Category Archives: Paying for College

College is a good time to establish good credit.

Build Good Credit While in College

Yes! College students CAN build good credit histories and scores while in college!

Check out my YouTube Video first. More info below!

You might think that college students can’t get credit during the traditional four years of college after high school. And therefore, can’t build any credit record at all! Fortunately, there are strategic ways to work around the obstacles and graduate with a healthy credit history and a good credit score.

Parents can be a huge help to their students by teaching them about how credit works in the larger financial picture of a lifetime. Saving for the future and using money wisely in the present can improve one’s ability to borrow money for important purchases like a car, a house or an education. Lending companies need to know that a borrower will pay back the loans in a timely fashion.

After explaining how credit works, parents can help their college student by allowing him or her to ride on the parent’s credit coattails. This may involve co-signing for the student’s first car loan or by allowing the student to be an “authorized user” of a parent’s credit card. Both these credit building techniques involve a “trust and verify” relationship between the parent and the student. By this I mean that the parent must actively monitor the use of credit in each case.

Co-signing for a teenager’s car loan is the same as if the parent bought the car, because the parent stands to have his or her credit severely damaged if the student does not make timely payments. So “trust and verify” may mean parents must check each month that the payment has been made. Yes, a lot of trouble but a meaningful lesson in adult-style responsibility for a college student.

When a parent allows their college student to be an authorized user on a parent credit card there must be an agreement that each purchase must be cleared with the parent in advance. Alternately, there might be a budget for small purchases and only purchases outside of the budget would need to be cleared. Lots of ways to handle “trust and verify” for authorized users.

Another important method to build good credit history is the management of student loan interest that accrues during college. In the case of Federal Unsubsidized student loans, interest starts accruing from the day the loan is disbursed. Most undergrads who borrow for their college education will take out this kind of loan. They can choose to allow the interest to accrue all during college and through the six month grace period after graduation. The day that repayment must start, the accrued interest will be capitalized and added to the total loan amount. Most students allow this capitalization to take place, but smart parents will encourage their students to take this valuable opportunity to build a stellar credit history by paying the accruing interest off monthly as soon as the loan is disbursed. Making the interest payments in a timely fashion will not only look good to the credit bureaus, but will help the student make a seamless transition to actual loan repayment after graduation.

Parents can help their student access his or her credit report from the three big credit reporting agencies for free once a year from AnnualCreditReport.com. Actual credit scores are offered through the credit reporting companies for a small fee. A student can watch how his or her credit score grows each year when credit is properly managed. Ultimately, the parent should help their responsible student take advantage of current law that allows students to get their very own credit cards as soon as they turn 21 and are still in college. After the student has one or two credit cards and understands how responsible use of credit cards can actually build an even better credit record, parents can and should help their student freeze his or her credit at each of the reporting agencies. Freezing credit can greatly reduce damage from identity theft. Frozen credit can be thawed very quickly when it comes time to get a car loan or even to get a mortgage for a house. Credit checks by potential employers and landlords can also be done through credit thawing.

Here are some good links:

http://www.clark.com/credit-freeze-and-thaw-guide?_ga=1.121657539.951237444.1465839166

http://www.creditcards.com/credit-card-news/help/10-ways-students-get-good-credit-6000.php

https://www.creditsesame.com/blog/why-you-need-to-teach-your-kids-about-credit/

http://www.creditcards.com/credit-card-news/help/10-ways-students-get-good-credit-6000.php

 

Difference between these two loans could means big bucks.

Subsidized and Unsubsidized Student Loans. What’s the Difference?

Watch this video and avoid MEGO:

 

And now, the story behind MEGO!

My Eyes Glaze Over. This used to be the trademark teenage response to all things dull and boring. Such as math, french literature, and especially money issues. Today’s approximation for MEGO would be “meh”.

So as I thought about making a video to explain the difference between Federal Direct subsidized and unsubsidized student loans….guess what happened…yep MEGO!

