Personal Finance

Why parents will pay $500,000 for Ivy League admissions consulting

Published

6 months ago

October 18, 2024

Business Finance News

Ivy League architecture at Princeton University.

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At the nation’s top schools, including many in the Ivy League, acceptance rates hover near all-time lows.

“College admissions only ever gets more competitive and there’s a lot of stress from families about the stakes and how to get in,” said Thomas Howell, the founder of Forum Education, a New-York based tutoring company.

For some families, getting their child into a top school is an investment, and to that end there is almost no limit to what they will spend on tutors, college counselors and test prep.

‘Top 20% or bust’

Meanwhile, as the sticker price at some private colleges nears six figures a year, some students have opted for less expensive public schools or alternatives to a degree altogether. For those willing to pay for a four-year, private college, it should be worthwhile, the sentiment often goes.

“The value proposition of higher education is splitting,” Howell said, “it’s either a top school or a real value.”

For this crop of college applicants, it’s “top 20% or bust,” he added.

As a result, universities in the so-called “Ivy Plus” are experiencing a record-breaking increase in applications, according to a report by the Common Application.

The “Ivy Plus” is a group that generally includes the eight private colleges that comprise the Ivy League — Brown, Columbia, Cornell, Dartmouth, Harvard, University of Pennsylvania, Princeton and Yale — plus the University of Chicago, Duke, Massachusetts Institute of Technology and Stanford.

To get into this elite group of schools, many families look for outside help to get a leg up.

“The consensus is it’s only worth going to college if it’s a life changing college,” said Hafeez Lakhani, founder and president of Lakhani Coaching in New York.

“What hasn’t changed is people with enormous resources willing to invest over $100,000, which is about 20% of our clients,” Lakhani said. “This might be the single largest thing they’ve spent on other than a car.”

Lakhani Coaching’s clients spend an average of $58,000 on counseling, but some have spent as much as $800,000 over the course of several years, according to Lakhani.

At that price point, students receive “essentially a ‘SEAL-team’ level tutor through almost every class,” he said. Lakhani was equating the academic support with the highest level of organization and execution that epitomizes the training of a Navy Seal, the special operation force that stands for sea, air and land teams.

Lakhani charges $1,600 an hour for his services, the top rate at his company, and still, families often choose to work with him over the less senior coaches there, some of whom charge about $290 an hour, he said.

Even if he charged more, that dynamic likely would not change, he added.

Parents often say, “it’s worth the investment,” he added. “That word investment comes up over and over again.”

Christopher Rim, founder and CEO of college consulting firm Command Education.

Courtesy: Christopher Rim

At Command Education in New York, counselors meet with students weekly starting in eight or ninth grade. Families are charged $120,000 per year, not including the Standards Admission Test (SAT) or American College Test (ACT) test prep. By graduation, they’ve spent roughly half a million dollars.

Command caps the clientele at 200 students worldwide, mostly on a first-come, first-served basis, although they will turn students away if they don’t think they can deliver the desired outcome, according to Christopher Rim, the founder and CEO.

“At the end of the day, results are most important,” he said.

‘This is not a neighborhood tutor’

Ten years ago, Howell started Forum Education in New York City, but his business ballooned since the pandemic, he said.

“Two things happened after Covid, the normal learning environment disintegrated, there was more time in the day for tutoring — and a greater need for it,” Howell said.

In the face of increased demand, rates are also rising, to the tune of roughly 30% a year, he said.

His tutors now charge up to $1,250 an hour for academic help, which does not include college counseling.

The vast majority of students come from New York City private schools with household incomes over $1,500,000 according to Howell’s account. Last year, these families spent around $38,0000, on average, on tutoring, often in addition to a college consultant.

“This is not a neighborhood tutor picking up a side gig,” Howell said. These academic tutors work full-time in the field and make well into the six-figures, he said, and two tutors on his staff earned more than $1,000,000 last year.

