Special Bulletin: Now Ask Your Senators to Preserve Your College Tax Benefits!

The U.S. House of Representatives recently passed its tax bill. This bill would repeal many of the higher education tax benefits on which millions of college students and parents rely. But it isn’t law yet.

The U.S. Senate will soon act on a similar bill. But as currently written, the Senate’s bill IMG_0078would keep the House-targeted college tax benefits in place and unchanged. These benefits include:

  • College Savings Bonds: The House would start taxing students on money they use from such bonds to pay college expenses.
  • Coverdell Education Saving Accounts: The House would prohibit new deposits into these accounts.
  • Death and Disability Debt Discharge: The House would tax student loan debts forgiven for borrowers who die or suffer total and permanent disabilities.
  • Employer-Provided Educational Assistance: The House would subject what your employer spends on your tuition, fees, books, and supplies to taxation The Senate would leave current law as is — so only employer spending above $5,250 would be taxed.
  • Graduate Tuition Reduction Exclusion: The House would make all tuition reductions awarded to graduate research and teaching assistants taxable income.
  • Interest Deduction on Student Loans: The House would end this $2,500 per year deduction.
  • Lifetime Learning and American Opportunity Tax Credits: The House would repeal the Lifetime Learning credit that applies to what you pay on a course helping you get a degree or a job skill. Instead, it would expand the American Opportunity credit from 4 to 5 years. But the American Opportunity credit applies only to degree-related courses. The Senate would leave both credits unchanged.
  • Tuition and Fee Deduction: The House would kill this $4,000 per year deduction for what you pay in tuition and fees for yourself, your spouse, and your dependents.

All these changes would take affect in 2018 unless the Senate causes them to be dropped.

The Senate will amend, debate, and vote on its bill soon after Thanksgiving, so there’s little time to contact your Senators (their contact information is here). Urge IMG_0081them to use the Senate bill to preserve the tax benefits described above.

The House and Senate must negotiate to finalize all differences in the bills they pass, and such negotiations often lead to one or the other bill’s differences being dropped. So the last, best hope for preserving these tax benefits is a Senate tax bill that opposes the House’s plan to kill them.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com if you have questions.

During College: Save by Prepaying Unneeded Loan Funds Within 120 Days of Disbursement

So your student’s currently in college? And he borrowed a Federal Direct Unsubsidized Loan for this fall? He can save a lot on that loan by prepaying during the next 6 weeks. This is worth considering, because only 38.6% of college seniors look back and feel all they borrowed was essential to continuing their education.

Federal regulations say any prepayment received within 120 days of disbursement must be used to reduce that disbursement’s principal — and interest and loan fees on the prepaid principal must be automatically cancelled, too.

IMG_9849For example, a college freshman prepays $100 of his fall 2017 Federal Direct Unsubsidized Loan within this 120 day period. This’ll reduce the total amount he must repay by an additional $175. Actual savings will depend on his choice of the federal repayment plans he’ll be offered — a choice he’ll make after leaving school.

These regulations also apply to upperclassmen. Their savings may be a bit less, but they’re still significant.

How to do this? First, your student should check with his financial aid office to see if it’ll submit his prepayment for film. If so, he should follow its directions. Otherwise:

  • Do Some Research: The National Student Loan Data System has his most recent Federal Direct Unsubsidized Loan disbursement date (i.e. “Loan Date”). It’ll also identify his federal student loan servicer and its mailing address.
  • Meet the 120-Day Deadline: He’ll write a check to his loan servicer for the amount IMG_9854he wants to prepay and mail it 7-10 days (for delivery and processing) before the 120th day after disbursement.
  • Direct the Prepayment’s Application: To make sure his prepayment goes 100% to his most expensive federal loan — that Federal Direct Unsubsidized Loan — he should write “Apply to [INSERT LOAN DATE] Unsubsidized Loan” on his check’s memo line before mailing it.

But be careful. You student should only prepay funds he doesn’t need to finish the current term. So if he doesn’t already have a spending plan, help him build one when he’s home for Thanksgiving. More about this next Wednesday.