BUT WAIT! If you, dear reader, are in the hunt for more college money, you must understand student loans. Why? Because when college bills are looming, it may be that there is no choice but to take out some student loans.

If you were offered subsidized loans and unsubsidized student loans in your college’s financial aid award letter, then it’s time to know the difference between these loans. You’ll need to know how to use their attributes strategically.

Most importantly use these Federal Direct subsidized and unsubsidized student loans FIRST (they have certain dollar amount limits) before considering any private student loans.

These are the best student loans you can get. Here’s why:

Federal Direct student loans offer the best repayment programs. Watch some of my other videos on this subject for more info.

Here is an example:

Really, after all this, you could not be blamed for drifting into MEGO and thinking about cute puppy videos.

Here’s one:

You’re welcome!

Behind the curtain are seldom noticed benefits of Parent Plus Loans

The Secret Sauce In Parent Plus Loans

February 2016 – I challenged myself to do a video explaining Parent Plus Loans in under 3 minutes. Here it is:

In the process I learned something about this loan that makes it remarkable. There are features affecting Parent Plus Loans in the current structure of the Education Department’s loan repayment plans that could allow almost all low income families to send their children to college free or nearly free…no matter how high the cost of attendance. In fact, the higher the cost of attendance, the more families further up the income scale can participate!

Yup! Parents can legally borrow money to pay for their child’s college education UP TO the “Cost of Attendance” minus any scholarship or grant money their child receives for each year of undergraduate study.

Colleges: Let’s Just Make-up a Cost-Of-Attendance!

The cost of attendance is whatever the college says it is (!), and includes tuition and fees, room and board, books, personal supplies and travel. Students, on their own, can borrow subsidized and unsubsidized federal student loans up to certain limits each year of undergraduate study. The total amount is capped at $31,000. That’s not nearly enough for four years at most private non-profit institutions or larger state universities. It’s barely enough for smaller public colleges either, even if the student lives at home. Most students can borrow additional funds from private lenders, but the repayment terms are not nearly as good as Federal student loans.

“Adverse Credit” Is What We Say It Is!

Most parents are eligible to take out Parent Plus Loans to help their students. The only thing standing in the way of getting these loans is if the parent-applicant has “adverse credit” as revealed through a credit report.

After much negotiation, rule-makers recently came up with new definitions of “adverse credit” regarding Parent Plus Loans. Applicants will be considered to have an adverse credit history if he or she has debts greater than $2085 that are 90 or more days delinquent as of the date of the credit report, or any debts that have been placed in collection or charged off in the previous two years.

Some provisions for extenuating circumstances, like having large medical bills, are available. And, having a co-signer who is not the student and who does not have adverse credit, can overcome most obstacles to obtaining a Parent Plus loan.

Predatory Lending?

Demand for Parent Plus loans has been rising steadily, barely dented by the new adverse credit rules. The harm caused to low and moderate income families by this loan has been rising as well. The trouble is that there are no limits in place regarding a parent’s ability to repay their Parent Plus loans. Credit counseling, which would help parents understand this loan, is either ineffective or unavailable. Or both.

Parents with very low incomes can and do borrow enormous amounts to pay for their child’s education. Interest rates for Parent Plus loans are currently at 6.84% for the 2015-16 school year. There is an origination fee of about 4% for each Parent Plus loan. Interest rates change for new loans every year according to a formula based on the 10-year Treasury yield. The Department of Education is the lender, and has an ever- increasing number of parent-borrowers in some stage of financial distress due to these loans.

Finally, The Secret Sauce… But, You Have To Dig For It!

