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“Retire???–I’m still paying student loans………” July 27, 2015

Posted by forwardfinancialplanning1 in Education Planning.
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Some sobering statistics from the New York Federal Reserve–student loan balances of borrowers aged 50 and older made up 17% of the nearly $1.2 trillion of outstanding student loan debt in this country. This $204 billion in outstanding debt came both from co-signed loans for younger student borrowers and those who took loans for themselves later in life.  The fastest growth has been from borrowers aged 60 and older as these balances have increased nine-fold since 2004.

Outstanding loan balances can have ramifications for many years down the road.  Between 2002 and 2013, the number of borrowers whose Social Security payments were offset to pay outstanding student loans increased five-fold from 31,000 to 155,000.  Among those 65 and older, this figure increased from 6,000 to about 36,000 over this same period.  At some point, people have to ask themselves, “Was this loan really worth it?” and “Did it increase my earning power enough to justify taking on this debt so late in life”.  The schools which benefitted probably don’t want it to be known, but increasingly, the answer is looking like “no”.


How can this be considered “fair” January 21, 2015

Posted by forwardfinancialplanning1 in Education Planning.
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As U.S. citizens, we have numerous interactions with governmental and quasi-governmental entities. Some of these organizations are notorious for being arbitrary (think—the IRS), but one can usually find some political influence that can explain an apparent inequity. However, I believe I’ve come across an unfair situation that in my opinion, can’t readily be explained.

It can be found in the formulas that are used to determine financial aid eligibility for prospective college students. (Any readers who have recently slogged through the FAFSA form are allowed to groan at this point.) In the formulas used to calculate Expected Family Contribution (EFC), it has long been known that income and assets of the parents count much less than income and assets of the child. In the EFC computation, parental income and assets are assessed at 5.64% while student income and assets can be assessed at up to 50%. The logic behind this approach is that the student himself (or herself) should have the greatest stake in his (or her) own education. In keeping with this thinking, a child with a healthy income, (an actor, for example) could readily be expected to allocate a great deal of their funds to their own education. The same logic would apply if the child had inherited a large sum, which presumably would be held in an UGMA or UTMA. To this point, all of this makes some sense.

Common sense and logic take a detour when it comes to grandparents helping out. If the grandparents own a 529 Savings Plan with the child as a beneficiary, they would not be required to enter this data on the FAFSA form. This would appear to be a financial aid “loophole” at first, but the all-knowing federal government is “on to this trick.”. If money is disbursed from the grandparents’ 529 plan to pay for say the first year of the child’s education, the ENTIRE DISBURSED AMOUNT IS DEEMED TO HAVE COME FROM THE STUDENT!! Thus, there’s this chunk of funds applied at up to 50% in the next year’s FAFSA calculation. How can this draconian approach make sense???

Clearly it would be fair to now count the grandparents’ help in a similar fashion to a parent’s income/asset and assess it at 5.64% in the EFC calculation. And, you can make a case for changing the FAFSA rules to require that ALL 529 plan assets (regardless of the owner) with the child as beneficiary should be reported on the FAFSA form. But, whacking the grandparents’ 529 plan disbursement at a rate of 50% makes no sense whatsoever. At a time when young adults all over America are drowning in student loan debt, it clearly doesn’t make sense to have a policy that penalizes grandparents from helping out.

Behind the scenes of student loan debt September 8, 2014

Posted by forwardfinancialplanning1 in Education Planning, Social Security.
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It’s a well established fact that student loan debt is an enormous problem in the US, with the total loans outstanding topping $1 trillion. But here’s a finding that points out how the pain is extending far past the students and recent graduates.

Student loan debt typically can’t be discharged in bankruptcy and the government can even garnish Social Security checks to recoup what it’s owed. One might think that this government recourse rarely comes into play as “surely, student loans are paid off by Social Security time”. That would be a bad assumption as US Treasury Department data cited by Bankrate.com indicates that 122,056 Social Security recipients had their checks garnished in 2012 because of delinquent student loans, up from only 6 in 2000.

What a way to spend your retirement!

The tip of the iceburg…………. October 23, 2013

Posted by forwardfinancialplanning1 in Education Planning, Health Insurance, Income Taxes.
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As the negative press reports pile up regarding the roll-out of the Affordable Care Act (“ObamaCare”) insurance exchanges, the appearance of two seemingly unrelated articles cause me to ask the philosophical question, “Can the government get anything right?”. Detractors of the ACA are already asking, “Do you think a private sector company could get away with the roll-out a new product with as many problems as this one?”

