SAMPLE BUSINESS BOOK/ANTHOLOGY CHAPTERS (GHOSTWRITTEN)
HOW VoIP (Voice Over Internet Protocol) IS TRANSFORMING THE TELECOMMUNICATIONS INDUSTRY AND THE WAY WE DO BUSINESS IN THE 2010s
By David Wolf
EXPLAINING THE BASICS: COPPER OUT, FIBER OPTICS IN
Chances are that if you’re not already using VoIP for your business, you’ve at least heard about it. There are a lot of acronyms and techie terms that people use to explain it, but essentially it boils down to a very simple concept. It’s a method of taking analog audio signals, like the kind you hear when you talk on the phone, and turning them into digital data that can be transmitted over Internet Protocol networks (IP). The basic concept of everything I will be covering in this chapter is that VoiP allows both voice and data communications to be run over a single network, which can significantly reduce infrastructure costs for large and small businesses alike.
To fully understand the way VoiP is revolutionizing the way we communicate and do business in the 2010s, let’s engage in a little historical perspective. The traditional phone system that has been around a hundred years is the landline, which is made of copper based wires that physically connect from telephone poles or underground systems to your phones. Obviously the fastest growing aspect of the telecommunications industry over the past decade and a half is the dynamic of wireless/cellular phones. Because of the growth of cell phone use, there has been a huge dropoff in the traditional industry of landlines. Many people are dumping them all together and their main phone numbers are their cell phones. The market for VoiP started to blossom with the advent of broadband, first with DSL, which allowed phone and cable companies to provide internet service over cable. As the internet grew, companies laid down fiber optic networks across the world in an effort to improve the speed and performance of the internet. Having that faster internet connection has led to the burgeoning market for transmitting voice communications. The growth of those networks led to the ability to build phone networks using the nice fiber backbone.
The telecommunications companies had the capacity now to add to their services and the major cable companies began to jump in and offer phone service themselves. This, of course, put them on a collision course with traditional phone companies, which continue to work with those old school copper landlines, also referred to as T1s. A T1 line can carry 24 digitized voice channels, or it can carry data at a rate of 1.544 megabits per second. If the T1 line is being used for telephone conversations, it plugs into the office's phone system. T1s can cost several thousand dollars per month.
ENTER VoIP – AND A LOT OF SAVINGS
Considering that most T1 systems are still based on these expensive copper landlines, it makes sense that VoIP has taken off to the degree it has. The technology has given rise to a new frontier in the telecommunications business, where hundreds of companies—competing like the tech equivalent of the Wild Wild West--are offering VoIP services. These ITSP (internet telephone service providers) are meeting the needs of companies who are always looking to save money and improve the quality of their customer service. VoIP plays perfectly into this model of saving money while providing these new capabilities.
To distinguish old school from new methodology, a clever pejorative acronym was coined: POTS, or plain old telephone service. In slightly technical terms, the switch involved a move from copper line based phone systems known as PBX—basically a term meaning private branch exchange—to PBX lines that are VoiP. In the past, the phone lines from the phone company plugged into PBX that linked to all the handsets on people’s desks. In fact, since 2008, almost 80 percent of all newly installed PBX lines are VoIP. It’s hard to fathom the immense quantity of VoIP lines being deployed now, which is dwarfing any remaining demand for copper lines. Everything is switching now to virtual, software based PBXs now. What’s happening is that VoIP systems are plugging into the same network jacks that computers are plugging into. The new specialized VoIP phones have two jacks built in, one for the network to plug into the wall and another for the PC or Mac to plug into the phone. So that’s one of the efficient elements, that the phone like the computer is just another device attached to the network. You can plug the phone into the network and don’t need a separate phone line. Then you can shop and get your VoIP service from anyone.
As this phenomenon keeps growing and becomes the norm, it becomes more reliable, with higher quality and lower costs. One of the reasons it costs less is that with VoIP you don’t have to pay the phone company’s excise taxes anymore because VoIP is not a federally regulated service. This fee on landlines is added to an excise tax fund that the government draws from to build phone lines in remote places. The government, wanting to ensure that broadband was available to anyone in America, including those in remote areas, has in recent years committed some of this money to build a more extensive broadband system. This has helped to create cottage industries among tech companies serving these rural areas.