Back in 2005, in an effort to unify the terms of income dependent repayment plans, the Department of Education made the Parent Plus loan eligible for one of the more borrower-friendly repayment plans through the transformative power of loan consolidation. But few parents know about this path to making their child’s college dreams come true (without wrecking the family’s finances). Here’s the scoop and it’s available for viewing on the Department of Education’s student loan website. https://studentaid.ed.gov/sa/repay-loans/understand/plans
Here’s a screen shot of the important part (lower right corner):
Screen Shot 2016-02-14 at 6.10.44 PM
Borrowers of one or more Parent Plus loans can consolidate their loans into a Federal Direct Consolidation Loan in order to be eligible for the Income Contingent Repayment plan. This strategy applies only to those borrowers who started repayment in 2006 or later. It’s important to note that Parent Plus loans should not be consolidated with any other types of Federal loans. Doing so causes non-Parent Plus loans to lose their eligibility for more favorable repayment plans like IBR, PAYE and REPAYE. Federal Direct Consolidation is a free service offered by the Department of Education.

Under the Income Contingent Repayment plan, most borrowers get lower monthly payments (as compared to regular Parent Plus payments). These payments are determined by a formula which includes a percentage of the borrower’s adjusted gross income, the borrower’s family size, and the amount of the loan left to pay. Some very low-income borrowers could even end up with zero dollar monthly payments for the entire length of the loan!

The repayment period for ICR is 25 years. At that time any remaining principal and interest balance would be forgiven. However, today’s rules would tax the forgiven amount at the borrowers future tax rate.

Bonus! – Meaningful Use Of Public Service Loan Forgiveness

Also, under the Income Contingent Repayment plan, former Parent Plus borrowers with new Federal Direct Consolidation loans can take full advantage of the Public Service Loan Forgiveness program. Parent-borrowers working in public service jobs may be able to get a substantial portion of their loans forgiven in as little as 10 years with no tax consequences.

Oh, And Let’s Throw In “Married-Filing-Separately”!

In 2012, President Obama mandated that the ICR plan would no longer require married borrowers to declare the income of both spouses, as long as the parent-borrower files taxes separately. That move by the President made the Parent Plus loan even more flexible when consolidated into the ICR plan.

The Hazard Of Omission

Some education writers and experts may opine that the Parent Plus loan is a hazard for borrowers. Well yes, it will continue to be a hazard if the Education Department doesn’t tell everyone about the repayment plan that can potentially help so many borrowers.

Why not advertise the heck out of it? The Parent Plus consolidation-to-ICR feature is not a mistake. It was put there to help parent-borrowers, wasn’t it? Surely those who negotiated this feature knew they had designed a way for low-income families to send their children to the same colleges as wealthier families. Right?

But, even if these parent-borrowers do get a taxpayer-funded deal for their children, they are not going to have an easy journey. For 25 years they will have to make on-time payments, follow the rules carefully, keep every scrap of paperwork, and stay on top of any changes. What’s more, they will have to be their own experts and advocates in the face of recalcitrant loan servicers.

Not many people have this level of discipline. I know I would slip up who-knows-how many-times during a quarter century of payments. And it’s well known that loan servicers can trip borrowers up at any moment for no good reason.

So, here is a list of several things that could happen if word gets out about the Parent Plus loan being almost a free ticket to college for low income students. For this list I am putting my mind on the “free-range” setting, which is good for a laugh or two. Mull these over:

1. The private loan industry would be crushed. Sorry about that! (Not!)

2. Private non-profit colleges would be less (or not at all) motivated to use their endowments to help low-income students. No more grants and scholarships, just go get a Parent Plus loan!

3. More low-income students would feel empowered to apply to top colleges. Colleges would find it easy to admit well-qualified students from across the socio-economic spectrum (no strain on the endowment funds!).What a concept!

4. Colleges of all types would accelerate increases in their stated costs of attendance, but wealthier families would force a reversal of this trend. At least for top-ranked schools.

5. The Department of Education would become permanently linked with the IRS. For a preview of this, see the President’s new College Scorecard. Eventually, all Parent Plus borrowers would have their loan payments automatically deducted from their paychecks or tax refunds thus reducing mistakes and the need for interaction with loan servicers.

Sound far fetched? Maybe.

But seriously, could the Parent Plus Loan be the pathway to universal low-cost college in America? And is that even a good thing?