The first article by the Associated Press quoted a US Treasury Department report which found that the IRS paid out more than $110 billion (yes, billions!!) in tax credits over the last decade to people who didn’t qualify for them. IRS Inspector General J. Russell George said more than one-fifth of all credits paid under the Earned Income Tax Credit went to people to were not eligible to receive them. This situation is particularly troubling in that the Earned Income Credit is a “refundable” tax credit. This means that people who have no federal tax liability still get sent a check for the amount of the credit. One can call this situation “welfare” or “a negative” effective tax rate—-either way it’s blatantly unfair to those who dutifully pay their taxes.

The second article in The Wall Street Journal cites Department of Education figures that show that the default rate on student loans has increased for six straight years and currently, one in ten students defaults within two years of starting repayment. Outstanding student loans in the US now exceed $1 trillion with the vast majority being originated by the federal student loan programs. It’s noteworthy that anyone can get a federal student loan with no credit check whatsoever and the taxpayer gets stuck holding the bill when default takes place.

Getting back to the ACA roll-out, one has to wonder that if the federal government is such a poor steward of taxpayer dollars with regard to refundable tax credits and student loans, how can we expect any better with the ACA? Many ACA applicants are counting on federal subsidies to reduce the cost of their newly acquired insurance policies. These subsidies will be administered via the IRS.

Well, at least we agree there’s a problem………….. August 30, 2013

Posted by forwardfinancialplanning1 in Education Planning.
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The statistics relating to college graduates of the past few years are anything but encouraging. Millions are under-employed, assuming that they’ve even managed to find work at all, after leaving the ivy-covered walls of good ol’ State U. Likewise, the student loan statistics are depressing as well. The average total student loan debt increased by 58% over the period 2005-2012, a period when debt as a whole increased just 16% for the general US population. The average student debtor owed $27,253 in 2012 and more than a million US adults owe more than $100,000 in student loans.

And, it’s not just limited to twenty-somethings. Americans aged 50-59 owed $112 billion in student loans at the end of 2012 according to the New York Fed, an increase from $34 billion in 2005. Even Americans 60 and older have gotten into the act as their seven year increase went from $8 billion in 2005 to $43 billion in 2012. Clearly, there’s a crisis in this area.

And of course, the current administration in Washington, who was previously coached to “never let a good crisis go to waste”, is springing into action. That is, of course if one considers stump speeches as “action”. The Obama administration is floating plans to tabulate and publish all sorts of statistics regarding graduation rates and income statistics for recent graduates. And, while good information and accurate statistics can never be a bad thing, one has to wonder if the entity that may have created this whole problem realizes its role.

Many argue that the government’s outsize role in the student loan market mirrors the problems that it created in the residential mortgage market. Congressional pressure to increase home ownership rates and an abundance of easy credit is often claimed to be the cause of the housing fiasco from which we’re still recovering. And, perhaps the abundance of federally subsidized student loans has similarly flooded the education markets with an excess of (student) supply. Basic economics tells us that artificially stimulated demand causes an increase in supply. So, we’ve seen universities engaged in an arms race to build new facilities like campus recreation centers and upscale dorms. And, clearly, there’s less pressure to control tuition and fees when the market is awash with federal funding.

I’m not sure what the answer is to this problem, but I have to question whether more federal intervention is the solution…………

This could get really bad…………… May 10, 2013

Posted by forwardfinancialplanning1 in Credit Cards, Education Planning, Financial Planning.
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Much has been written about our debt-laden society with many crediting excessive personal debt and toxic mortgage debt as the principal causes of the economic downturn which began in 2008. Still others are lamenting the weakness of the recovery and noting the difficulties that “twenty-somethings” are having in finding meaningful employment.

A circumstance that bodes poorly for the expectation of an accelerating pace of recovery is student debt. Obviously, under-employed, debt burdened college graduates will be delaying family formation and home purchases. And, these delays will postpone the subsequent home furnishings and furniture sales. But, how bad is it? A Federal Reserve Bank of New York study recently determined that student loan debt is now approaching $1 trillion. This figure even exceeds our society’s previous nemesis, credit card debt. Student loan debt nearly tripled between 2008 and 2012 and was the only form of debt (compared to credit card, mortgage, revolving etc.) that actually grew during the Great Recession.

With the Baby Boomers retiring and the supposed “up-and-comers” having so much trouble achieving escape velocity, our consumer driven economy may be in for a long, slow slog out of the economic doldrums.

Fiscal cliff deal “nooks and crannies” January 6, 2013

Posted by forwardfinancialplanning1 in Education Planning.
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The media has been filled with articles reporting on the major elements of the recent agreements in Washington, DC regarding the so-called “fiscal cliff”.  Like most of the bills that emanate from our dysfunctional “leadership”, this one has enough “ornaments” attached to it that it makes the Christmas tree in Rockefeller Center pale in comparison.  Usually, these “hang-on” elements are there to buy votes or reward some influential lobbyist. 