UNDERSTANDING THE BOTTOM LINE
Just as the internet has revolutionized the way we get information and do business, VoIP is helping make our voice communication more efficient. It plays in well to a world gone wireless, allowing businesses and consumers to make fresh new choices they couldn’t make even ten years ago. Businesses get lower cost service for their phones and save themselves a lot per month on their phone service not just because of the aforementioned tax savings but also because the cost of the service is lower. Even outside of the business environment, the use of VoIP makes sense. The change boils down to simple mathematics. If you want two land lines in your home, you have to get two numbers and two sets of copper wires for those lines. In some areas, the use of copper created a bottleneck situation. I remember a story in Rochester, NY some years ago when the new CEO of Frontier Communications bought a home in an expensive suburb and there were not enough copper lines to have phones in his house. The phone company had to string a whole new cable down the rural road. Now that sounds so primitive.
If you have a strong, fast and reliable internet connection, you can hook up multiple phone lines. For businesses, there is the added upshot of increased Quality of Service (yes, there is an acronym for that – QoS!). Say you own a small business. Instead of having to have five physical pairs of wires for five phone lines, your internet connection can send you what they call multiple “sessions,” or calls, at one time, so you can have five lines and conversations going at once—without the need for multiple wires. The irony is that we still call these connections “lines,” though they are not. It’s actually more accurate to say, “you have a call parked on 701,” referring to a spot in the system.
The concept of “lines” is so ingrained in our cultural communications psyche that it takes time for people to transition to the concept of having virtual numbers. The amazing part of these numbers is that they can be routed to you from anywhere. With land lines when you called a number, you assumed the person picking up was in a land line at the location tied to the area code and prefix you dialed. Now, a virtual number can be answered in any number of locations, allowing businesses to expand their customer territory.
My IT business is based in Rochester, but say I wanted it to have the appearance of having a presence in Syracuse and Buffalo to reach other potential customer and clients throughout New York state. With VoIP, I can have different numbers with appropriate area codes for those other cities. One phone system handles them all, and people from Buffalo don’t feel like they are calling someone far away to help them with their business. The same goes with telecommuting. You employees can be anywhere. We have one employee, who works to help our customers with our VoIP needs, who is based in Florida but most of our customers don’t know that. He’s got a three digit extension and customers can place calls to him as if he is in Rochester.
VoIP increases the ability for people to work from home, because the phone in someone’s office can be cloned (or “twinned”) to the phone in a person’s home office. It can be programmed to ring in either or both places. It’s fun to imagine being on a working vacation, being at a cottage by the lake or a condo in Florida, yet taking calls from people who have no idea we’re not in the office in Rochester. In addition to local number portabilitiy, if your company should move to a new physical location, you can keep your numbers and you won’t have to do the old school thing with a message on the old line referring callers to the new one. The simplicity of the connectivity also makes moves in the main office setting easier for your employees. Since plugging in your phone is the same with VoIP as plugging your computer into a network, a simple move into a new office space or cubicle is very easy. In the past, a phone guy had to come out to switch wires so the line would ring in the new space, but now you just plug the phone into the same network jack and you’re off and running.
This leads to another important concept known as redundancy. Redundancy as it relates to your VOIP network refers to having alternative routes for your data in the event the main access point fails. If your internet in one place is down for any reason, the system can be set up to reroute calls to your cell or another system. If my net crashed here in Rochester, a client could still call my main number and it could be rerouted to my cell number or to another physical location. This comes in very handy during an emergency like a natural disaster, when the power is knocked out. If you were a business in the region struck by Superstorm Sandy, for instance, and you had VoIP, you could be back in business immediately, because rerouting calls this way doesn’t depend on working copper based landlines. Some people who are used to the old school telecom ways tell me this sounds complicated to them, but I explain it to them in terms of how their cell phone signals work. Your calls go to a tower which is connected with fiber optic cable and is then transmitted over VoIP to a cell company’s switching equipment. So in essence, a cell phone call uses the voice over data technology that VoIP uses. A lot of people get caught up in their fear of new terms and technology, so they don’t realize that the calls they already make are being transmitted by VoIP. Understanding that they’ve been using it without knowing it eases any concerns they have about using the technology on a more extensive level to improve their business’ QoS.