Let me know what you think by commenting below this post. Or, contact me at TheCollegeMoneyMom@gmail.com

You CAN be smarter than your student loan servicer!

Are you smarter than the average student loan servicer?

The Consumer Financial Protection Bureau wants to make you smarter about your student loan repayment options. Basically the message is: We at the CFPB can’t solve all the student loan servicing problems, so you’re going to have to do it yourself. Here’s the best interactive learning tool we have, now please use it wisely.

Thus the Repay Student Debt Tool was created…and released to almost no fanfare. So here’s a little video to explain it. Warning to the legal community: there are some handy dandy DIY lawyer letters included in the Repay Student Debt Tool. Enjoy!

If you run all the scenarios on this decision-tree-formatted program, you WILL be smarter than the average loan servicer. Face it, you clearly have some college education, evidenced by your ownership of some amount of student debt. Plus, you are really motivated to keep yourself out of the mess you’ve been hearing your friends complain about.

The Consumer Financial Protection Bureau (CFPB) has been fielding thousands of these complaints at their Student Loan Ombudsman office.

Here are some of them:

Borrowers were being told either mis-leading or completely wrong information about repayment programs that they were eligible for and which could keep them out of default.

Borrowers attempting to pay down some of their loans early had payments applied to the wrong loan.

Borrowers making partial payments sometimes found the loan servicers were applying the money in such a way as to maximize late fees.

When borrower’s accounts got transferred from one loan servicer to another, as often happens, there was no notification, causing payments to be lost or misapplied.

Even if the borrower’s account remained at the same loan servicer, the borrower could get conflicting answers from different agents. Information that could have been helpful was lost in the shuffle.

There were complaints about lost paperwork, processing errors, and missing billing statements. And on and on…

Meanwhile, the student loan debt problem in the U.S. has gotten so bad that a large percentage of student debt holders were no longer participating in our economy in the form of purchasing homes, autos or major appliances.

To make matters worse, borrowers desperate to get help with their student loan problems started looking outside the realm of unhelpful student loan servicers. And who popped up to fill that need? You guessed it, student debt relief scamsters! (snark follows) “Why yes, just give us an up-front fee and we’ll straighten out all your problems. We’ll sign you up for repayment programs which, oh never mind, are provided completely free to federal student loan borrowers by the Department of Education. And if you act right now, you can get all your federal student loans consolidated into one tidy lower interest private loan! We just won’t mention the fact that you will lose all the rights, protections, privileges and possible forgiveness offered to federal student borrowers.” Scamsters just gotta scam.

So who can we blame for this whole student loan mess and the downright broken student loan repayment system? (Warning: rant ahead!)

Well, the original sin was the creation of the student loan system. This made it easy for completely inexperienced young people to get their hands on staggering amounts of money for college and lifestyle.

As soon as the educational industrial complex got wind of this endless stream of federal cash, the taps were turned to full-on, and rusted in place that way. Thus commenced tuition increases, huge building programs, bulging budgets for staff, researchers, and every kind of amenity for students.

Of course the interest on the loans (to be repayed by the same inexperienced students after graduation) was creating a huge profit for the banks that were issuing the federal loans. The Department of Education (DOE) took notice of this phenomenon and by 2010 took back control of these loans and all the interest.

Right about that time, it became clear that the economy was in a stall and debt-saddled young people weren’t able to buy houses or start families. But, hey, the DOE was doing just fine, thank you. By 2013, the DOE was clearing nearly $40 billion dollars a year in student debt interest.

Along came the most costly of the new repayment programs. The White House ordered up PAYE, the Pay As You Earn repayment plan. This plan would essentially be an interest only gift for low and moderate income recent grads. Original loan amounts would begin disappearing from the DOE coffers and continue through year 20 of repayment. Bad for the DOE’s bottom line.