The right to prepay at any time without penalty helps make federal loans superior to most other forms of credit available to America’s college students. And prepaying within 120 days of disbursement saves extra money, making them even better!

College Affordability Solutions offers 40 years of experience in a wide variety of student finance issues, including student loan debt management. Contact us at (512) 417-7660 or collegeafford@gmail.com for cost-free consultations.

After College: Save by Prepaying During Your Grace Period

Did you get your bachelor’s degree this past spring? While in college, did you borrow Federal Direct Unsubsidized Loans? If so, you’re fast approaching the last day of your 6-month “grace period.” The next day what you’ll repay on those loans could easily multiply.

IMG_9822Lenders charge interest on student and other loans they make, and what borrowers repay equals the principal amount they borrowed and the interest they’re charged. Interest on your Federal Direct Unsubsidized Loan installments began building when you received them, and any of this interest outstanding at the end of your grace period gets added to those loans’ principal.

It’s a legal practice called “capitalization.” Many lenders do it, including the government on Federal Direct Unsubsidized Loans. Once capitalized, your outstanding interest gets added to your principal. This inflates the total amount you repay because, the greater your principal, the more interest you get charged as you repay it.

Fortunately, this can be prevented — if you can afford it — by prepaying your IMG_9824outstanding interest before capitalization occurs. Say you borrowed the maximum allowable Federal Direct Loan amount during each of the last 4 years. Assuming you earn the average starting salary for a 2017 graduate, every $100 you prepay during your grace period reduces the total amount you’d repay by an additional $94 to $113.

Here’s what to do:

  • Get Information: Identify your grace period end-date and get a projection on the interest you’ll owe on that date. Your federal student loan servicer should be able to supply both and, if necessary, you can obtain its contact information from the National Student Loan Data System.
  • Prepay Before Your Grace Period Ends: Prepay as much interest as you can. Ask your servicer how to send this prepayment electronically, or mail it a check 7-10 days before your grace period ends.

Any payment made before it’s due is a prepayment. You can prepay any time without penalty on Federal Direct Loans. Prepayments reduce outstanding interest first, then loan principal. So if you can prepay even more than interest during your grace period you’ll also diminish your loan principal, further shrinking the total you end up repaying.

Prepaying during your grace period will save you money in the long run, giving you more to invest and spend on other things. So use your grace period to prepay as much as you can!

Look here next Wednesday for how currently enrolled students can save even more in the total amount they repay.
Seeking ways to manage the repayment of your student loans? Consult College Affordability Solutions at no charge. Contact us at collegeafford@gmail.com or (512) 366-5354 to do so.

 

Special Bulletin: IRS Data Retrieval Tool Back On-Line for Income-Driven Repayment Applications

Good news! The IRS Data Retrieval Tool (DRT) is once again operable for federal student loan borrowers requesting Income-Driven Repayment (IDR) plans.

When such borrowers apply for IDR plans on their federal student loans, they must provide information to the U.S. Department of Education data from their recent tax returns. The DRT the easiest and fastest way to do this but, in early March, the IRS made the DRT inoperable due to security concerns.

Now, new encryption has been added to the DRT. The Department of Education and IRS will also be back on-line to provide tax return data for the 2018-19 Free Application for Student Financial Aid (FAFSA) when that form becomes available this coming October 1.

After College: Should You Refinance Your Federal Student Loan Debt?

If you owe on federal student loans borrowed to pay for college, and especially if you watch late night TV commercials, you may be wondering what “refinancing” is and whether it’s the right thing for you?

When you “refinance” you borrow a private loan to pay off your federal loans, IMG_6807pledging to repay the new loan according to terms and conditions stated in its promissory note.

This sounds a lot like a Federal Direct Consolidation Loan but it’s not. Your new loan isn’t coming from the U.S. government so your rights and responsibilities on it are no longer based on laws governing federal student loans. Instead, the promissory note you’ll sign with your new lender defines your rights and responsibilities, and certain benefits and protections you now enjoy most likely won’t be available on your new, private, refinancing loan. Here are some key examples:

Interest Rates: Your federal student loan interest rates are generally fixed for the life of those loans. Refinancing lenders stress that their loans offer lower interest rates than you’re currently being charged — thereby lowering your monthly payments and saving you money in the long run. However, their promissory notes IMG_6803may allow their lenders to raise their interest rates later, perhaps many times.