IN CASE OF A POWER OUTAGE…
Another understandable point of resistance from old schoolers is being able to use the phones in case of emergency during power outages. The old phone systems had a CD power current supplied by the phone company so that even when the power is out, you can still call 911. This was actually based on an FCC requirement. The phone company had to provide a backup system to the phone network so that even during an outage customers could still pick up a phone and make an emergency call. So how does VoIP duplicate that when its use of cable or DSL is dependent on electricity? Simple – by adding battery backup to VoIp systems. Batteries are generally included in the VoIP equipment you get from their cable company that will provide power to it so that the phone line doesn’t go out when the power goes down. VoIP phones may also come with (here’s another great new acronym!) PoE, or Power over the Ethernet, in which your network jack can do something new to provide power to that phone. On the other end of your network is a PoE switch.
Your Ethernet can have a larger than normal phone connector feature because only four of its eight internal wires are necessary for internet connection. The four unused wires can be used to supply power. More and more users are adding battery power to their internet connection. If you hit the PoE switches, your Ethernet wire can provide backup power to your phone and the switch can be plugged into your backup battery unit. Ask your VoIP provider to set you up with PoE so that your phone lines are always protected in case of emergency.
FINAL THOUGHTS: FAXES AND BURGLAR/FIRE ALARMS
I wouldn’t be surprised if someday soon, 100 percent of new PBX lines going in at private residences and business are VoIP systems. But this leads to a major concern for two important aspects of our lives that have traditionally been tied to copper phone lines: faxing and alarm systems. Many people may simply opt to keep their traditional land lines for their alarm system and fax machines, but some alarm systems now offer cellular connections and backup. So if you want to go exclusively with VoIP, you should contact your alarm company to see about available services. Fax technology is based on traditional phone lines and dial-up modems, but there are new standards for faxing over VoIp. Some manufacturers have multi-functional equipment that includes the T.38 fax relay standard, which was devised in 1998 as a way to permit faxes to be transported across IP networks. Other people are signing up with services that will convert your faxes to pdf files that you can open via email. Though these technologies are in a transitional phase as the world continues to make its transition to VoIP technology, you can see that the pros of the present and future far outweigh the challenges of adapting from systems we’ve been used to in the past. If you’re not already up to speed with VoIP, I suggest you start investigating the benefits it will provide you in your personal life and in conducting your day to day business.
BYOD (BRING YOUR OWN DEVICE) Why Resistance is Futile and What You Need to Knowto Develop Effective Policies in Your Work Environment
WHAT IS BYOD?
Most of us know the phrase “BYOB”, where party invitations would use the term to let you know that if you wanted to drink, you had to “Bring Your Own Bottle”. BYOD is the tech world equivalent meaning “Bring Your Own Device,” referring to the policy of permitting or even encouraging employees to bring their personal mobile devices (laptops, tablets, smart phones, etc.) to the workplace. When I say resistance is futile in the title, I’m referring to the significant inroads this practice is making in the United States and International business worlds. Approximately 75 percent of employees in high growth markets such as Brazil and Russia and close to 45 percent in developed markets are already using their own technology at work. This chapter provides you with a high level view of what you need to know to begin to develop your own BYOD policy.
In general the intention of a BYOD policy is the company subsidizes an employee’s purchase of one or more devices, including mobile phones, notebooks, and tablets. These then belong to the employee and the employee takes on the responsibility to maintain them while the company provides tech support. Providing technical support for several different devices and varying platforms may be a challenge and is something to consider when building your company’s BYOD plan. I look at the BYOD practice as empowering and inspiring employees to be more productive by allowing them some control over the devices they use to do their jobs. The most promising aspect of this new phenomenon is that employees ultimately become more productive as each individual is offered a choice that maximizes his or her comfort level and flexibility. It allows your staff to have a more personalized experience because they can continue to use systems they are comfortable with and don’t have to switch to different platforms.