This very same agency of the U.S. government, the DOE, was also charged with hiring the loan servicers to collect payments from student loan borrowers. The attempt to hire quality servicing companies with well-trained employees has been half-hearted… and that’s being generous. One could be suspicious that all the troubles borrowers have experienced with student loan servicers was an attempt to bring in more revenue in late fees resulting from screw-ups and bad customer service.

But that would be a conspiracy theory…I’ll cast my vote for the stupidity theory instead!

 

The new College Scorecard has brand new data.

Obama to Colleges: College Scorecard, it’s what you get when you shoot down my College Ranking Plan!

The new College Scorecard website was built on a data dump the size of Mt. Denali…in fact, it’s like data heaven for college data geeks!
HA! Try to put THIS genie back in the bottle.
Watch my video for a demonstration of College Scorecard’s main features.

 

Well, if this isn’t some fine payback by the Obama administration for all those who scuttled the President’s new college rating plan. And it’s so sincere and sounds so well-meaning that even the opposition is mumbling grudging kudos. But the word is out on colleges that don’t live up to their promises.

So much data, in such an easy-to-use format, built for mobile devices, rolled out just in time for students and their families to make critical decisions about colleges. Whatever the quality of the data, there will be some significant changes in the world of higher education. Tah dah!

Just in my ramblings around this new College Scorecard website at collegescorecard.ed.gov, I could not resist making a search for all medium and large “for-profit” schools. I kind of knew what the results would be, but it was worse than I thought. Apparently, nobody bothered to tell the University of Phoenix that their search results would show that EVERYONE who had attended their schools on all their campuses made salaries of $53,400 dollars after 10 years. Yep, everyone. Clerical error? Or, maybe Phoenix wants it that way.

And then I was wondering about where that data on the salaries of former students came from. And how about the data showing how former students were progressing with their loan repayments?
Well, turns out this info is new, never before seen in public. The federal government, apparently working for the common good, decided to combine the data from federal student loan borrowers with data from their tax records. This data produced lots of useful information. Some of it makes certain schools look good and some of it is very damaging for others. The data is out there for all to see and use.
I didn’t get to vote on the idea to combine this information, nor on the distribution of it. Did you?
Supposedly the personal identifiers have been removed from the data. Hope so.
Here are the assurances of privacy put forth in the data documentation for College Scorecard:

“All National Student Loan Data System (NSLDS) and Treasury elements are protected for privacy purposes; any data not reported in order to protect an individual’s privacy are shown as PrivacySuppressed.”

Is “Privacy Suppressed” what they really meant to say?

I don’t know about you, but I felt like my privacy was suppressed when my data was compromised at Target and at Home Depot!

Here’s hoping for the best with this new website.

Hey, it’s better than doing nothing…maybe.

Dual enrollment saves money!

Dual enrollment programs help high school kids get free college credits!

Please watch my video, then read on:

Now here’s where I get to share some other insights, and/or just plain rant.

I’ll admit I was concerned when my 10th grade daughter announced that she wanted to take some dual enrollment classes at the local state college. That meant my little girl would be sitting in classes with real college students, half of whom were working adults taking night courses.

Sounded scary, but I let her do it because I would be driving her there and back until she could drive herself. I didn’t doubt that she could do the work, and that proved true. Thank goodness!

Her big thrill was that she could complete courses in one semester that would have taken two semesters in her high school.

Her second big thrill was that, unlike high school, she wouldn’t be asked by her college professors to make “ridiculous, time-wasting projects” like poster-board maps, plastered with pictures cut out of magazines!

MY big thrill was the realization that she was getting free college credits! WooHoo! Free money toward one of our many state universities, should she decide to stay in our state for college. YAY!

Eventually my daughter gathered almost enough dual enrollment courses that when combined with her AP classes would have produced an Associate’s degree. She would have received this degree from our local state college in the week prior to her own high school graduation. While she did not (for other reasons) complete her Associate’s degree, many high school students before her time have done it. Many more high schoolers will collect their AA’s through dual enrollment in the future.

