October 25, 2021

Bucks Blog: Tax Break That Helps Private School Parents Is Made Permanent

The fiscal legislation just passed by Congress, known as the American Taxpayer Relief Act of 2012, makes permanent a little-known tax break for people who send their children to private or religious schools for kindergarten through 12th grade.

The break comes via the Coverdell Education Savings Account, a vehicle my colleague Ron Lieber wrote about last summer.

The Coverdell lets you deposit up to $2,000 each year in an investment account. The contributions are not tax deductible, but you do not pay taxes on the earnings you take out, as long as you use them for tuition or other qualified expenses — including those for elementary or secondary education at independent and religious schools, as well as college tuition. Although the contribution limit is low, the tax savings can add up to thousands of dollars for diligent savers.

The tax break was scheduled to expire on Dec. 31. But it was retained, as part of the fiscal legislation’s permanent extension of the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16), according to the financial aid expert Mark Kantrowitz.

Would you make use of such an account for private school tuition?

Article source: http://bucks.blogs.nytimes.com/2013/01/03/private-tuition-tax-break-is-made-permanent/?partner=rss&emc=rss

Bucks Blog: Answers to Your Questions About Student Loans, Part Two

This week, two New York Times reporters and Geoffry Walsh, an expert on student debt and bankruptcy at the National Consumer Law Center, are answering questions about ways to avoid default, pay off student loans or try to expunge student loans through bankruptcy court. Along with questions, some readers proposed their own answers. The first set of answers is here, and the second set is below.

The reporters, Ron Lieber and Andrew Martin, recently wrote articles about the difficulties of paying back student loans as part of The New York Times’s series Degrees of Debt, which examines the implications of soaring college costs and the indebtedness of students and their families.

I am supposed to start paying loans in November and signed up for the income contingent payback plan but haven’t gotten any paperwork nor have I been asked to provide proof of my income. How do they decide what I’m paying per month? Christy Maier Dorfler

You should have received the forms by now, so you may want to contact your loan servicer and ask them to resend the forms. If that doesn’t work, try the Department of Education directly. According to Mark Kantrowitz, publisher of finaid.org, a Web site devoted to college financial aid, your payment will be based on your previous income. As a consequence, you will be asked to fill out a form called the alternative documentation of income form, and a form that permits the Department of Education to gain access to your tax returns through the Internal Revenue Service.

If you file for bankruptcy, can you add your student loans? Mike Reynolds

If you file for bankruptcy, you have to list all of your debts including your student loans. But student loans won’t be discharged unless you file a separate lawsuit as part of the bankruptcy case and win, which is not easy, according to Geoffry Walsh, a lawyer at the National Consumer Law Center. Essentially, you will be required to prove to a judge that paying your student loans is an undue hardship. As my colleague Ron Lieber recently wrote, it’s a difficult process that can be tough on your self-esteem.

The way to do college is, after high school (if you have no money) to get a full-time job. Then after work, go online and get a degree online from a university. Live meagerly, save 10 percent, pay for the online courses and use the rest for rent and food and expenses. It may take 10 years or more to complete, but at least by the time you are in your late 20s or early 30s you are set and debt free. You will have another 30 years to reap the rewards for your efforts and have a family, house, cars and vacations. Those without the money to do it in four years need to think in much longer terms. NewsDogReports

This isn’t a bad idea, but not all online classes are created equal. Some online classes are surprisingly expensive and carry little weight with employers, so there are few rewards to reap. Having said that, many of the nation’s top universities, including Stanford and the Massachusetts Institute of Technology, are moving aggressively into free online classes, and it is only a matter of time before there will be many more rigorous online programs. It is hard to know, however, when, if ever, employers will consider online degrees the same as those from brick-and-mortar colleges.

How do I really get my student loans reduced? Do I call and tell them, “Hey, I want my repayment to go to a certain part of the loan?” For example, perhaps the interest on it, give more than they ask. Jorge Aguilar Cruz

If you have federal loans, you should look at the different repayment plans that are available, including income-based repayment. The Web site studentaid.gov explains these programs in some detail. However, if you extend the term of your loan, you may reduce your monthly payments but pay more interest over the life of the loan. If you have private student loans, call your servicer and ask them to explain what types of repayment options are available.

Thank you to all fellow Americans who helped me with student loans. I have payed them off, and that has helped my credit history. Thomas Doran

Thanks for posting this. Despite the sobering number of borrowers in default, nearly six million, it’s important to remember that most students pay off their student loans and find the investment well worth it.

I’ve been deferring my loans for almost two years now. I can’t afford to pay them. But the interest just keeps growing. Is filing bankruptcy possible yet? Tim Weiskopf

As I stated previously, you can try to file a petition with the court to discharge your student loans. But initially, a better option may be to apply for income-based repayment, if you have federal loans. If you decided to follow through with trying to discharge your student debts in bankruptcy, it will help prove undue hardship if you have tried to exhaust your repayment options, Mr. Walsh says. He also suggests seeking out a bankruptcy lawyer with experience in student loans. The National Association of Consumer Bankruptcy Attorneys Web site may be a good place to start.

Is it smart to double-pay all loans at once or to take that extra income and put it all toward one loan so I can knock them out one at a time? Gaber Zua

The best approach is to apply the extra money to the loan with the higher interest rate, Mr. Kantrowitz says.

I have private loans. Even though I’m still a full-time student (Ph.D.), my deferment has expired and I was rejected for forbearance. My bank — Citibank — says it will not work with me. It’s pay or default. What are my options? And how is this fair? Banks were bailed out, the auto industry, I need help, too! Cari Varner

Your best option is to call Citibank and try to work out an affordable payment plan. If you can’t do that, then unfortunately you don’t have many choices. As for fairness, I suggest you read the comments that accompanied my story on Sunday about student loan defaults. While many readers believed that the student loan system was broken and in need of reform, at least an equal number had little sympathy for borrowers who were struggling to pay off their loans. Sure, the banks got a bailout, but the idea of bailing out citizens — whether for mortgages or student loans — is deeply unpopular and unlikely to happen in any major way.