Deferment and Forbearance: You may defer or forbear payment on your federal loans under certain conditions — returning to college, part-time employment, financial distress, etc. But such postponements may not be available once you refinance, or at least not available for the same circumstances.

Repayment Flexibility: When you owe the government, you get a 6-9 month grace period and the right to make payment under any of 7 different federal repayment plans that best meet your needs. Some of these plans will lower your monthly payments. Your grace period may not be the same on a refinancing loan, and refinancing lenders don’t usually offer you all the same repayment options.

Debt Cancellation, Discharge, and Forgiveness: Federal law creates opportunities through which your debt to the government may be cancelled, discharged, or forgiven. Understand none of these opportunities exist on refinancing loans.

How can you tell if a refinancing loan is good for you? Closely scrutinize its promissory note. If that note doesn’t explicitly guarantee benefits and protections you may need or want, don’t borrow it!

Looking for ways to make your college debts more manageable? Feel free to contact College Affordability Solutions for help.

A Year of College Affordability Solutions

College Affordability Solutions is dedicated to helping families keep higher education spending within their means. It uses this website to highlight postsecondary educational cost-management strategies at the times of the year when you and/or your student are most likely to need them.

21-of-the-most-beautiful-college-campuses-in-amer-2-20243-1428837186-9_dblbigDespite those who’ll try to talk your student out of college, postsecondary education is still worthwhile even if he or she has to borrow to pay for it. But student loans increase the cost of college, so do everything possible to minimize their use.

Over the last year, we’ve covered several approaches to keeping college and college-related debt affordable. Click on any of the links below to learn more . . .

Before College

Various investment and savings programs can help you prepare for college bills. Among these are 529 plans and college savings bonds, but you should explore them all – the sooner the better.

And be sure to apply for financial for every year of college. Complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after October 1 but, by all means, before your FAFSA priority deadline arrives.

Student dependency status plays a big role in who completes the FAFSA. Other family factors do, too. But it isn’t as hard to complete as you’ve heard, especially if you fulfill 5 key steps, gather all the documents you need, and get answers to your last-minute FAFSA questions before doing so.

Long before the FAFSA, your student needs to begin aggressively searching for scholarships. It’s critical to know about the when and where and the how of doing this.

Pay close attention after you file your FAFSA to make sure you handle what happens next. Then carefully assess your financial aid offers as they arrive from colleges.

But it’s not all about financial aid and scholarships. A critical factor in college affordability is for your student to enroll in a college and major that fits him or her well.

During College

Once college begins, you can help your student keep his or her expenses within reason.140815_FF_BestCollegeCard Limited spending and indebtedness is important even with today’s low college loan interest rates.

Some of the most effective strategies for minimizing student borrowing include your student getting through college in 4 years or less while carefully managing money and avoiding rip offs such as the recent “student tax” scam. A little-known but highly-effective cost-saver involves returning unneeded federal loan dollars with 4 months of disbursement.

Help your student keep college more affordable by giving him or her some holiday gifts that’ll lower his or her reduce expenses upon returning to school and by recommending he or she generate funds through seasonal employment instead of borrowing.

After College

Seven out of 10 students borrow before earning their degrees, and over 90% of their loans come from federal loan programs. Fortunately, the government has designed  post-graduation strategies to help keep educational debt manageable.

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Your student needs to understand what happens to college loans after graduation. It’s worthwhile to consider the pros and cons of student loan consolidation, an often-used tactic for reducing monthly debt payments. Equally important is knowing how your student might qualify for forgiveness on all or part of what he or she owes.

Coming in 2017

We’re taking a few weeks off for the holidays, but beginning January 4 we’ll start publishing again about plans for keeping college affordable. Here’s hoping you have the happiest of holiday seasons, and that you’ll rejoin us then!

 Find out more about College Affordability Solutions and its services at https://collegeafford.com, or by calling (512) 366-5354.