What a boon to the families of these hard-working, ambitious young students! With two years of college completed, students in our state (and many other states) can transfer right into a 4 year public university and start their remaining two years! The families of these students are NOT on the hook for the cost of those first two years of college education. Ding, ding, ding…we have some winners here!

Now, in my research for this video, I read a lot of good material from many sources on the subject of dual enrollment. But it wasn’t coming together until I stumbled on a wonderful resource. This is the website of The Education Commission of the States, a national organization created in 1965 and funded by the 50 states, the District of Columbia, and several territories.

This organization was founded to “track state policy trends, translate academic research, provide unbiased advice, and create opportunities for state leaders to learn from one another”.

Here is the link to the section of ECS that contains a database on dual enrollment:

This information was gathered from all the states and collated by an enthusiastic young woman named Jennifer Dounay Zinth. She has done a fabulous job, and the product is absolutely enlightening. I enjoyed comparing my state’s dual enrollment policies to that of other states. I also liked the State Profiles on this topic that you can access by clicking on a particular state in a map of the U.S.

Using this database allowed me to realize how much work is left to be done on dual enrollment to make it universally available in the U.S.

Thus far, ALMOST NOTHING is standardized, not even WITHIN certain states! A few states, like Florida, have their dual enrollment acts together. But, overall, the picture is pretty sad.

So here is my rant:

Attention all you so-called “Education Leaders” attending the next ECS convention from all your various states: Before you settle down in a comfy lecture hall in the duly appointed city, and before you tuck into that sumptuous luncheon, try to concentrate on this one little request from me:

Fix Dual Enrollment!

Why? We need all educational efforts to point our kids in the right direction with all the right tools for a reasonably good future life. Right?

AND, we also want these efforts not to destroy family finances when it comes time for college.

Dual enrollment, done right, can help…SO JUST FIX IT… please!

How to understand financial aid award letters

Decode College Financial Aid Awards!

Okay, what the heck! Why can’t colleges just be clear about their financial aid offers.

All across the nation, high school seniors are receiving their financial aid award letters from the colleges to which they have been accepted.

Students and parents alike will be overjoyed as they take a first glance at these letters. After all, real professionals have carefully formulated these documents for maximum obfuscation.

Many who receive these well-crafted offers will believe that their top choice college dreams have been fulfilled.

The celebrations will commence. The heady feelings will go on for days. Then, someone may point out a questionable figure in the offer, and the clouds of doubt will move in.

The family will be confused, and as usual it will fall to Mom to interpret the meaning of the cryptic line item.

Mom, the detective, must now spend hours and days on the internet seeking out experts. She will repeatedly call the college or colleges asking questions, the answers for which she has no background to make an informed interpretation.

When, through enormous effort, the bad news is revealed, and it is determined that the dream college is unaffordable, there will be WAILING. And that’s not all…there will also be DOOR SLAMMING. Shall I go on? No, I think you get the picture…

Why, why, why can’t this information be made clear right away. Get the bad news out there and move on.

Do colleges really think that families will somehow make magic money appear? Well, yes. But it will probably be the magic money known as soul-crushing student loan debt.

It’s time for all financial aid award letters to be standardized to help consumers. So far, the only thing out there is the Education Department’s Financial Aid Shopping Sheet. Thankfully, it’s being adopted, albeit slowly, by some correct-thinking colleges.

My hope for the future is that all colleges and universities get on the transparency bandwagon!

Student Loan help right now!

Get Student Loan Help!

Now that the President has decreed a new “Student Aid Bill of Rights”, the ship of state will turn slowly toward a better way for student borrowers to manage all their loans through one portal. A new centralized complaint system will give more borrowers the ability to resolve disputes with loan servicers and debt collection agencies.

Thanks to the National Consumer Law Center and it’s Student Loan Borrower Assistance project, a prototype of this new system exists now. Watch this video to get a guided tour of how the Student Loan Borrower Assistance (.org) website links the pieces of the new system together.