To be sure, the business of college counseling is growing year after year, driven in part by increased concerns about college’s return on investment, which is making these specialists a worthwhile expense, according to IBISWorld, a market research firm. In 2024, total revenue reached $3 billion.

‘An imperfect meritocracy’

Of course, many high schools have tutors and counselors who serve the same purpose at no cost at all.

However, depending on the number of students in a class, it can be difficult to get personalized advice about college planning.

Plus, the number of counselors available to students has been steadily dwindling for years. Currently, the national student-to-counselor ratio is 405 to 1, according to the National Association for College Admission Counseling.

Those that can afford outside help do have an advantage.

Children from families in the top 1% are more than twice as likely to attend an “Ivy Plus” college as those from middle-class families with comparable SAT or ACT scores, according to the National Bureau of Economic Research.

Legacy Admissions debate: Why schools are ending the practice

“Higher education is an imperfect meritocracy,” Lakhani said.

However, the wealthiest students hailing form the country’s top private schools are primarily competing amongst themselves as schools look to build a diversified class.

“When you are applying from an affluent family, the people you are competing against are people in a similar bucket,” Lakhani said.

The irony is most don’t want to admit that they’ve received private help, even if they are fortunate enough to get it.

“Every parent wants to say their child does it on their own,” Rim said.

Is an Ivy League degree worth it?

A study by Harvard University-based non-partisan, non-profit research group Opportunity Insights compared the estimated future income of waitlisted students who ultimately attended Ivy League schools with those who went to public universities instead.

In the end, the group of Harvard University- and Brown University-based economists found that attending an Ivy League college has a “statistically insignificant impact” on earnings.

However, there are other advantages beyond income.

For instance, attending a college in the “Ivy-plus” category rather than a highly selective public institution nearly doubles the chances of attending an elite graduate school and triples the chances of working at a prestigious firm, according to Opportunity Insights.

Leadership positions are disproportionately held by graduates of a few highly selective private colleges, the Opportunity Insights report found.

Further, it increases students’ chances of ultimately reaching the top 1% of the earnings distribution by 60%.

“Highly selective private colleges serve as gateways to the upper echelons of society,” the researchers said.

“Because these colleges currently admit students from high-income families at substantially higher rates than students from lower-income families with comparable academic credentials, they perpetuate privilege,” they added.

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Personal Finance

Student loan repayment tips amid challenging times for borrowers

Published

23 hours ago

April 6, 2025

Business Finance News

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It’s a challenging time for many federal student loan borrowers just trying to find ways to pay off their debt.

Millions of borrowers who enrolled in the Biden administration-era Saving on a Valuable Education plan are now in limbo after the program was blocked by Republican-led legal challenges.

Meanwhile, the Trump administration has changed the terms on several other repayment plans.

To successfully keep up with your student loan payments and eventually emerge debt-free, borrowers should explore their options and understand the terms of their repayment plan. Here’s what you need to know amid major challenges to the lending system.

How the SAVE plan got blocked

A U.S. appeals court in February blocked the Biden administration’s student loan relief plan known as SAVE.

The 8th U.S. Circuit Court of Appeals sided with the seven Republican-led states that filed a lawsuit against the U.S. Department of Education’s plan. The states had argued that former President Joe Biden, with SAVE, was essentially trying to find a roundabout way to forgive student debt after the Supreme Court struck down his sweeping debt cancellation plan in June 2023.

SAVE came with two key provisions that the lawsuits targeted: It had lower monthly payments than any other federal student loan repayment plan, and it led to quicker debt erasure for those with small balances.

Forbearance has no clear end date

When its SAVE plan got tied up in legal challenges, the Biden administration put millions of borrowers who’d enrolled in the plan in an interest-free forbearance. Borrowers, if they wish, can still remain in that payment pause.

There’s no specific end date to that forbearance as of now, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

But unlike the Covid-era pause on student loan bills, this forbearance does not give borrowers credit toward debt forgiveness under an income-driven repayment plan or Public Service Loan Forgiveness.

