Simplifying saving for college

CollegeSaving

College is expensive in United States and parents need to be planned so that they are not surprised with the bill when its time to ship the kids to college. They might be thinking good riddance after dropping them off at the campus but not so much when the hefty sometimes even $50,000/year bill arrives in their mail. Scholarship is hard to get if the parents have high income, even if the student is meritorious, at Tier 1 institutions. Here are my tips for my US parents:

  • Avoid big student loans if possible. They will hunt you till your grave if you don’t pay them back. It is highly irresponsible to not pay back your loans in the first place but unlike other loans which go away if you file for bankruptcy, student loans don’t.
  • Roth IRA : Roth IRA is the best investment vehicle ever. Here are the things you need to remember about withdrawing from Roth IRA. My advise is to only use the contributions (not the growth/earnings) for funding college and I advise to use this as your primary college fund:
    • You can withdraw the principal (your after-tax contribution) anytime without any restrictions.
    • You can withdraw the growth, tax and penalty free if you meet the following conditions:
      • Roth IRA account has been open for more than 5 years. AND
      • It is a qualified distribution which means:
        • You are over 59 1/2 OR
        • Death or Disability strikes OR
        • First time home buy (a lifetime limit of $10,000) for the account holder, account holder’s children and grand children.
    • You can withdraw the growth, penalty free (but not tax free unless you are older than 59 1/2) if it is for college. You will pay ordinary income taxes on the amount of growth you withdraw for college. I do NOT advise touching the growth for college though unless absolutely necessary. This exception withdrawal does not have to wait for the 5 year period as discussed in the previous bullet. The college fee and tuition can be paid for the account holder, account holder’s spouse, children, grand children, great grand children etc.
    • Advantages of using Roth IRA
      • The contributions are flexibly available and if you don’t touch the earnings, they grow tax free.
      • Assets in Roth IRA are not used in calculating the Expected Family Contribution on the FAFSA (Financial Aid Form).
    • Disadvantages of Roth IRA
      • If your income is low and you could potentially qualify for Financial Aid/Scholarships, the amount of contributions which you withdraw, even though it won’t be taxed again, is still considered untaxed income on FAFSA (Financial Aid Form) and reduces eligibility for next year’s financial aid. The strategy will be to withdraw the amount a couple of years ahead of time called Prior Prior Year- PPY (losing the opportunity of growth for two years in hopes to qualify for financial aid/scholarships).
      •  There are usually income limits for Roth IRA contributions. People like me in the high tech industry don’t qualify to contribute. However, there are some loopholes which you can use. I will not list them here. If you are interested, you can either ping me for a friendly chat or read up online.
  • 529 Plans
    • Use it as the secondary college fund.
    • After tax money goes into the fund and grows tax free.
    • Disadvantages
      • Can only be used towards post-secondary education at the universities/colleges approved in your plan. If not used for post-secondary education, you have three options:
        • Change beneficiary to somebody else in the family.  Qualified beneficiaries are:
          • The designated beneficiary’s spouse
          • The designated beneficiary’s son or daughter or descendant of the beneficiary’s son or daughter
          • The designated beneficiary’s stepson or stepdaughter
          • The designated beneficiary’s brother, sister, stepbrother or stepsister
          • The designated beneficiary’s father or mother, or ancestor of either parent
          • The designated beneficiary’s stepfather or stepmother
          • The designated beneficiary’s niece or nephew
          • The designated beneficiary’s aunt or uncle
          • The spouse of any individual listed above, including the beneficiary’s son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law
            Any individual for whom the home of the designated beneficiary is his or her primary home for the entire tax year
          • The designated beneficiary’s first cousin
        • Leave it intact for your child’s graduate school or college later or your own education at some point in time if you are thinking of going back to college.
        • Withdraw the leftovers. You will pay ordinary income taxes on the earnings and will also pay 10% federal penalty tax on the earnings portion (a state penalty might also apply).
      • Assets in 529 are used to determine EFC (Expected Family Contribution) on FAFSA and reduce Financial Aid Eligibility.
    • Advantages
      • Both contributions and earnings are available to pay for college without taxes or penalty.
      • The withdrawal from 529 does not show up as income in that year for FAFSA purposes since the EFC has already taken care of including these assets in its determination, so no double counting.

I know all of this can be a bit too much but I have excluded many unnecessary things which confuse the parents. I don’t hold myself to any liability claims for this advice. Please talk to your financial advisor before making any contributions/investments. This is just a friendly advice and not a certified financial advisor’s advice.

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Meditation And Education

These two words are not often taken together and I am going to disclose why they should be.