If I was asked to magically build a new system to  get student loan help, I would create the new loan management portal using the building blocks provided by the the National Student Loan Data System. Currently, this system provides credentialed visitors with access to all their Federal student loan information. However, the visitor cannot find information about his/her private student loans. This is the next important task. But it’s just too hard to think about compiling private student loan information, so my magic wand would just “Make It So”!

As for the centralized complaint reporting piece of the new “Student Aid Bill of Rights”, I would just (poof!) combine the best parts of the two existing Student Loan Ombudsman offices. The Department of Education now handles complaint arbitration for Federal student loan disputes. The Consumer Financial Protection Bureau’s Student Loan Ombudsman office makes a specialty of resolving private student loan disputes. Cue the magic MixMaster!

And finally, just like the Student Loan Borrower Assistance website, I would have a whole list of free legal help right there on the new centralized complaint system website. Hey, not every student loan complaint can be resolved in a tidy fashion. What’s more, the rule against discharging student loan debt through bankruptcy looks like it’s on the table for revision. New bankruptcy rules will produce a tsunami of borrowers who will need legal guidance. Or a fairy godmother!

PAYE – Pay As You Earn Student Loan Repayment Plan – Morphing yet again!

So the President is expanding and changing his favorite student loan repayment plan…Pay As You Earn…again!

PAYE, is an apt acronym for the Pay As You Earn plan. If you borrowed money from the government to attend college, you are going to PAYE, but maybe not as much as you expected.

If you are a taxpayer, you are going to PAYE for a portion of someone’s education, and maybe more than you expected.

And then there are the colleges and universities who will, as usual, plan their yearly tuition increases around the latest proposals to increase the availability of ever more liberal student loan repayment schemes. Maybe it IS time for a change.

Take a look at my video, in which I try to make PAYE more understandable!

As much as I’d like to see the PAYE plan help student borrowers, and it will, I’d also like to see if any of the proposed PAYE plan limitations will help to put the brakes on the insidious cycle of tuition creep.

For your enjoyment, I copied this right out of the Department of Education’s 2015 Proposed Budget:

The 2015 Budget proposes to extend Pay As You Earn (PAYE) to all student borrowers and reform the PAYE terms to ensure that program benefits are targeted to the neediest borrowers. The reforms also aim to safeguard the program for the future, including by protecting against institutional practices that may further increase student indebtedness. In addition, to simplify borrowers’ experience while reducing program complexity, PAYE would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2015, which would allow for easier selection of a repayment plan. Students who borrowed their first loans prior to July 1, 2015, would continue to be able to select among the existing repayment plans (for plans for which they now qualify and for loans originated through their current course of study), in addition to the modified PAYE.

The Budget proposes additional changes to PAYE that include:

  • Eliminating the standard payment cap under PAYE so that high-income, high-balance borrowers pay an equitable share of their earnings as their income rises; (Listen up doctors, lawyers and dentists!)
  • Calculating payments for married borrowers filing separately on the combined household Adjusted Gross Income; (so the message is, don’t get married?)
  • Capping Public Service Loan Forgiveness (PSLF) at the aggregate loan limit for independent undergraduate students to protect against institutional practices that may further increase student indebtedness, while ensuring the program provides sufficient relief for students committed to public service; (the cap would be $57,500)
  • Establishing a 25-year forgiveness period for borrowers with balances above the aggregate loan limit for independent undergraduate students; (this is aimed at lower income borrowers who used the higher threshold PLUS loans).
  • Preventing payments made under non-income driven repayment plans from being applied toward PSLF to ensure that loan forgiveness is targeted to students with the greatest need; and
  • Capping the amount of interest that can accrue when a borrower’s monthly payment is insufficient to cover interest costs, to avoid ballooning loan balances. (Currently 10%)

