Archives for October 2016

Follow-up: Georgia Tech Online Master’s Degree in Computer Science for $7,000

Posted on October 10, 2016 // 4 Comments

gtomsI’m always fascinated by the potential power of cheap, accessible education. Back in 2013, I wrote about how Georgia Tech planned to offer an online master’s degree in Computer Science for only $7,000. Three years later, the NY Times has a follow-up article on the program. Here are my notes in case you’re stuck behind a paywall.

  • Georgia Tech has a Top 10 CS program, according to U.S. News & World Report. Their online version offers lectures from the same professors, the same homework assignments, and the same exams.
  • A few other top universities have online versions of their masters programs, but they charge the same tuition as in-person ($40,000+). Georgia Tech’s online masters can be completed with only $7,000.
  • Through the use of online discussion software, a CS professor claims he now interacts with online students more often than with on-campus students.
  • A study found that this program attracted students that would not otherwise study for a master’s degree. This could be due to cost, geographical limitations, current employment, or other factors. Most enrolled students were older and currently employed while taking courses.
  • The first students started in 2014, and the first class of 20 graduates got their diplomas in December 2015. The current enrollment is over 3,000 students.
  • The Georgia Tech diploma will read “Master of Science in Computer Science,” exactly the same as those of on-campus graduates. There will be no “online” designation for the degrees of OMS CS graduates.

Promotional video below:

It’s still unknown whether this online degree will have the same impact as a traditional on-campus degree. For now, Georgia Tech is still the only university to offer a prestigious, high-quality computer science degree that is both convenient and affordable. The OMSCS program states their $7,000 tuition is priced to just barely cover their costs. Will any other university attempt an “at-cost” pricing model? What if someone extended that model to undergraduate programs?

On a related note, Khan Academy is trying to combine their free online educational materials with “internationally-recognized diplomas that provide direct access to economic and educational opportunities.” I think they should pursue accreditation, which I imagine would require human graders at the very minimum even if they used video lectures and community-based teaching support. Perhaps they can form some sort of volunteer network to keep costs low. Proposal video below:

Filed Under: College & Education, Deals & Offers //

Schwab Index ETF Expense Ratios vs. Vanguard ETF Comparison (Updated 2016)

Posted on October 9, 2016 // 3 Comments

schwab0

Schwab also had some reactionary price cuts to some of their Schwab Index ETFs last week. Here are the updated expense ratios, alongside the expense ratios of the closest equivalent ETF from Vanguard. In cases where both Vanguard and iShares compete, Schwab is now 2 basis points cheaper than Vanguard. This is because iShares recently dropped to mostly 1 basis point cheaper than Vanguard, and Schwab wants to keep the title of “cheapest”.

But let’s be clear, Vanguard’s success and mere presence (the “Vanguard effect“) is why these low-cost ETFs exist in the first place. Numbers are taken from the respective official websites as of 10/8/16.

Category Fund Name Expense Ratio Vanguard Expense Ratio
US Equity Schwab US Broad Market ETF (SCHB) 0.03% 0.05% (VTI)
Schwab US Large-Cap ETF (SCHX) 0.03% 0.08% (VV)
Schwab US Mid Cap ETF (SCHM)* 0.06% 0.08% (VO)
Schwab US Small-Cap ETF (SCHA)* 0.06% 0.08% (VB)
Schwab US Large-Cap Growth ETF (SCHG) 0.06% 0.08% (VUG)
Schwab US Large-Cap Value ETF (SCHV) 0.06% 0.08% (VTV)
Schwab U.S. Dividend Equity ETF (SCHD) 0.07% 0.09% (VYM)
Schwab U.S. REIT ETF (SCHH) 0.07% 0.12% (VNQ)
International
Equity
 Schwab International Equity ETF (SCHF)* 0.07% 0.09% (VEA)
Schwab International Small-Cap Equity ETF (SCHC) 0.16% 0.17% (VSS)
Schwab Emerging Markets Equity ETF (SCHE)* 0.13% 0.15% (VWO)
US Bonds Schwab U.S. Aggregate Bond ETF (SCHZ)* 0.04% 0.06% (BND)
Schwab U.S. TIPS ETF (SCHP) 0.07% 0.08% (VTIP)
Schwab Short-Term U.S. Treasury ETF (SCHO) 0.08% n/a
Schwab Intermediate-Term U.S. Treasury ETF (SCHR) 0.08% n/a

* indicates ETFs that had a price cut 10/7/16.

Where should self-directed investors buy these ETFs? You can trade all Schwab Index ETFs commission-free in a Schwab brokerage account. Here is the full of over 200 commission-free ETFs at Schwab OneSource.