Meditation is a term which is perceived differently by different people. One of the simplest books which clarifies what Meditation is, is a book called Mindfulness In Plain English by Henepola Gunaratana. It tells you exactly what meditation is not before instructing what it is. In plain words, meditation is an activity where a human being monitors and maneuvers her breath, leading to an observation of thoughts with non-attachment. For more details on how to meditate, read the book.

ChildrenMeditate

Meditation leads to lots of short term and long term benefits and have been studied extensively by the scientific community.  For example: A meta-analysis of 47 trials adjusted for all biases and with control groups, proves that meditation reduces psychological stress and enhances well-being. There are some studies done on a related activity- Yoga. A heavily cited experiment conducted to compare the influence of several weeks of yoga training with several weeks of nonyoga–based physical training shows children randomly assigned to the yoga condition performed better on a standard problem-solving test used to assess cognitive function.

With these proven benefits in place, these activities are catching up in the schools as well.

This article in The Atlantic states “Schools have also begun experimenting with the practice and discovering that its techniques can help its students. When a school in New Haven, Connecticut, required yoga and meditation classes three times a week for its incoming freshman, studies found that after each class, students had significantly reduced levels of cortisol, a stress hormone, in their bodies. In San Francisco, schools that participated in Quiet Time, a Transcendental Meditation program, had twice as many students score proficient in English on the California Achievement Test than in similar schools where the program didn’t exist. Visitacion Valley Middle School specifically reduced suspensions by 45 percent during the program’s first year. Attendance rates climbed to 98 percent, grade point averages improved, and the school recorded the highest happiness levels in San Francisco on the annual California Healthy Kids Survey. Other studies have shown that mindfulness education programs improved students’ self-control, attentiveness and respect for other classmates, enhanced the school climate, and improved teachers’ moods.

I think there is enough scientific evidence to warrant the pairing of the words Meditation and Education. My wife who shares my passion of Education and is a long term practitioner of meditation has founded a licensed after school “Damara Kids” in Livermore to integrate Meditation with Education in a holistic way. She reports seeing improvements in the kids in less than two months she has been operating.

My desire is that more schools and child care centers adopt it in their curriculum and provide these invaluable techniques to children to thrive in the difficult yet enjoyable journey called Life.

 

 

Are you a genius?

What is genius and are you a genius? The former is easier to answer than the latter. Silicon Valley, Athens, Vienna, Kolkata, Edinburgh, Hangzhou and Florence are all considered to be places of genius at some point in human history. Is genius a personal trait or is it cultural?

Eric Weiner tries to answer all these questions in his new book “The Geography of Genius”. Buy it here: The Geography of Genius. In summary, genius is very much the product of culture. You get the geniuses you deserve, it has been said. Whatever is valued in a society thrives in that society. Silicon Valley values entrepreneurship and sure it gets but how did it start valuing entrepreneurship in the first place?

Genius
We met Eric at Google in January and he answered several of these questions. For starters, a place like Silicon Valley is initiated by several small steps.

If we look at Silicon Valley’s history, several names come to mind- Leland Stanford, Terman, Shockley and the Traitorous Eight. Leland Stanford established Stanford in the memory of his son who had died at 15. Terman started the practical education movement and tried the first cross-pollination of Stanford and industry (encouraging H & P to stat HP from a garage). Shockley came back to his hometown Palo Alto to be close to his ailing Mom starting Shockley Semiconductors. The traitorous eight were recruited by Shockley but later started companies like Fairchild Semiconductors and Intel, pushing Silicon Valley to the forefront of technology.That attracted more talent to the Valley and the Valley kept growing in the positive feedback loop. So, genius is the product of culture.

But genius needs expertise and the capacity and grit to create expertise is a mixture of genetic, psychological and cultural phenomenon. A fine balance of hardships and opportunities helps in shaping the geniuses. All luxury creates complacence and “only” hardships  with no security breaks confidence.

For the final question of whether you are a genius or not- unfortunately, it is not for you to decide. Genius is reserved for the society which based on good or bad judgement anoints this title to some of its members. Usually, the criteria are impact, timelessness and novelty of the work! Go figure!!!

So, what if you decided one day that you want to be a genius. Here are a few things you can do:

  • Build Expertise: Malcolm Gladwell in Outliers suggests a 10,000 hour rule. If you put 10,000 hours in any activity, you will undoubtedly be an expert. You don’t need to necessarily spend 10,000 hours but getting great at doing something is important if you are eyeing that envious title.
  • Create and Deliver Products and Services: Keeping the skill and expertise to yourself is not going to help influence the opinion of the society about your genius. You have to share it with the world to be acknowledged as a genius. Imagine, Einstein not writing all those publications or Edison not writing all those patents.
  • Create impact: Just creating and delivering random products and services is not going to fit the bill. You need to create an impact on the society.
  • On a lighter note, die early: Posthumously getting acknowledged has higher probability than in your lifetime.