If your eyes have not glazed over by all this budget stuff that really won’t take effect until early 2016, here are the contents of the “special sauce” that I mentioned in the video. The two big deals about the PAYE plan are that your monthly payments are kept low by a calculation of what 10% of your discretionary income would be according to your salary. This calculation of your payment can never be greater than what you would have paid if you had been using the Standard Repayment Plan. If the calculation shows that, in any year, your payment IS greater than the Standard plan, a loud buzzer goes off and you are OUT…yes, you are sent back to the hell of HUGE monthly payments! The message is: have a good accountant who will warn you and make sure you send in proof of your eligibility and family size each and every year. Because they will throw you out for forgetting that too!
Here’s the other big deal part of the special sauce: a 10% limit on capitalization for unpaid accrued interest! For those moderate non-doctor borrowers (60K to about 150K) that means that they will never find their loan amount ever gets bigger than 10% more than the amount they originally borrowed. There you have it. Special Sauce!

And now, having read the proposed new PAYE rules, you know why the doctors, lawyers, and dentists are going to be spitting fire at the Administration. You would too if you’d had to borrow $400,000 or more just to get through school, and then had to face a 6K a month payment for the next ten Standard Plan years

Learn about PAYE
PAYE. It’s complicated, but important!

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President Obamas speech sparks new interest in saving for college with 529 Plans.

The 529 College Saving Plan lives to fight another day!

The 529 College Saving Plan just got about 7 days of the finest publicity you can’t even buy…the free kind! All this, courtesy of the President of these United States, no less.

Way to go, Mr. President, apparently you scared the socks off of middle America as a way of galvanizing public attention. Well done…that is, IF proposing to tax 529 College Saving Plans was just a clever ploy!
Before you read on, take a short refresher course in 529 plans by watching my video on the subject:

It was during the State of the Union address that the President introduced his budget proposals which included ways to fund his ideas to improve college access for millions more students. One of those ideas was to make tuition for community colleges free. But, nothing is really free, so where would the money to pay for this come from? Well, how about taxing the college savings of millions of American Moms and Dads? It’s all right there in those lovely 529 plans. Those Moms and Dads would gladly give up their tax-free earnings to help others, right?

At this point I thought you might like to see what the President looked like when he was putting forth his proposal. Pretty calm, right?

Why worry?
The president exhibits preternatural calm.

Let’s assume for a moment that he actually knew what he was doing…raising awareness about the 529 College Plan. Let’s also assume that he really wanted folks to wake up and notice that it’s time to save for college. Moreover, maybe he wanted to make sure this plan would be around for a long time to come. Free publicity, people!

Wow! Genius! Look at the firestorm of tweets on the subject. And this went on for days!

Loads of Tweets
Angry/concerned Tweeters

Newspaper articles were written, TV and radio guests discussed, and blogs got posted, endlessly explaining the facets of the 529 College Saving plan. If you were alive at all you could not miss the clamor. And you could not avoid thinking about getting a 529 plan for YOUR kids’ college years.

The publicity also had an unforeseen destabilizing effect. People thought that the 529 College Saving plan was permanent and could not be changed. Faith in the system was shaken. Commentators wondered aloud if their Roth IRA’s would be raided next.

Then came the anger and the political wrangling, followed by the online petition drives. The No529Tax.org petition built up enough steam to gain White House attention. And finally a bi-partisan effort was launched to convince the President to remove the 529 Plan tax proposal from his budget. Thus, on day 7, the President decided his little ruse had run it’s course, and BOOM the proposal was gone!

Now, nobody likes to be called stupid, even an outgoing President. But that’s what the pundit people and even the real people were saying about him. Maybe crazy-like-a-fox might better describe whatever happened. Or not. I’m just glad that about the results. People are awake and ready to fight. Realizing that the 529 Plan could go away was huge (contributions would have dried up if the proposal had become law, effectively killing the plan).

In the near term, I will wager that 529 plans get a blast of new contributions. Plus, people are now on the alert to make sure retirement plans and health savings accounts don’t become threatened. Hey, that’s another great result of the President’s public awareness ploy! Well played sir, well played. 😉

President Obamas speech sparks new interest in saving for college with 529 Plans.
More people know about these great college savings plans than ever before thanks to our President.