You can also use a broker with free trades like the Robinhood app (review) and Merrill Edge which gives you 30 free trades per month with $50,000 in assets across your Bank of America and Merrill Edge accounts.

Bottom line. Schwab has shown a willingness to sacrifice profits in the short-term in order to keep the title of “cheapest index funds”. I think this is brave move with long-term vision, and hopefully they can keep it up. The competition between iShares/Fidelity, Vanguard, and Schwab continues to lead to better products at lower prices for consumers. My personal investments (and lots of unrealized capital gains) are with Vanguard, but new DIY investors can now open an account at any of these three and build their own diversified, low-cost portfolio with no trade commissions.

See also: iShares Core ETF Expense Ratios vs. Vanguard ETF Comparison

Filed Under: Investing //

More Charts: Withdrawal Rates and Portfolio Longevity

Posted on October 6, 2016 // 1 Comment

Here’s another pair of tidy charts about safe withdrawal rates, or the amount you can safely withdraw from your retirement portfolio without running out. They are taken from this Blackrock page, specifically their “one-pager” 2-page PDF.

First up, this chart shows how a $1 million portfolio would have done over a 30-year period, given withdrawal rates between 4% and 8%. They specifically chose a start date of December 31, 1972 because it was right before a large drop in the stock market. Click to enlarge.

br_swr1

No matter what the withdrawal rate, the total balance dropped from $1,000,000 down to roughly $600,000 in the first three years. The hypothetical portfolio was 50% stocks and 50% bonds. That must have been quite stressful. The chart gives you a feel of how a lower withdrawal rate can extend the longevity of your portfolio.

The second chart uses Monte Carlo probabilistic modeling to show you the percent chance that your assets will last for retirement, given several variables. You can adjust the time period (20 to 30 years), the portfolio asset allocation (from 20% to 100% stocks) and your withdrawal rate (1% to 10%). Click to enlarge.

br_swr2

I wouldn’t use these as definitive numbers, and there are other similar scenario generators out there. Just consider them another data point to add to the collection. Note that all the scenarios above assumed a fixed withdrawal strategy as opposed to a more flexible dynamic withdrawal strategy.

Filed Under: Investing, Retirement //

Platinum Delta Skymiles American Express Companion Certificate

Posted on October 5, 2016 // 13 Comments

amexdeltaplatThe Delta American Express card line-up has some limited-time bonus bumps going on right now. Offer ends 11/9/16. In particular, I noticed that the Platinum Delta American Express is offering:

  • 70,000 bonus miles after you spend $3,000 in eligible purchases on your new Card in your first 3 months. If you care about elite status, you’ll get 10,000 Medallion® Qualification Miles (MQMs) as well (not actual redeemable miles).
  • In addition, earn a $100 statement credit after you make a Delta purchase with your new Card within your first 3 months.
  • First bag checked free.
  • Enjoy a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Platinum Delta SkyMiles Credit Card.
  • $195 annual fee, not waived the first year.

As with all American Express cards, the sign-up bonus is now only one per card per lifetime. If you’ve ever had this card, you can’t get the sign-up bonus again:

Welcome bonus offer not available to applicants who have or have had this product.

The companion certificate as deal-maker and deal-breaker. Frequent fliers often complain about Delta’s poor selection in international business-class redemptions, but some people (like me) just want economy seats to a Delta-served airport. If you regularly travel as a couple or otherwise buy two cross-country domestic economy tickets together on Delta, this companion certificate will easily offset the $195 annual fee all by itself. If you are wasting this free companion ticket, then this card probably won’t be worth keeping around. The paid tickets earn miles, MQDs, and MQMs, but the free ticket does not.

Note that you only earn the certificate upon renewal, so you won’t get it the first year and that means you’ll have paid $390 in annual fees by then. So the first year’s annual fee of $195 must be offset by the sign-up bonus. The limited-time offer of $100 statement credit + 70,000 Skymiles should do the trick, assuming you make decent use of the miles. With the Pay with Miles options, you should get at minimum a 1 cent a mile value. That would make it $100 + $700 – $195 annual fee = $605 value in the first year. For future years, you’ll need to get $200 value out of that companion certificate.

Geographical restrictions. If you live in the contiguous 48 states, you must travel roundtrip to/from the contiguous 48 states. If you live in Hawaii, Alaska, Puerto Rico or the United States Virgin Islands (USVI), then you can originate there to the contiguous 48.

You must pay applicable taxes and fees, which vary and depend upon the number of flight segments included in the itinerary. They will be no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments).