INITIAL CHALLENGES, RISKS AND THE IMPORTANCE OF BYOD POLICIES
The first challenge to enabling employees to bring their own devices is assuring they have suitable devices to perform their jobs. From my experience, the breakdown is that some employees have a device they are willing to use, others do not have a suitable device, and a third group may expect their employer to subsidize or outright purchase new devices. In a lot of cases, businesses are subsidizing the purchase of one or more user devices, and leaving it to the employee to make the final choice and complete the purchase. Setting clear guidelines for employees and insuring that the company communicates easy to follow instructions will insure success. To this end it’s important to have strong policies in place governing this transaction that employees read, understand fully, and agree to as a condition of receiving this device. Consistency, efficiency, and workability are the keys to creating and maintaining an effective policy. Another essential challenge that needs to be addressed in a detailed policy is how employees will connect their devices to the corporate system.
Despite its growing popularity, BYOD is truly a double edged sword. You want to empower and enable your employees with easy access to data but it’s critical to manage the significant risks of doing so. If you are not careful it’s possible to expose your company to great security risks. These risks may include loss of data, corruption of data, and unauthorized access. One of the concerns that’s easily overlooked by those new to BYOD is underestimating the number of devices that employees have or may use to access company data and email. You may think your employee is just using one or two devices to connect, but that person may also connect from a home PC, and various other devices. Fortunately, there are software applications and tools available that can help you discover what devices are connected to your system. Often when we perform a review of a customer’s mail server, we find significantly more devices than expected; it is not uncommon that a client might expect there are 20 devices connecting but in reality there are up to 100 or even more! It’s important to invest in software and services that allow you to scan your system to see who and what is connecting to your sensitive corporate data.
Another potential problem is that once an employee connects a phone, laptop or tablet to the company’s email server, secure information that’s in the company’s system ends up on that device, and may be may be viewable by family members or friends of the employee who might use the device. Data breaches, data loss and leakage can happen when devices are not properly secured. In light of these concerns it’s important that companies develop sound policies to mitigate such risks. Additionally, it’s necessary to provide ongoing training for employees that reinforces proper behavior. Having a policy is great but it can’t be something which exists in a notebook somewhere and is only loosely adhered to. Because of the sensitivity of the information, strict policies needs to be effectively applied and followed. In the IT business, we see crazy things in the field every day. An employee lost an iPad; the good news is, he had a lock on it, the bad news is that the key to the lock is written on a sticker somewhere on the device. This is where constant training and reinforcement comes in. Use worst case scenario examples in your training and create a sequence of consequences as part of your policies, including written warnings, for employees who violate these policies. Here’s a crazy tidbit that illustrates the importance of addressing data risk. Personal devices can now be subpoenaed in court as part of the legal discovery process.
The people and companies involved in civil and criminal litigation may be forced to submit their personal phones, tablets and laptops for analysis. This creates a potential risk of an employee’s personal information being caught up in corporate litigation. That means these investigators can potentially see texts, chats and personal or corporate email that may be sensitive in nature. When it comes to BYOD devices, I personally believe the pros outweigh the cons, but if you are not effectively managing the cons, you open yourself up to a host of potentially serious risks.
IMPORTANT TIPS TO REDUCE BYOD RISKS
*Focus on Employee Mobile Device Management
The most important aspect of allowing employees to connect their devices to the company systems is insuring proper security. Security concerns are more than just protecting your data and systems from unauthorized access, it also includes insuring the safety of your data from damage or other threats of data loss. There are numerous tools you can use to secure devices such as smartphones and tablets. These tools will allow you to control or analyze your system to insure that devices are connecting using proper passwords, data encryption, and other forms of data protection. These types of devices when connected to a corporate network can pose a threat of infecting that network with a virus if both systems are not properly protected. When you allow employees to connect their personal devices to the company network it is also wise to provide them with company managed antivirus and anti-malware programs. Providing this service insures that the company has full control of software that keeps systems and data safe. There are various cloud based services and software you can install on your network to assist with providing authorized access to company data, without risk of it getting out into the wild.