Historically, at least, IDR plans limit borrowers’ monthly payments to a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years. PSLF, which President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans wiped away after 10 years of payments.

Borrowers have other options

Some borrowers who are in the SAVE program’s forbearance might want to sit tight, said higher education expert Mark Kantrowitz. Not having to make payments might be a relief to those who are experiencing any financial struggles.

Another benefit of remaining in the payment pause is that interest isn’t accumulating on your debt, like it would under other IDR plans, Buchanan explained.

“But months in SAVE forbearance do not count toward loan forgiveness, so both those considerations need to be weighed when thinking about switching plans,” Buchanan said.

If you do decide to switch out of the now-blocked SAVE plan, the Trump administration says that the other IDR plans now open are: Income-Based Repayment, Pay As You Earn and Income-Contingent Repayment.

The Education Department recently reopened those IDR plan applications, following a period during which the plans were unavailable. (The Trump administration said it was updating the plans’ applications to make them comply with the recent court order over SAVE.)

Borrowers should know that the automatic loan forgiveness after 20 or 25 years is not available at the moment under ICR or PAYE “since the courts have questioned that permissibility under statute,” Buchanan said.

Still, if a borrower enrolled in ICR or PAYE, then switches to IBR, their previous payments made under the other plans will count toward loan forgiveness under IBR, as long as they meet the plan’s other requirements, Buchanan said.

Meanwhile, borrowers in any of the three IDR plans can get credit toward PSLF.

If you’re on strong financial footing and not seeking loan forgiveness, the Standard Repayment Plan is a smart option for borrowers, experts say. Under that plan, the payments will usually be larger than on an IDR plan, but they’re fixed and borrowers are typically debt-free after just a decade.

Personal Finance

Here’s why ‘dead’ investors outperform the living

Published

2 days ago

April 5, 2025

Business Finance News

Andrew Fox | The Image Bank | Getty Images

“Dead” investors often beat the living — at least, when it comes to investment returns.

A “dead” investor refers to an inactive trader who adopts a “buy and hold” investment strategy. This often leads to better returns than active trading, which generally incurs higher costs and taxes and stems from impulsive, emotional decision-making, experts said.

Doing nothing, it turns out, generally yields better results for the average investor than taking a more active role in one’s portfolio, according to investment experts.

The “biggest threat” to investor returns is human behavior, not government policy or company actions, said Brad Klontz, a certified financial planner and financial psychologist.

“It’s them selling [investments] when they’re in a panic state, and conversely, buying when they’re all excited,” said Klontz, the managing principal of YMW Advisors in Boulder, Colorado, and a member of CNBC’s Advisor Council.

“We are our own worst enemy, and it’s why dead investors outperform the living,” he said.

Why returns fall short

Dead investors continue to “own” their stocks through ups and downs.

Historically, stocks have always recovered after a downturn — and have gone on to reach new heights every single time, Klontz said.

Data shows how detrimental bad habits can be relative to the buy-and-hold investor.

The average stock investor’s return lagged the S&P 500 stock index by 5.5 percentage points in 2023, according to DALBAR, which conducts an annual investor behavior study. (The average investor earned about 21% while the S&P 500 returned 26%, DALBAR said.)

The theme plays out over longer time horizons, too.

The average U.S. mutual fund and exchange-traded fund investor earned 6.3% per year during the decade from 2014 to 2023, according to Morningstar. However, the average fund had a 7.3% total return over that period, it found.

That gap is “significant,” wrote Jeffrey Ptak, managing director for Morningstar Research Services.

It means investors lost out on about 15% of the returns their funds generated over 10 years, he wrote. That gap is consistent with returns from earlier periods, he said.

“If you buy high and sell low, your return will lag the buy-and-hold return,” Ptak wrote. “That’s why your return fell short.”