Slavery of the 21st Century and its Education

This is one of the most important posts I have ever written in my life and it means a lot to me. This is about the slavery of the 21st century. It’s the most overlooked problem on this planet because no one wants to be associated with it. I am talking about human trafficking, especially of children. (Please join me spreading awareness about this topic so that our children are safe)

We live in a modern world where seemingly women have equal rights with men. But what does history tell and what do the economically poor neighborhoods tell us?  Women and children are at a lot of risk. Yes, the conditions are far better than the sex slavery of the past but it is far from ideal. And this is not only a problem of the “third world” countries. It’s a problem here in the United States. 300,000 girls of average age 12-13 are at a risk of trafficking every year in the United States. What could be the reason? The biggest ones are- poverty, lack of parental education about this topic and obviously lack of awareness among teachers, children and society in general. The chart below shows how lack of education and trafficking are positively correlated.

Ec3371chart

Before I proceed, I want to instill a sense of gratitude in all the people who have complains about the petty problems they face in everyday life. Your problems are nowhere close to the problems of an enslaved child. Historically, years before regulations for women equality had come in, the situation was  abhorrent. From Ottoman Empire to any other empire, men conquered lands; killed other men, raped their women and enslaved them. Women had no sense of equality. Yes, there was always a queen for a king; along with the harem the king possessed, but one woman commanding most of the resources is hardly an example of any sort of equality, let aside women equality. Then things changed over time. Democracy took over monarchy in most countries. Government made regulations to protect women and children. This was most spectacularly done in Nordic countries of Sweden, Norway, Finland and Denmark. Women claimed independence and joined the workforce. Women can now breath freedom, chase their dreams and not be subservient to men. How true is it? This only holds true where economies and democracies function appropriately. Places where this is not the norm, women and children fall back to their backward status. So, if you are a woman  or a child or a parent or a husband, and if you or your loved ones did not have to go through the horrors of human slavery and subservient treatment, have an immense sense of gratitude for what you have- a life of freedom.  I am the first one to be grateful.

Examples of such slavery can been everywhere in the world, from the Soviet countries to India to the United States. There are three main ways this happens and I want to educate all parents about it with examples.

  • The Lover/Pimp method: This is more common in western countries but not uncommon in the East. Groomers (lovers/pimps) target either girls of very conservative families (like Sikh girls in London) or girls with neglecting parents (usually poor but sometimes rich). They shower them with gifts, much needed attention (works beautifully with children from broken/neglected backgrounds and runaway children/orphans previously abused) and promises of future together. Then, once the girl is in the trap; based on the girl’s background; they either  blackmail her with her inappropriate pictures or directly coerce her into prostitution. You won’t believe that sometimes this happens even when the child is still living with her parents . This problem can be solved by educating the parents and children about this phenomena. Children should be taught to never engage in doing anything which they find inappropriate and uncomfortable. Parents should watch out for any signs of distress in their children and should emotionally engage with them in meaningful dialogue. Conservative families should not focus on honor and shame during such times and not hide such issues from law enforcement. Doing this only encourages these goons to continue their detestable trade.8575772227_487a5c52f8_o
  • The financial prosperity method: This is the most common in all neighborhoods of poverty and especially poor countries in general. Girls are given promises of a good future, with decent paying jobs, if they are ready to travel to other cities or even countries. These girls, with little hopes of any kind of dignified life in their poor neighborhoods; take the leap of faith to try out for a more prosperous future. Once they travel to a different place; either their passports are seized or they are truly captivated and coerced into prostitution.  Thailand and Ukraine are one of the biggest destinations for such crimes. The only way this problem can be solved is by educating all these women and children about the truth of this scam. 8597306878_9bffce8509_o
  • The plain old kidnapping: In United States, there is something called “Amber Alert”. Amber Alert is a system where everyone receives an alert on their cellphones when there is information about an ongoing kidnapping, with details like the suspect’s vehicle’s number plates and his/her description. It is named after a 9 year girl Amber Hagerman who was kidnapped and murdered in 1996. The case was never fully solved but it created more awareness about kidnapping problems. Safety of children is of utmost importance to us parents and we should do everything in our capacity to ensure it. Don’t send your teenage children to parties where they just know one or two people or such. Always have an adult supervise them if there is a strong need to go to a party at night. Teach them to avoid any kinds of drinks at a party where they are not supervised by an extremely trusted adult. Give them a tracker device so that their locations can be tracked.  Call this number (in United States) if trafficking is suspected 1 (888) 373-7888.8577206423_906002d50f_o

I request all the readers to stand up and fight against this epidemic. This is one problem where social media can be highly useful because this is a problem of lack of awareness. Let’s all stand up for human dignity and safety of our children. We will NOT tolerate slavery in the 21st century.

