Student Loans in the News: How Loans Impact Your Taxes
A brief round-up of recent articles and blog posts that discuss current student loan debates and data
About the author: Kevin Mahoney, CFP® is a fee-only financial advisor in Washington, D.C. Kevin's work with his clients focuses on paying off student loans, buying a house, investing savings, and budgeting. Kevin is the founder & CEO of Illumint, a virtual financial planning firm specifically designed to help couples and young families with their financial decisions.
How student loans affect your taxes
Author Dori Zinn writes:
"If you're repaying federal student loans, including those on an income-driven repayment plan, your marriage status can impact your payments. For instance, if you're married filing jointly, your payments are based on the new joint income between you and your spouse. If you're married filing separately, your payments are based on only your income.
The Revised Pay As You Earn (REPAYE) plan doesn't distinguish between whether you're listed as married filing separately or married filing jointly. Your payments are based on both you and your spouse's income.
While you might get a little bit of a break if you're married filing separately, you could miss out on other benefits. You may not be able to take advantage of a lower tax rate for married couples and claiming credits and deductions.
But if you do file as married filing jointly, you do get a little bit of a break. The government can adjust your payment if both you and your spouse are making repayments to your federal student loans."
[Read the entire article over at CNET]
The Student Loan Appeal Process the Government Doesn’t Tell You About
The New York Times
Author Stacy Cowley writes:
"But it turns out the Education Department already has a system for investigating complaints and making fixes — it just keeps it very quiet.
At a training conference for financial aid professionals in December, a program specialist at the Education Department said during a presentation that if the agency finds out that it or the servicers it hires 'did something wrong,' it will 'hold the borrower harmless as a result.'
Those who think they have been harmed by a servicer’s error should file a complaint explaining what happened through the Federal Student Aid office’s feedback system on the StudentAid.gov website, the specialist, Ian Foss, said during his presentation. That routes complaints to the agency’s Ombudsman Group, and the department will then investigate and try to confirm the borrower’s account.
That startled many in the room.
'I was legitimately surprised,' said Ryann Liebenthal, a journalist who is writing a book on student debt and asked the question that prompted Mr. Foss’s answer. She had never before heard of the department’s dispute system.
But the agency has investigated hundreds of borrowers’ claims and found that they were given inaccurate advice or otherwise victimized by a servicer’s error, according to agency records and interviews with current and former government officials. After verifying their claims — using any records it could get, including the call recordings that most servicers keep — the department adjusted those borrowers’ accounts using what is known internally as an 'override' credit.
Yet few borrowers know about the appeals process — and even government auditors think that’s a problem."
[Read the entire article over at The New York Times]
Can You Pay Student Loans with a Credit Card?
Author Ben Luthi writes:
"Credit cards can be an excellent financial tool, especially when you can pay off your balance in full every month to avoid interest. But mixing them with student loans is almost always a bad idea.
The primary reason is that credit cards aren’t designed to help you pay off debt more quickly. With no set repayment term and a minimum payment that’s just a fraction of your balance each month, it’s easy to get complacent.
If you make your regular monthly student loan payment and don’t pay it off before your credit card’s due date, you’ll end up paying credit card interest on top of the interest already included in your student loan payment. The longer you go without paying it off, the more interest you’ll pay.
Using a balance transfer check with an introductory 0% APR promotion can be a way to get around that. But again, if you don’t pay the balance in full before the promotional period ends, you’ll end up paying interest on the remaining balance at a much higher rate — the average credit card interest rate is 16.88%, according to the Federal Reserve.
In other words, while the short-term appeal of earning rewards or getting a break on interest can be strong, the dangers of using credit cards when you don’t need to pose a significant long-term threat to your financial health."