Should I consolidate or continue to pay the four loans separately? There are a few federal (Stafford) and private. The highest rate is a fluctuating one at 6 percent currently. O.K., thanks! Madelyn G

Like many borrowers, you have both federal and private student loans. Unfortunately for you, federal and private loans cannot be consolidated, Mr. Kantrowitz said. You can consolidate your federal loans, but it won’t reduce your interest rate because the rate will be the weighted average of your existing loans. Under consolidation, however, you may be able to extend the length of your loan, which may reduce your monthly payment even if it increases the amount of interest you will pay over the term of the loan.

Article source: http://bucks.blogs.nytimes.com/2012/09/13/answers-to-your-questions-about-student-loans-part-two/?partner=rss&emc=rss

College Loans Weigh Heavier on Graduates

While many economists say student debt should be seen in a more favorable light, the rising loan bills nevertheless mean that many graduates will be paying them for a longer time.

“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, including federal and private loans.

Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.

The mountain of debt is likely to grow more quickly with the coming round of budget-slashing. Pell grants for low-income students are expected to be cut and tuition at public universities will probably increase as states with pinched budgets cut back on the money they give to colleges.

Some education policy experts say the mounting debt has broad implications for the current generation of students.

“If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them,” said Lauren Asher, president of the Institute for Student Access and Success. “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”

In some circles, student debt is known as the anti-dowry. As the transition from adolescence to adulthood is being delayed, with young people taking longer to marry, buy a home and have children, large student loans can slow the process further.

“There’s much more awareness about student borrowing than there was 10 years ago,” Ms. Asher said. “People either are in debt or know someone in debt.”

To be sure, many economists and policy experts see student debt as a healthy investment — unlike high-interest credit card debt, which is simply a burden on consumers’ budgets and has been declining in recent years. As recently as 2000, student debt, at less than $200 billion, barely registered as a factor in overall household debt. But now, Mr. Kantrowitz said, student loans are going from a microeconomic factor to a macroeconomic factor.

Susan Dynarski, a professor of education and public policy at the University of Michigan, said student debt could generally be seen as a sensible investment in a lifetime of higher earnings. “When you think about what’s good debt and what’s bad debt, student loans fall into the realm of good debt, like mortgages,” Professor Dynarski said. “It’s an investment that pays off over the whole life cycle.”

According to a College Board report issued last fall, median earnings of bachelor’s degree recipients working full time year-round in 2008 were $55,700, or $21,900 more than the median earnings of high school graduates. And their unemployment rate was far lower.

So Sandy Baum, a higher education policy analyst and senior fellow at George Washington University, a co-author of the report, said she was not concerned, from a broader perspective, that student debt was growing so fast.

Indeed, some economists worry that all the news about unemployed 20-somethings mired in $100,000 of college debt might discourage some young people from attending college.

A decade ago, student debt did not loom so large on the national agenda. Barack and Michelle Obama helped raise awareness when they spoke in the presidential campaign about how their loan payments after graduating from Harvard Law School were more than their mortgage payments.

“We left school with a mountain of debt,” Mr. Obama said in 2008. “Michelle I know had at least $60,000. I had at least $60,000. So when we got together we had a lot of loans to pay. In fact, we did not finish paying them off until probably we’d been married for at least eight years, maybe nine.”

Even then, Mrs. Obama said, it took the royalties from her husband’s best-selling books to help pay off their loans.

In 2009, the Obama administration made it easier for low-earning student borrowers to get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years — or 10 years, if they work in public service.

But if the Obamas’ experience highlights the long payback periods for student debt, their careers also underscore the benefits of a top-flight education.

“College is still a really good deal,” said Cecilia Rouse, of Princeton, who served on Mr. Obama’s Council of Economic Advisers. “Even if you don’t land a plum job, you’re still going to earn more over your lifetime, and the vast majority of graduates can expect to cover their debts.”

Even believers in student debt like Ms. Rouse, though, concede that hefty college loans carry extra risks in the current economy.

“I am worried about this cohort of young people, because their unemployment rates are much higher and early job changing is how you get those increases over their lifetime,” Ms. Rouse said. “In this economy, it’s a lot harder to go from job to job. We know that there’s some scarring to cohorts who graduate in bad economies, and this is the mother of bad economies.”

And there is widespread concern about those who borrow heavily for college, then drop out, or take extra years to graduate.

Deanne Loonin, a lawyer at the National Consumer Law Center, said education debt was not good debt for the low-income borrowers she works with, most of whom are in default.

Unlike most other debt, student loans generally cannot be discharged in bankruptcy, and the government can garnish wages or take tax refunds or Social Security payments to recover the money owed.

Students who borrow to attend for-profit colleges are especially likely to default. They make up about 12 percent of those enrolled in higher education, but almost half of those defaulting on student loans. According to the Department of Education, about a quarter of students at for-profit institutions defaulted on their student loans within three years of starting to repay them.

“About two-thirds of the people I see attended for-profits; most did not complete their program; and no one I have worked with has ever gotten a job in the field they were supposedly trained for,” Ms. Loonin said.

“For them, the negative mark on their credit report is the No. 1 barrier to moving ahead in their lives,” she added. “It doesn’t just delay their ability to buy a house, it gets in the way of their employment prospects, their finding an apartment, almost anything they try to do.”

Article source: http://feeds.nytimes.com/click.phdo?i=693f8c0f215fee146dbec49f572f7474