What can a value investor teach about life?

Recently I met two big icons of value investing at Stanford- Mohnish Pabrai and Guy Spier. I had read Guy Spier’s phenomenal book –The Education Of A Value Investor“(thanks to my friend Saurabh Madaan who had gifted me a copy).

Saurabh also invited me to meet the icons at Stanford. Both of them are exceptional personalities but very different from each other. Guy is more reserved and gives contextual answers. Mohnish is extremely outgoing, can put you on the spot and gives black and white answers.

IMG_6436 IMG_6437

What can these guys teach you about life? Plenty is the answer. A lot of answers can be found in Guy’s book. Although, I have not completely read Mohnish’s book “The Dhandho Investor”, what I have read so far tells me that he has a compelling story to tell, starting with the Patel Motel Syndrome.

Since I have read “The Education of a Value Investor”, I urge every professional to read it to figure out what is important in work and life. You might be able to figure those out yourself but as we know, it’s better to learn from someone else’s burning experience than burning yourself. I will leave the gist of the book out so that you read the book instead of reading the gist 🙂

College Prep High Schools in Bay Area

Some parents asked me to list a few private college prep high schools in bay area. Here are some:

  • Bellarmine, San Jose
  • Harker, San Jose
  • St. Francis, Mountain View
  • Mitty, San Jose
  • Saint Lawrence Academy, Santa Clara
  • BASIS, San Jose
  • Oakwood High School, Morgan Hill

To help get into these High Schools, there are high school placement preparation agencies like SASO- HSPT.

Of course, there are popular public high schools like Cupertino High or Lynbrook High.

Middle College

Various schools now offer this program called Middle College. Middle College is like taking high school and entry level college classes at a local community college. So, you won’t have to go to a high school in your 11th and 12th grade. You would rather go to a community college. What are the advantages? Since you are going to a college, you can knock off more college level classes in your 11th and 12th grade.

Credits from Middle School To High School

There were some interesting discussions on a forum asking if kids can take credits in middle school which can waive some requirements in high school. I am pasting those discussions below for the benefit of parents and students.

(1)Parents,

I have recently learned that kids can do things in middle school (things like advanced math, music, foreign language etc) which would get them credits in high school.

I wanted to know more details around how these things work and what type of credits are generally available, so I called up the counselor at my middle school.

The counselor was not willing to talk about it as these are considered “out of school” activities. So I called up the high school counselor and she would not help as my child was not in her school.

So I am reaching out to our parent community to learn about the options that are available to a middle school student if he wants to take advantage of them.

Appreciate your help.

(2)

I have heard of very  few instances of a middle school student getting high school credits and none have been at a traditional public school.

This really doesn’t match the school funding model.

I have heard of it in private schools when a student was gifted beyond the skill set of teachers at the school.

My nephew did start taking music classes at a community college when he was 11,  theoretically those credits will be there for him later to add to his college classes but he probably won’t chose to do this.

If I wanted to try this and I was fortunate enough to live in an area where the middle school and high school were in the same district,  I contact the district office.

(3)

Hi all,

I have two high school student in Los Gatos High School district (Freshman and Senior).  Here is what I can tell you:

Math: If a student takes Algebra 1 equivalent in 8th grade, it carries over as a “credit” to high school. Essentially the student has covered that requirement for HS graduation and will be eligible for Geometry.

Languages: If the student takes a language 7th and 8th grade AND passes a test at the end of 8th grade leading into HS transition, they can count the two years as Spanish1, French1, etc and progress to Spanish2, French2 in high school.

That is all.  AP classes in high school are a different matter entirely.  Students can take AP classes for weighted grades, with or without opting in for the College Board standardized AP exam at the end of second semester. If students opt to take the AP exam, and meet the minimum score equivalent for their target college of choice (usually 4 or 5 of 5), they will carry over a college equivelent credit for that course.  The other appeal to AP courses is grade “weighting,” but there are benefits and risks to that strategy as well, so in the end it is most important that students opt for AP courses for the right reasons — based on their own interests, motivation, and commitment, not their parents’ goals.

(4)

Hi,

>> Math: If a student takes Algebra 1 equivalent in 8th grade, it carries over as a “credit” to high school.