Wired to run with the herd

Emotional impulses to sell during downturns or buy into certain categories when they’re peaking (think meme stocks, crypto or gold) make sense when considering human evolution, experts said.

“We’re wired to actually run with the herd,” Klontz said. “Our approach to investing is actually psychologically the absolute wrong way to invest, but we’re wired to do it that way.”

Market moves can also trigger a fight-or-flight response, said Barry Ritholtz, the chairman and chief investment officer of Ritholtz Wealth Management.

“We evolved to survive and adapt on the savanna, and our intuition … wants us to make an immediate emotional response,” Ritholtz said. “That immediate response never has a good outcome in the financial markets.”

These behavioral mistakes can add up to major losses, experts say.

Consider a $10,000 investment in the S&P 500 from 2005 through 2024.

A buy-and-hold investor would have had almost $72,000 at the end of those 20 years, for a 10.4% average annual return, according to J.P. Morgan Asset Management. Meanwhile, missing the 10 best days in the market during that period would have more than halved the total, to $33,000, it found. So, by missing the best 20 days, an investor would have just $20,000.

Buy-and-hold doesn’t mean ‘do nothing’

Of course, investors shouldn’t actually do nothing.

Financial advisors often recommend basic steps like reviewing one’s asset allocation (ensuring it aligns with investment horizon and goals) and periodically rebalancing to maintain that mix of stocks and bonds.

There are funds that can automate these tasks for investors, like balanced funds and target-date funds.

These “all-in-one” funds are widely diversified and take care of “mundane” tasks like rebalancing, Ptak wrote. They require less transacting on investors’ part — and limiting transactions is a general key to success, he said.

“Less is more,” Ptak wrote.

(Experts do offer some caution: Be careful about holding such funds in non-retirement accounts for tax reasons.)

Routine also helps, according to Ptak. That means automating saving and investing to the extent possible, he wrote. Contributing to a 401(k) plan is a good example, he said, since workers make contributions each payroll period without thinking about it.

Personal Finance

As recession risk jumps, top financial pros share their best advice

Published

3 days ago

April 4, 2025

Business Finance News

Fg Trade | E+ | Getty Images

There is at least a 60% chance of recession if Trump's tariffs stick, says JPMorgan's David Kelly

Meanwhile, J.P. Morgan raised its odds for a U.S. and global recession to 60%, by year end, up from 40% previously.

“Disruptive U.S. policies has been recognized as the biggest risk to the global outlook all year,” J.P. Morgan strategists said in a research note on Thursday.

Allianz’s Chief Economic Advisor Mohamed El-Erian also warned on Friday that the risk of a U.S. recession “has become uncomfortably high.”

‘There is some nervous energy’

“There is some nervous energy there,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, of the conversations he is having with his clients.

Even though stocks took a beating on Friday, “we advise them to focus on fundamentals and what they can control, which means maintaining a strong cash reserve and discipline around cash flow so that they can stay in the market and feel confident about taking advantage of buying opportunities,” said Boneparth, a member of the CNBC Financial Advisor Council.

Recession or not, maintaining a consistent cash flow and investment strategy is key, other experts say.

“The best way to manage these moments is to maximize your current and future selves is to block out noise that doesn’t apply to your plan,” said CFP Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.

Letting emotions get in the way is one of “the greatest threats to life and money plans,” said Cherry, who is also a member of the CNBC Advisor Council.

When it comes to volatility tolerance, sharp drops in the market are to be expected, the advisors say.

“The stock market is unpredictable, but historically, there’s a trend in how the market recovers,” Cherry said.

“In years with market corrections and pullbacks, these are the worst days, which are followed by the best days,” he added.

In fact, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all occurred during recessions, often in close proximity to the worst days, according to a Wells Fargo analysis published last year.

“Being out of the market and missing the best days and cycles after recessions significantly hurt portfolios in the long run,” Cherry said.

Boneparth said his clients also “know volatility and uncertainty is part of the game and, most importantly, know not to sell into chaos.”

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