Special virtualization technologies, such as Citrix desktop virtualization which virtualizes applications and desktops and allows employees to access them on their personal mobile devices, provide companies the ability to keep data from ending up on the employees’ personal devices. Employee Mobile Device Management isn’t about locking down access entirely, it’s about mitigating security risks by having the ability to control the device and what it can access. The way I look at security: it is a balancing act to prevent loss or corruption while making it easy for authorized users to access what they need, when they need it. It would be great if we could lock everything in a safe, but that isn’t practical. It is however important to determine where the risks may lie and provide appropriate security measures and continuously monitor for potential threats.
A big issue when employees utilize mobile phones for company business is giving out personal numbers to customers and prospects. Intentionally or not customers become trained to contact the employees via their personal phone numbers rather than using the main corporate office number, and this becomes a critical issue when an employee leaves the company. If over the course of time 100 sales people leave the company, and 200 of their customers and prospects had only the employees’ personal contact numbers, that’s 20,000 customers, and potential customers, which are at risk of being re-directed to the competition. Generally, it should be policy that employees should not give out their personal phone numbers to customers. This can be enforced by blocking Caller ID or routing call in a manner such that the corporate phone number shows up when an employee places a call.
Though Employee Mobile Device Management may vary depending on the devices and risks involved, one thing everyone should do is enable the remote wipe feature or software on the phone, tablet or laptop. It is a management tool which will allow you, in the case where a device with sensitive data is lost or stolen, to destroy data on that device if it’s turned on. In many cases this software can even locate the device.
*Using Cloud Technology, or “Sandboxing”
Once you have the inbound threats taken care of, the next way to protect yourself is understanding how to protect the data that’s being accessed. Using various cloud, and other forms of virtualization technology, allows employees to bridge the powerful gap between having access to the data they need, while still preventing the leakage of data. The increasingly sophisticated world of cloud technology has facilities for this, or you can subscribe to services offering what my company, VirtualQube, does. Our hosted private cloud solutions are designed and built in accordance with the best practice recommendations for Citrix Service Providers. Citrix allows employee access to corporate data and applications while preventing the data from actually reaching the employees physical device. Employees can run their productivity applications on their devices but when they shut down the devices nothing is left behind. A term we use for this concept is “Sandboxing”. By leveraging this type of virtualization technology you empower employees by providing them with access to an endless array of compute resources which they can access from their own devices, but you can still prevent the possibility of important data leaking outside of your system.
*Understand All Related Legal Issues
Obviously, the specific BYOD policies you create will be driven and governed by the industry you are in. If you are in the legal or medical profession, you may be dealing with government compliance requirements that will have an enormous impact on how you develop and maintain corporate security policies. Medical organizations were recently forced to put specific policies in play related to requirements for electronic medical records software. If you’re dealing with vendors providing credit card transactions, there are very specific guidelines which must be tied to your policies in order to ensure that you protect sensitive customer data.
When you allow your employees to bring their own devices, which will have access to corporate data, you will avoid many headaches if you establish an “acceptable use” policy that must be agreed upon in writing before the employees are allowed to connect their devices to the network. In order to protect corporate data from theft an acceptable use policy might include anything from limiting the device’s access by other people, not allowing certain activities to be done on the device, requiring secure passwords of seven or more characters, having corporate approved anti-virus and anti-malware protection on the device, and incredibly important is accepting the company policy that if the employee leaves the company under less than favorable terms, personal devices may automatically be wiped including personal data. While it may seem obvious to tell employees not to have any illegal content on the device, it’s not as uncommon as you might think to run across corporate-used devices with illegally downloaded content. To encourage more productivity during business hours many companies will also desire to limit access to shopping sites, social media sites such as Facebook, Twitter, and Pinterest just to name a few. A brief review of employee devices will often reveal large amounts of website access to non-company related content.