You can book your Delta flights using the certificate online without having to call in. In my experience, the class restrictions on the certificate have not prevented me from getting the lowest fare available, although it can happen. If I can get a $300 ticket for $25 in fees, then I still consider this card worth it given the other perks like one free checked bag per person. If I don’t use it myself, I can also book a flight for a friend/relative and have them pay me back in cash.

Example with screenshots. I have a live companion certificate in my account right now, and I just ran a test flight. Atlanta (ATL) to San Francisco (SFO), 11/23 to 11/30 roundtrip, flights DL 1401 outbound and flight DL 939 return. If I just searched for a single cash ticket, it would have cost $318.70. Two tickets would be $637.40. If I apply the companion certificate, the first ticket again costs $318.70 and the second ticket costs $0 + $28.20 in fees. The first paid ticket costs the exact same amount as it would have otherwise. Thus, my total savings with this certificate is $318.70 – $28.20 = $290.50. See screenshot below for details:

deltacompcert

Here’s a copy of the terms and conditions regarding the companion certificate:

Delta Platinum Companion Certificate at Renewal
Taxes/fees/restrictions: Companion Certificate is valid for one round-trip Main Cabin Companion ticket with the payment of applicable taxes and fees detailed below and the purchase of certain adult round-trip fares on published routings within the 48 contiguous United States. Residents of Hawaii, Alaska, Puerto Rico or the United States Virgin Islands (USVI) must originate from there to the 48 contiguous United States and have an address on their SkyMiles account in Hawaii, Alaska, Puerto Rico or the USVI. Each year, the Companion Certificate will be made available for redemption on delta.com in your renewal month. Applicable government imposed taxes and fees vary and depend upon the number of flight segments included in the itinerary and are no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments). Basic Card Members (not Additional Card Members) with the Gold Delta SkyMiles Credit Card, Platinum Delta SkyMiles Credit Card, Delta Reserve Credit Card, Gold Delta SkyMiles Business Credit Card, Platinum Delta SkyMiles Business Credit Card, and Delta Reserve for Business Credit Card are eligible to receive the first checked bag fee waiver on Delta and Delta Connection carrier tickets. $35 fee for second checked bag. These allowances are subject to size/weight limits. Contact a Delta agent or visit delta.com for details. Taxes and fees are subject to change, are the responsibility of the passenger and must be paid at the time the primary ticket is purchased and the Companion ticket is issued. All fare rules, restrictions, advance purchase requirements, and availability are per rule of primary ticket fare purchased. Seats are only available in L,U,T,X,V classes of service and may not be available on all flights or markets. Companion tickets are not transferable once issued. Companion certificate cannot be combined with another offer or discount including, but not limited to, web fares, sale fares and eCoupons. Primary ticket and Companion ticket must be purchased with your Delta SkyMiles Credit Card. Both passengers must be booked on the same flights and dates, at the same time. Travel for Companion certificate must be booked and completed by the date on the front of certificate. Validity is not based on the calendar year. Redemption is available only on delta.com. Certificate terms and conditions may vary each year of Card Membership. Additional restrictions apply. See Companion Certificate for details.

Filed Under: Credit Cards, Deals & Offers //

Amazon Problems: Fake Product Reviews

Posted on October 4, 2016 // 24 Comments

az5starqUpdate: As of 10/3/16, Amazon has changed their policy and now prohibits reviews in exchange for discounted products. From the Amazon Blog:

Our community guidelines have always prohibited compensation for reviews, with an exception – reviewers could post a review in exchange for a free or discounted product as long as they disclosed that fact. These so-called ‘incentivized reviews’ make up only a tiny fraction of the tens of millions of reviews on Amazon, and when done carefully, they can be helpful to customers by providing a foundation of reviews for new or less well-known products.

Today, we updated the community guidelines to prohibit incentivized reviews unless they are facilitated through the Amazon Vine program.

This the new language in their official Seller Policy:

Additionally, you may not provide compensation (including free or discounted products) for a review. Review solicitations that ask for only positive reviews or that offer compensation are prohibited. You may not ask buyers to modify or remove reviews.

Contrary to Amazon’s claims, incentivized reviews do not make up only a “tiny fraction” of all reviews. According to this ReviewMeta video, 50% of all new Amazon reviews are now incentivized! 20% of all the Amazon Reviews they analyzed are incentivized.

Will this make it better, or worse? In response, many sites still giving out free stuff but are now simply telling users that reviews are no longer “required” and you don’t have to add any disclaimer at all. But, the sellers can usually still CHOOSE which people are eligible to receive the discounted products. Do you think they will give out free products to people who leave mostly positive reviews, or those people who take stuff and do nothing? Hmmm.