>> Languages: If the student takes a language 7th and 8th grade AND passes a test at the end of 8th grade

Yes, the above two are valid even in Fremont High Schools. Only that the school has started to become a little more stricter in terms of accepting the credentials. Previously, students would pass some Spanish prelim course from universities such as Ohlone etc., but then the school authorities started to become stricter in accepting such courses.

For Math, skipping Pre-Algebra in grade 7 is possible if the students pass a placement test as they enter the Middle school (grade 7), and they directly get into Algebra-1. And then they take Geometry in Grade 8, and Algebra-II in grade 9 and so on.

Thanks,

(5)

The kids in HS usually take more than the required number of credits. I have attached the Lynbrook requirements.  (If you need a better scan, ping me or possibly available online).

Notice that the Lynbrook requires 22 classes. Almost all kids I know,  take at least 6 classes per year. That is 24 classes. Most take 7 classes when they can.

Also, notice that the language requirements: UC has 2, 3 preferred. As Amit and others mentions below if a child takes language in 7th and 8th grade, it is counted as 1 year of HS. In math, one can easily be 1 yr ahead. Some kids challenge the classes and get even more ahead. I know kids who took Math classes in summer  (there is some school permission or some process involved) and challenged  and passed the class at the beg of the year and moved on to next class. This puts them 2 years or more.

My daughter’s experience:

My daughter had a lot of “extra credits” with such adv classes in MS and AP credits.  When she joined USC, they examined her results and waived her from many fundamental classes like bio, chem, language etc. One way is that if you get 5 in AP placement test, then you get a waiver. I am sure each college has its own rules.  However, this is what happened: My daughter is now taking the language and biology classes (even though it  is not required for Under Grad) because it is a requirement for some branches of further study such as medical.

LHS requirments (2)

(6)

Is this skipping of classes applicable to private high schools as well ?

I will have to get my 7th grader to start taking extra language courses now. We have Spanish as a part of the extended care offering but don’t know as yet how structured it is or will the kids be able to get credit for it in high school.

Advanced Placement (AP) classes

Advanced Placement (AP) is a buzzword among high school kids and their parents. This article is an effort to understand what it means and how can you benefit from it.

Advancement Placement Classes are college entry level classes which can be taken during High School. Why would you want to do that? There are lots of benefits. Listed below are some:

APClass

  • Making a major choice early-When you get to take a college level class early, you get to decide whether you like a certain area or not early. For eg. if you always wanted to be a Psychologist and you took the AP Psychology class and hated it, you will understand it better if you truly enjoy Psychology or not.
  • Increasing your High School GPA- AP Classes are graded on the scale of 5 and High School GPA is on the scale of 4. Hence, if you get an “A” or “5” in an AP class, that increases your GPA and if you are straight As High School student, your GPA will turn out to be greater than 4 on the scale of 4.
  • College admissions- An AP Class on your transcript informs the admissions panel at colleges that you are serious about college and hence made the extra effort of trying out college level classes in high school.
  • Advanced Placement itself- AP means that when you enter college, you will be given preference for intermediate/advanced classes of the subject whose AP exam you have already passed. The preference is needed because college classes have limited student intake and not everyone who wants to take a certain class, gets to take that class.
  • Saving money- High School (if public) is free while college (public and private) is expensive. So, if you knock off some of your college credits in High School, you save money paying for college.

So, how would you proceed about AP?

  • Try to take classes in summer after 9th/10th grade etc. so that you can knock off some other classes in place of which you will take an AP class in Spring or Fall Semester of High School.
  • Take the AP class in the regular school year.
  • At the end of the AP class, you take the standard AP exam through College Board, offered in your High School itself.
  • Once you pass the class, the grade appears on your High School transcript.
  • Here is the link to understand what colleges accept:

Hope this information was helpful!

What is PSAT and who should take it?

It’s important to know about the different tests out there because they offer opportunities in some form or other. Take the example of PSAT. Not many people know about it but it is a very useful test for college bound kids.

PSAT

 

Kids take this test in their 11th grade. The scores are used for the following:

  • Scholarship screening of National Merit Scholarship Program.
  • Recognition of Outstanding Hispanic/Latino students- offered by College Board.
  • National Scholarship Service- college preparation guidance for African American kids.
  • Telluride Seminar Scholarships- scholarships for gifted 11th grade kids.
  • Feedback on SAT preparedness and a study plan- since the pattern is same as SAT.
  • Feedback on strengths and weaknesses for SAT- you receive a personalized analysis.
  • AP Success Potential- you know if you can do well in Advanced Placement classes (I will write about AP later).
  • Online College Planning Starting Guide.
  • College Connection- financial aid information.

Kids can test twice, by taking the test once in 10th grade and once in the 11th.

Happy PSATing!!