Despite our distaste for this portion of the political process, we were pleased to see a provision which will help families save for the education of their constituents (i.e. children).  The Coverdell Education Savings Account provisions were due to revert to 1998 levels unless addressed by year end 2012.  This would have reduced the maximum annual contribution limit to $500 and returned the definition of eligible education expenses to its very restrictive past.  Fortunately, this reversion was prevented, so the annual contribution limit per beneficiary is set at $2,000 annually.

Admittedly, this relatively low limit is nowhere near enough to enable a parent to accumulate enough funds for the entire college tab. Thus, Section 529 Education Savings plans will remain the core savings vehicle for education.   But, $2,000 annually is clearly better than $500.  And, the flexibilty to open a Coverdell ESA at the financial institution of our choice gives us the opportunity to diversify away from the sometimes limited offerings available in the state sponsored 529 plans.

No one else can help you if you won’t help yourself……….. June 25, 2012

Posted by forwardfinancialplanning1 in Education Planning.
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We’re often surprised and dismayed by our nation’s collective financial illiteracy.  Studies on this topic often center around society’s knowledge (or lack of) of interest compounding, insurance products, investment options,  credit cards and loans, etc.  However, a finding that defies explanation is our country’s lack of awareness and/or usage of tax preferences specifically designed to help us with some of the financial challenges of modern American living.  For instance, well under 50% of eligible employees take advantage of Flexible Spending Accounts which are designed to enable us to pay qualifying medical and dependent care expenses with earnings that have not been subject to federal income taxation. 

Add Section 529 education savings plans to the list of little known tax breaks.  A recent survey of 1006 respondents by Opinion Research Corporation (sponsored by Edward Jones) revealed that 62% of Americans were unable to correctly select “a college saving plan” from the list of options provided as possible descriptions of Section 529 plans.  Further, 14% of respondents simply replied “Don’t know”.

Section 529 plans are sponsored by individual states and permit account holders to contribute to a variety of investment options.  Contributions are made with after tax income (i.e. they don’t reduce federal taxable income like 401k contributions), although some states do allow tax breaks on contributions made by their residents.  The big federal tax advantage comes into play when withdrawals are made to pay qualified education expenses of the beneficiary.  Qualifying withdrawals escape federal income taxation on any earnings generated within the account.  This can be a major benefit if the account is established when the beneficiary is very young as substantial compound account growth will remain untaxed.  Respondents to the survey cannot claim that their unfamiliarity is due to the “newness” of these plans.  Section 529 plans were introduced by Congress in 1996.

Most depressing article of the week………….. April 23, 2012

Posted by forwardfinancialplanning1 in Education Planning, Retirement Spending.
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The internet, airwaves, newspapers and magazines have plenty of content that one would find to be disturbing.  A recent release by the US Federal Reserve hit me particularly hard.  Their research found that Americans 60 and older still owe about $36 billion in student loans.  The report stated that 10% of the loans are delinquent and consumer advocates note that it is not uncommon for Social Security checks to be garnished due to unpaid student loans.

When you combine this information with the fact that the fastest growing age segment for holding mortgage debt is 60-69 year olds, it makes one wonder if these individuals will ever be able to live without debt service hanging over their heads.  Since student loans cannot be wiped out by declaring bankruptcy, the collectors will most likely harass these people all the way to their grave.

If anyone needed a reason to avoid or minimize debt buildup, this sounds like it to me.  Perhaps the Baby Boomers advice for the next generations will be to “make sure you don’t follow in our foot steps.”.

No child left behind…..retirement version March 26, 2012

Posted by forwardfinancialplanning1 in Education Planning, Financial Planning.
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There is no shortage of opinions on what needs to change within our nation’s schools.  The desire to throw in our “two cents” came from examining the results of a recent study by the benefits consulting firm, Towers Watson.  They found that only 13 companies from the 2011 Fortune 100 offered a defined benefit retirement plan to new hires.  This is in contrast to the 58 companies who did so in 2000.  Likewise, only 30 companies on the list maintained a db plan in 2011, down from 72 of the Fortune 100 of 2000.  Thus, there’s overwhelming evidence that future workers will be required to plan, save, and invest to fund their own retirements.  Yet, very little is being done in our schools to prepare students to tackle this formidable task.  I suppose our society expects everyone to “pick it up as they go along”, but virtually all current macro indicators of America’s retirement readiness are flashing red.   The Baby Boomers are facing a near certainty of reduced living standards in retirement———–perhaps as good grandparents, we’ll warn the future generations.  But, wouldn’t it be easier if our schools effectively prepared them?????