*Social Media Monitoring Every company makes unique decisions about their employees and social media. Some say we should never allow any social media activity on personal or corporate owned devices which are used for business. I think this is ultimately too restrictive and impractical. There are numerous possible benefits for using social media sites to do business, but on the other hand, we all know Facebook, Twitter, and the like can become a huge distraction. The solution, as with all aspects of BYOD, might be to allow social media but provide acceptable use guidelines that employees must adhere to. I ask that employees limit personal use of social media during the work day. If I’m going to allow you to use it, I ask you to not abuse it. It’s the same with using a company phone for personal calls. A few minutes to arrange to have a child picked up or other important personal business is fine.
There are many different ways to monitor employee use, from being able to view their screens, cameras in the office, and of course there are many different types of specialized software which will monitor their activities. Your employees should know in advance what to expect if they are discovered participating in behaviors they agreed to avoid. Generally, if they know there are consequences, such as warnings which could ultimately lead to termination, they won’t violate the rules. Setting proper expectations up front lowers the risk of security and activity breaches. From my experience I can say that the worst thing a company can do is allow a BYOD free for all, allowing unrestricted or unmanaged use of employee devices, i.e. don’t allow anarchy to prevail.
In Star Trek, the phrase “Resistance is futile!” is part of the standard message used by the Borg, the fictional alien antagonists, when they encounter an alien race they intend to assimilate into their collective. As BYOD becomes likewise an inevitable part of the corporate milieu, the road from being intimidated to embracing it is made easier if you understand the risks and set realistic expectations for yourself and your employees.
IMAGINE…A ROAD TO FUTURE SECURITY THROUGHSTRATEGIC COLLEGE PLANNING
By John J. Lennon
With a name like John Lennon, I can’t help but become an immediate conversation piece for everyone I meet. When I’m booking trips, travel agents take a pause. When store clerks see my credit card, they ask about Yoko, Paul and Ringo. Or they ask me to sing a few bars from “Imagine.” Once they learn more about me, they wonder how a musical lad from Liverpool became a College Financial Planner and Tax Advisor in Pottstown, Pennsylvania. Once all that is out of the way, I tell them that there is a major difference between myself and my legendary namesake: I played guitar as a kid and later in high school learned the trumpet. The other John supposedly took up trumpet as a kid before becoming a guitarist. Just as the Beatles’ sound evolved throughout the 60s, my career has taken some interesting turns.
In 1988, I began working in the financial and criminal investigation fields as an agent for the U.S. government, assigned to a well traveled team that resolved certain congressional inquiries. I then made the transition to private industry, moving from a fast paced whirlwind to a slower lifestyle – but during that time I realized how much I really wanted to help people. I worked in other financial fields and then opened my own tax and accounting firm, Lennon Financial, catering to individuals and small business owners. My shift into the world of college planning and the launch of my now primary business,
The College Planning Center, started very unexpectedly. One of my tax clients had twin boys that were applying to college and asked me to help them fill out the forms while I was doing their personal return. One of the last steps in the college app process is filling out the Free Application for Federal Student Aid (FAFSA), which helps colleges and universities determine a student’s eligibility for financial aid, including the Pell Grant, Stafford loans and Federal Work-Study. Collegese often offer applicants help filling out these forms, but this might be like asking the IRS to do your taxes! While continuing my tax business, I spent two years researching the college funding process and learned some amazing things about the way different schools deal with applicants for aid. One thing I learned from my research is not only how much I didn’t know about this complicated process, but how much applicants and tax/financial advisors think they know about it but don’t. From talking to my clients and other families I met, I realized that the most common problem is that most had no idea how to pay for college. I wanted to help them figure out how to come up with this money and plan for these expenses. I think the turning point was when my research showed me that most people were paying more to send their kids to college than they paid for their last home!
EASING THEIR ANXIETY
In an effort to better serve these anxious parents, I continued to do research and soon developed extensive knowledge about the college financial aid system, benefiting our clients with advice and strategies that most parents don’t think about or have access to when saving for and paying for college. Since 2001, the College Planning Center has helped over a thousand families pay for college and navigate the financial aid process. Our mission is simple: We approach financial aid from the parents’ perspective, as we seek to arm them with as much information as possible to make informed fiscal decisions when preparing for and paying for the often overwhelming cost of a college education. Realizing the value of getting out and educating people—and hopefully earning their trust as clients—I began conducting educational workshops to outline the many ways, largely unknown to the average parent and advisor, to make college as affordable as possible.
