fees and penalties.

One reckless night of spending or one late payment can leave students with overwhelming debt and a damaged credit score -- which could hurt their chances of landing a job or an apartment after college.

Many graduates know this all too well. More than three-quarters of undergraduates hold credit cards, according to student-loan provider Nellie Mae. Their average debt load: $2,169. That amount is nothing compared to the 10% of students who graduate with more than $10,000 in credit-card debt, according to a 2008 survey commissioned by credit bureau TransUnion's credit-management Web site TrueCredit.com and conducted by market-research company Zogby International.

College students "don't realize that anything they do now will stay on their credit report for the next seven to 10 years," says Thomas Fox, community outreach director at Cambridge Credit Counseling Corporation, a debt-management agency.

To graduate with honors in credit-card management, here's what students need to know:

Don't be lured in by free T-shirts.

TrueCredit.com's survey found that four out of 10 consumers sign up for a credit card to receive a free gift or special offer, such as a T-shirt or baseball cap featuring the school's logo. That's a huge mistake, as these credit cards may not serve a student's best interest. Some universities even receive money from credit-card companies for allowing them to pitch their cards on campus, says Daniel Ray, editor-in-chief of CreditCards.com.

Make sure to compare a credit card's terms to other offers by going to Web sites like CreditCards.com and LowerMyBills.com.

Piggyback on a parent's card.

Another option is to accept (yet another) helping hand from Mom and Dad. Signing onto a parent's credit card allows a student to take advantage of the more-established credit history (assuming they have good credit) -- and lower rates, says Mr. Ray. This is especially helpful to students who have a hard time controlling their finances.

Once a student signs onto their parents' account, the parents are held responsible for their purchases and payments, and will also be able to monitor their spending habits, hopefully preventing them from racking up sizable debt, says Martha Doran, associate professor of accounting at San Diego State University.

Know your (credit) limits.

With rare exceptions, all credit cards have limits. And because students lack established credit histories, they often receive fairly low ones -- typically no more than $3,000, says Tom Dailey, a credit-card industry consultant and former senior vice president at Discover. (Limits are often as low as $500 or $1,000 per credit card, says Mr. Ray.)

It goes without saying that exceeding a card's limit can carry dire consequences, but there's also a way to make those limits work in one's favor.

By carrying a balance of, say, less than half of the available credit, a student can maintain a solid credit score, says Steven Katz, director of consumer education at TrueCredit.com.

Remember, promotional rates are temporary.

That 0% introductory rate is about as tempting as they come, but that temptation won't last.

Introductory annual percentage rates, or APRs, expire, and when they do they give way to high rates -- especially for college students.

So make sure to find out how long the introductory rate lasts and what the APR will be afterward. (For most college students, the average APR is 15%, says Mr. Ray.)

Watch out for penalties and unnecessary fees.

No matter how boring it may be, read the fine print of your credit-card agreement. That way, if you make a late payment, it should come as no surprise when you're hit with a late fee or when the interest rate skyrockets.

Another thing to look out for: "universal default," a clause that allows a creditor to penalize a cardholder for making a late payment on another lender's card, says Mr. Fox.

While many credit-card fees are unavoidable, others are entirely unnecessary. If a credit card carries an activation or annual-membership fee, pass on it, says Mr. Ray.

"These days few people pay annual fees," he says. "They've become a thing of the past."

By: AnnaMaria Androitis
Wall Street Journal; August 21, 2008

How much pocket money does a freshman need?

The biggest freshman class ever is off to start earning a college degree in a few weeks. But there's one big issue that many parents have yet to resolve: How much should they give their kids for spending money?

It can be mind-boggling to think that the collegian will require even more dough after you've paid thousands of dollars in tuition, room and board, purchased a new computer, and budgeted for books and transportation. How much can a teenager really need, other than necessities like toothpaste and shampoo?

A fair bit, it turns out. Toiletries, printer cartridges, dorm decor and school supplies can take a chunk, for starters. And while many campuses are teeming with dining options (including food courts) and cheap entertainment, students want to go out occasionally to see a movie, shop, go on a road trip or just take a break from the monotony of institutional food. "You don't want to be the kid who sits in the dorm room and does nothing," says Joe Richards, who will be a sophomore at Ferris State University in Big Rapids, Michigan this fall.

Even if your student has a generous financial-aid package, these costs most likely will be borne by one of you, since most packages require some combination of parent contributions, loans and student jobs. For parents, the challenge can be finding the right balance between being too frugal and too frivolous — providing, perhaps, enough money for your child to eat, but not quite enough to drink.

Because college is a great time to learn budgeting and other financial skills along with serious academic stuff, this is a good time to outline expectations and agree on limits. Here are some suggestions:

Start talking before money becomes an issue. If your child will be expected to earn some of her spending money, make clear how much is expected upfront, and consider a backup plan in case illness or exams require missing a week of work. Some Michigan colleges discourage freshmen from working during their first semester so they can adjust to the workload.

In addition, you'll want to discuss what the allowance is supposed to cover. Will you pay extra so your Southerner can buy winter clothes? Who pays for the shuttle to and from the airport or the gas for a trip home?

You'll also need to decide whether to put a semester's allowance in the checking account upfront, deposit money monthly, or add funds only as needed so your student can budget accordingly.

Estimate a budget. To start the "how much" conversation, look for the "cost to attend" chart on the school's Web site, often found in the financial-aid or admissions pages. There, you'll find the amount factored in for "personal expenses" in financial-aid packages. (These amounts are in addition to books, which most schools budget at roughly $500 per term.)

Depending on the school, those amounts may be generous or tight-fisted. Ferris State University budgets $1,000 for personal expenses, but calls that "a conservative estimate, which will require careful budgeting on your part." Surprisingly, New York University budgets only about $1,000 a year for expenses, despite its pricey New York City location. An NYU spokesman says the amount needed "is not less than that, and may be more."

By contrast, the University of Kansas, in the hopping town of Lawrence, estimates personal expenses at $2,272 a year. The University of California-Davis surveyed its students to come up with its estimate of $1,308.

Whether your student's budget falls within the typical estimate of $1,000 to $2,000 will depend on his eating habits and extracurricular activities — and your willingness to fund them.

At $200 or so a month, however, your child still won't be living large. Ms. Richards, the Emerson student, receives $100 a month from her parents and earns an additional $120 from a campus job, and watches her dollars carefully. When a group of her friends went to Cheesecake Factory to celebrate the end of last fall's semester, the bill came to $30 a person — a week's paycheck. "We were all in shock," she says.

Paper or plastic? Your student will need a checking account for basic needs and should have a credit card for emergencies. If you share your card, agree in advance what it can be used for and how you'll be alerted.

Sooner or later, your student should get a credit card in his name to establish a credit record, and getting a card may be easier as a student than later on. Students should be responsible for their own accounts, paying their own bills and learning the ins and outs of credit limits, minimum payments and due dates.

They may need some time to get the hang of it. Emily Roth, who will be a sophomore at Emory University in Atlanta, had trouble remembering the due date at first — until she got hit with a late fee. "I set up an email alert after that," she says.

Email alerts also can be set up to warn when the charges are near the card's credit limit and to let students know when their checking account balance is low. The student can also set up an automatic monthly payment from a checking account so that at least a minimum amount is paid each month, which helps to avoid late fees.

By: Karen Blumenthal
Wall Street Journal; August 17, 2008