Original post:

For while, I was convinced that one day I would only shop at two places: Costco and Amazon. But recently, I’ve been concerned that Amazon’s quest for growth has hurt their customer-centric reputation. Here’s one part in what unfortunately may become a multi-part series.

Discounts for reviews. In the past, I wrote about a few websites that provided you with discounted products from Amazon in exchange for an “honest review”. I originally felt that since Amazon itself does this type of thing with its Vine program, it should be fine for the makers of a product to send out a few samples for review.

In the months since, I’ve gradually changed my mind. This practice is no longer a way to “jumpstart” your product with a few reviews. Instead, it has basically resulted in a race to the bottom where other sellers feel they must give out tons of free product and end up with hundreds of 5-star reviews with the disclaimer “I received this product at a discount in exchange for an honest and unbiased review.” This screenshot from Reddit is a perfect example of the bottom of this downward spiral:

az_bias

ReviewMeta.com analyzed 7 million reviews and found that the reviews with disclaimers had nearly all 4 and 5 star ratings, with a much lower occurrence of 1 and 2 star ratings.

I think where I messed up was that when a regular website like CNET does a gadget review, they have a readership and reputation to maintain. An anonymous individual is probably busy and just wants to satisfy the review requirement in order to keep getting discounted stuff. There is no feedback system to keep them accountable.

Fake reviews. What’s worse is that some reviews are simply fake with no such disclaimer. As someone who has to deal with spam comments every day, I see the same language patterns in Amazon reviews. Another website called FakeSpot.com also analyzes the quality of reviews:

Fakespot utilizes numerous technologies to validate the authenticity of reviews. The primary criteria is the language utilized by the reviewer, the profile of the reviewer, correlation with other reviewers data and machine learning algorithm that focuses on improving itself by detecting fraudulent reviews.

Check out this Micro SD memory card, and see it’s FakeSpot analysis.

fakespot1

ReviewMeta adjusted their 4.8 star rating down to 1.3 stars:

reviewmeta1

Survivorship bias. As someone who has bought a few “discount-for-review” items in the past (I no longer participate), I can tell you that when I left a less-than-positive review and others did as well, the item simply disappeared from Amazon shortly thereafter. It’s quite easy for a factory to simply slap on another made-up brand name and thus create a separate, new listing. This makes it quite easy to just start over, seed with positive reviews, and keep selling until too many “real” reviews start lowering the average rating. Repeat as necessary.

As always, buyer beware. Amazon has already filed some lawsuits over paid fake reviews, but they still have a lot of room to improve.

Filed Under: Frugal Living //

Podcast Recommendation: The Distance

Posted on October 3, 2016 // 6 Comments

thedMany of the podcasts I listen to aren’t financially-related, but I’ve recently been catching up The Distance Podcast which profiles the owners of private businesses that have been around for at least 25 years. Here’s their own description:

What’s the hardest thing about business? Not going out of business. The Distance features stories of private businesses that have been operating for at least 25 years and the people who got them there. Hear business owners share their stories of hard work, survival and building something that lasts. The Distance is a production of Basecamp, the company behind the leading project management app.

A few observations after several episodes:

  • If you’ve been around for 25 years, then you are both (1) good at what you do and (2) you turned down buyout offers.
  • These businesses were not highly-leveraged with debt, and thus could survive the lean times like the 2008 financial crisis.
  • Many of these founders could have sold for a sizable sum and retired (at least modestly) years ago.
  • Why didn’t they sell? For one, they have pride in the their work. Building houses, growing food, carving ice sculptures, or making cardboard boxes. It matters to them that it is done “right”. They feel loyalty to their employees and community.
  • Some are workaholics. If you’re going to always work, why not be the boss? If you sold, you’d have to start over or work for someone else.
  • These businesses are often kept in the family. Keeping it around to pass down to the next generation is another reason not to sell.
  • Some might only be in it for more money. But that seemed to be rare.

Most mass media business profiles focus on multi-national corporations (Apple) or some hot-shot tech unicorn (Uber). I found myself having a soft spot for these mom-and-pop businesses that stubbornly do their own thing.

Filed Under: Entrepreneurial, Self-Employment //

Is There Really a Huge Loophole in the Public Service Loan Forgiveness Program?