As I detail on our website (www.collegeplanningofpa.com), my focus is to help the family: Prepare for the significant out of pocket expenses to get all their kids through collegeFind strategies to insure they will get out of debtSupplement their retirementMinimize their tax burdenDevelop a contingency plan, should something happen to one of the parents. I remember one particular family that finally came, at the beckoning of friends, to my workshop. They were having a hard time getting started because they were so anxious and confused. The dad was turning 70 and had a senior in high school, plus triplets that were juniors. He was overwhelmed, thinking he might never retire. He came in all hunched over, but his ears perked up as I explained how EFC works. EFC is the expected family contribution number that represents the minimum amount a family will pay for one year of college. He realized that it was actually to his benefit to have more kids in college at the same time! Most people assume that the college retail price is what you pay and they could not be more mistaken.
THERE’S NO MAGICAL MYSTERY TOUR – IT’S ABOUT KNOWING THE FACTS!
In the workshop I explain the basics of financial aid, the difference between merit aid (academic, athletic, artistic scholarships) and need based aid, which breaks down to what I call “green stuff/positive” (scholarships and grants) and “red stuff/negative” (loans and work-study). In addition to explaining how assets are calculated (between 529s, Coverdell Accounts, Roth IRAs and children’s UGMA/UTMA accounts), I get down to the basics of working out a magic number. Let’s say it’s going to take the average family 20 years for the planning and paying phase of sending their children to college, then end up completely out of debt. When is the best time to start? When your oldest is a senior in high school or when they are in second grade? It’s all up to you, but the truth is that starting too late just pushes retirement out. I call it the magic number lightheartedly because people often think that they will stumble upon a magic solution. So they pay the ultimate procrastination penalty. One couple in my workshop informed me their son was in eighth grade and asked, “It’s probably too soon for me to begin getting help with this process, right?” Of course not! It’s no different than retirement planning, if you know years in advance that you plan to retire at a certain age, is that going to change?
Most come to us when their kids are in their early high school years, but I actually encourage people with young children to start a lot earlier. Beyond adjusting their mindsets about the timeline, we teach about how schools sometimes count things against you – including the money the prospective student has in his or her college fund accounts that were established in childhood. Sometimes there is a penalty for having a savings account in the kid’s name. It’s also important that they know it can be illegal to move those assets incorrectly so as to avoid the schools finding out about them. We try to give them stories of different families and what difficulties they may encounter. Like those who were proud of their son working throughout high school to pay for college – only to realize that the school’s financial aid office penalized him for earning too much.
We offer tips about what amount of income is reasonable and won’t be penalized. We also show them the expenses beyond tuition and fees – including books, transportation and housing. This all inclusive number is officially referred to as the COA (Cost of Attendance). They also learn how to interpret certain results that can be baffling at first. Once they see a side by side comparison of two schools, they realize it’s not always simply about the retail price – and that can be very good news for them. Another key is learning how to take on the right loans and avoid the wrong ones. I particularly steer them away from Plus Loans with a fixed interest rate of 7.9%. Colleges often recommend these to parents who don’t know the hidden costs, high interest rates, points and stacking nature of these, where a family qualifies for freshman year but they later unfortunately realize this is going to get out of control.
THE 3 MOST COMMON MISTAKES PARENTS MAKE WHEN APPLYING FOR FINANCIAL AID
What if every parent in America who wanted to send their son or daughter to the college or university of their choice knew how to avoid the big mistakes? How much money could they save that could later be applied to their retirement and future financial security? I’ve broken down the most common missteps that parents make:
Mistake #1: Thinking that it doesn’t matter where I keep my money; it’s all counted in the same way. Nothing could be further from the truth. Where you keep your money could mean the difference between you getting $10,000 in financial aid or getting nothing! For example, money in the child’s name is weighted much more heavily than money in the parent’s name. If you don’t know how to legally and ethically position your money properly for purposes of financial aid, you could end up losing thousands in your financial aid package!
Mistake #2: Assuming all schools are created equal and will be able to give you the same amounts of money. All schools are not created equal and will not be able to give you the same financial aid package. Some schools are well endowed and get a lot of money from alumni and corporations. These schools have more money to give out and are generally able to meet most or all of a student’s financial need. Other schools, like state universities, get little or no private funds and rely solely on state and Federal funds to help fill a student’s need at their school. In many cases, these schools leave students short and give them less money than they are potentially eligible to receive. It could actually end up costing you more to send your child to a “cheaper” school if they don’t have the money to meet your need.
Mistake #3: Assuming that waiting until January or later of your child’s senior year of high school to start working on your college financial aid planning will do no harm. Since financial aid is based on your previous year’s income and assets, it is imperative to start your planning as soon as possible before January of your child’s senior year. If you want to legally set up your income and assets so you can maximize your eligibility for financial aid, you must start working on this, at least, one year in advance - preferably in the year before your child’s JUNIOR year of high school. The longer you wait and the closer it gets to your child’s senior year, the tougher it gets to set up your most advantageous financial picture without creating a “red flag” for the colleges and universities. It is also important for you to know what your “Expected Family Contribution” is so you can start saving for it. And, you should also know which schools could give you the best packages before you start visiting and applying to them. My advice: if you haven’t started planning,
DO IT NOW! SIMPLE WAYS TO GET THE MAXIMUM FINANCIAL AIDFOR YOUR CHILD’S EDUCATION
So you’re the parent of a college bound high school junior. While enjoying your summer, you should make some time for the following: 1. Start Visiting Colleges and Universities to Which Your Child is Interested in Applying 2. Have Your Child Take a Good Test Preparation Course to Get a Better SAT Score 3. Start Looking for Private Scholarships 4. Start Setting Up Your Income, Assets & Personal Finances to Get the Maximum Amount of Money from Each School And most importantly… 5. Don’t Procrastinate…because the financial aid your child will be awarded is based on the current tax year!
3 Concepts Parents Fail to Consider When Applying for Financial Aid
Concept #1: For the purposes of filling out financial aid forms certain assets will be considered “included assets” while others will be “unincluded assets.” Reality: Certain assets are counted much more heavily in the financial aid formulas than others. For example, savings accounts, CD’s, stocks and bonds are all included and asked about on the Federal Financial Aid form, known as the Free Application for Federal Student Aid (FAFSA). It does not, however, ask about retirement accounts, annuities, life insurance anywhere on that same form.
Concept #2: Thinking, “My CPA or tax preparer is qualified to fill out my financial aid forms - I’ll let him/her do it,” may actually hurt your eligibility for financial aid. Reality: Unfortunately, CPA’s and tax preparers are experts at tax planning and preparation - not financial aid planning. For example, a CPA or tax preparer might suggest that you put some or all of your assets in your child’s name to save money on taxes. While this advice is well-meaning, it will usually kill most or all of your chances of getting financial aid. Also, CPA’s and tax preparers are not trained in filling out financial aid forms. In many cases, they will unknowingly fill out these forms improperly and these “minor” mistakes will bump your financial aid forms out of line.
Concept #3: Going through the financial aid process by yourself because it’s “cheaper” may actually cost you more when it’s all said and done. Reality: If you are thinking that it will be cheaper to go through the financial aid process alone, the colleges and Federal Government are going to love you! This misconception allows them to keep control over the process instead of you, the parent, understanding how the process works.
It always amazes me that people will readily use a doctor when they get sick, a lawyer when they get sued, but suddenly when they are going to send their child to college and spend between $30,000 - $60,000 per year, parents want to save themselves a couple of dollars and do it themselves. The analogy I like to use about this whole process is one that connects to the travel industry. If you’re planning a trip by either going online or talking to a travel agent, you’re going to research the best way to pay for things. When you get on that plane, you’re looking around, wondering whether everyone paid the same amount for that ticket as you did – and of course you realize that’s not the case, even if you booked everything on the same day using the same parameters. As with any other aspect of financial planning, it’s best to get a professional’s advice when you’re approaching this daunting process, so you don’t get deeper in debt than you ever intended to be. It would be a real shame to pay too much for college after all.