Posted on October 2, 2016 // 17 Comments

captuitionThe Brookings Institution came out with an interesting report titled The coming Public Service Loan Forgiveness bonanza. Here are the highlights of the paper:

  • The Public Service Loan Forgiveness (PSLF) Program limits your payments to 10% of your discretionary income. After 10 years (120 monthly payments), any remaining loan balance is forgiven (principal + interest). This is significantly shorter than the 20-25 year period required by the Revised Pay As You Earn Repayment Plan (REPAYE Plan) available to all workers with eligible federal student loans.
  • The employment requirements allow 25% of the workforce to be eligible for PSLF. Qualifying employers includes government organizations at any level (federal, state, local, or tribal), 501(c)(3) not-for-profit organizations, and other not-for-profit organizations that provide certain types of qualifying public services.
  • If you can estimate your future income and you plan to work in a qualifying job, an individual can also estimate the maximum amount of federal student loan payments they will have to pay back. Anything borrowed over that number can eventually be forgiven. This may encourage some people to borrow large amounts ($100,000+) for graduate or professional school, because they know they won’t have to pay it back.
  • The Congressional Budget Office estimates that two features of Income-Based Repayment and PSLF that favor those with the largest loans and incomes will cost taxpayers over $12 billion in forgiven loan repayments over the next 10 years.

Here is the report’s conclusion:

Policymakers appear to know little about the Income-Based Repayment program and the Public Service Loan Forgiveness benefit for federal student loans. That lack of awareness is troubling, as these programs are a major force in how students are financing their educations. It is fair to wonder then whether lawmakers really intended for PSLF to be an open-ended loan forgiveness program for a quarter of the jobs in the economy.

Qualifying public service employment details. I knew there was some sort of program out there for public service jobs, but I did not know that the 25% of all jobs qualified. Here’s some information taken from the PSFL certification form [pdf]:

  • Governmental organizations including any Federal, State, local, or Tribal government organization, agency, or entity, a public child or family service agency, a Tribal college or university, or the Peace Corps or AmeriCorps.
  • Any not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
  • Other types of not-for-profit organizations that provide certain types of qualifying public services, including:

    Emergency management
    Military service
    Public safety
    Law enforcement
    Public interest legal services
    Early childhood education
    Public service for individuals with disabilities
    Public service for the elderly
    Public health
    Public education
    Public library services
    School library services
    Other school-based services

  • “Public health” above includes nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics.

Let’s crunch some numbers. How much money are we talking? Here’s an example from the report:

For example, we found that a student who pursues a Master of Education or a Master of Social Work, who accumulated a loan balance of $28,000 during his undergraduate studies, is likely to have all of the money he borrows for his graduate education forgiven under PSLF. Graduate school would be free for him, financed entirely through loan forgiveness, so long as he borrows to pay the full cost of his education and works in qualifying job. This example is not an outlier. In fact, it will be a common scenario for those professions and many others with similar earnings profiles.

With an adjusted gross income of $45,000, under PSLF any federal student loan balance above roughly $30,000 would be forgiven. Let’s say an individual has a total gross income of $50,000 and an adjusted gross income (AGI) of $45,000. Under REPAYE and PSLF, your maximum monthly payments will be limited to 10% of your discretionary income (the difference between your adjusted gross income and 150 percent of the poverty guideline amount for your state of residence and family size, divided by 12).

Using this repayment calculator, I found that monthly max to be $227 a month starting payment ($2,724 a year) for the first year. If you assume that both your income and the poverty guidelines grow with inflation, your total payments over 10 years will be roughly $30,000. If you had a $100,000 student loan balance at 4% interest, that could be a $120,000 of forgiven debt (principal and interest) after a decade ($150,000 total, you paid $30,000).

If your income is high, you’d have to accumulate some serious loan balances to count on any significant portion being forgiven. Let’s run the same numbers for someone earning $100,000 gross total income, or $95,000 AGI. The monthly payment calculator shows me the max monthly payment would be $643 a month ($7,716 a year). Times 10 years and you’ll have already paid roughly $90,000.

Nearly 30% of people registered for PSFL have loan balances over $100,000.

brookings1

Final thoughts. PSLF definitely offers the most benefits to those with huge student loan balances and low-to-modest incomes. Student loan balances of over $100,000 can be wiped out. If you are working in a field where public sector workers earn close to the same amount as private workers (accounting for pension and health benefits in retirement), then this PSFL program may tilt your decision. For example, a healthcare worker may choose to work for a non-profit hospital over a private for-profit hospital.

Is this a loophole? How many people first look at their huge student loan balances and then choose to go into the public sector over the private sector because of this program? How many people were already planning to go into the public sector and then decide to use this program for free grad school?

Filed Under: Student Loans //
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