For the first time in more than 130 years, more young adults are living with their parents than are living alone, with a spouse or with roommates. And it’s happening all over the country, according to a recent analysis of U.S. Census data by the online apartment locator service ABODO, though there are some cities where it’s significantly more prevalent.
The findings show that the majority of these millennials, ages 18 to 34, are men (54%) even though men represent just 50% of this age group population; most are on the younger end of the age spectrum, with 41% of 18- to 21-year-olds still living with the ‘rents. Surprisingly, though, nearly 30% of all millennials living with their parents are age 26 or older, and a full third of that group are between 31 and 34, the analysis found. (On the flip side, there are cities where millennials are buying homes at a pretty good clip.)
Community colleges are rarely perceived as having the same level of prestige as many four-year universities. Unfortunately, that can lead eager new students to pass them up despite their many benefits.
What are those benefits, exactly? Few people would be shocked to hear community colleges are less expensive than four-year universities. But you might be surprised at how much a student can really save.
The advantages don’t end there. Money is only part of the picture. Read on to find out why students should seriously consider spending the first two years of their undergraduate career in community college.
However, the amount a student has to spend (or borrow) to complete a four-year degree is slashed when the first two years are completed at a community college.
A recent Student Loan Hero study on the cost of a college credit found that, on average, a college credit from a community college is 60% cheaper than one at a four-year public university. This translates to an average savings of $11,377 for a student who earns their first 60 credits at a two-year public school before transferring to an in-state public university. (If this sounds like your plan, be sure to read this guide to federal student loans.)
2. Make Up for Mediocre Grades
Not all teens have the ability or the attitude to do well in high school. Because academic success is largely determined by grades, students who earn poor grades have little chance of getting into a decent college.
There aren’t any do-overs — that is, unless they enroll in community college. “I was a smart kid, but I hated high school, so I didn’t do well. As I look back, I also wasn’t mature enough at the time to have succeeded at a four-year school,” said Roberto Santiago, a community college professor at Ohlone College in Freemont, California.
“Going to community college allowed me to grow into growing up,” Santiago said. “I became an ‘A’ student, was on the Dean’s List and eventually graduated cum laude. I also started to enjoy school. I enjoyed it so much I’m now writing my dissertation and expect to have a Ph.D. within a year.”
Not every high school graduate is ready to take on the demands of a four-year university. Some students need additional support in certain subjects. Others require more time to grow up. Community college allows fresh high school grads to work toward earning their degrees while providing some breathing room during the transition.
It’s not a stretch to assume that the typical 18-year-old doesn’t exactly have their life figured out. Even if they do, the plan is likely to change several times. Unfortunately, many four-year programs require students to enroll full time, even if they haven’t chosen a major.
Not all students are prepared to hit the ground running when it comes to pursuing their degrees. Alissa Carpenter, a career discovery and personal development coach who owns the business Everything’s Not OK and That’s OK, explained that it can be a “hard pill to swallow” if a student isn’t sure what they want to do and has to spend thousands of dollars to figure it out.
“Community colleges give you the opportunity to take courses at your own pace,” Carpenter said. “This affords the student flexibility to have a job, decrease course loads and explore potential majors without the pressure and potential financial burden.”
Santiago echoed this sentiment. “The flexible schedule allowed me to work full time and attend school around my work schedule. I was also able to take a reduced course load with no penalties,” he said. “Without that flexibility, I would never have been able to succeed.”
There are a lot of good reasons to start off at a community college, regardless of a student’s situation. Even those who aced their Advanced Placement courses and have clear visions for their careers can stand to reap the financial benefits. By saving money in the first two years, students can accumulate less debt, pay off student loans faster and live their lives with less of a financial burden.
“I believe strongly in the community college mission,” said Santiago. “There are a lot of smart kids who, like me, had poor grades, or a poor attitude, or don’t have the money for a four-year school right after high school. Community college allows these kids to start exploring college at whatever pace they can manage. It can take more time, but it can be a boon for a great many students.”
There’s always a lot of talk about how to be financially responsible and increase wealth with very little money. Many Americans live paycheck to paycheck. But put some real numbers behind that generic statement. The Bureau of Labor Statistics Consumer Expenditure Survey of 2015 reports an average household income per consumer unit (think entire household of family members or single, financially independent people living alone or with other people) is $69,629. And the consumer’s unit average yearly expenses is $55,978.
Let’s say you dedicate those yearly expenses to standard things, such as food, housing, transportation and insurance. While the actual percentage breakdown per expense differs from household to household, depending on your family picture, you’ll still be dedicating a good chunk of your income to various necessities each month.
If we continue with this logic, the money you have left over — that unreasonably small portion of your salary that remains after paying bills — is what many would dub “play money.” The average consumer unit will have about $13,000 a year to play. (Speaking of “play money,” here’s how to stop buying stuff you can’t afford.)
With all that extra cash, what can we do? Of course, we could blow it on a steak dinner or splurge for the newest tech gadget. But what are a few smart items we should buy when we have the opportunity? We’ve compiled a list of smart purchases you should never feel bad about buying. And the best part? They’re all less than $400.
1. Student Loans
The average recent graduate has about $37,172 in student loan debt and pays about $351 per month toward the loan, according to Student Loan Hero. For those who are super strapped for cash, they might choose to defer their loans to a later date or skate by paying just the minimum. But the interest will kill you. One of the smartest things you can do with extra cash is to pay more into your loans when you can afford to do so. It’s a solid bet that added expenses will pop up eventually, and staying ahead of the curve means one less financial burden down the road. (Check out some tips for paying off your student loans here.)
2. An Interview Suit
Even if you’re not in the job market, investing in an interview suit is a wise decision. You never know when you’ll need a go-to outfit for networking events, conferences or a random “I’ve got someone I want you to connect with” meeting. Shopping for the perfect outfit is a lot more bearable when you’re not under duress or in a time crunch. Instead, you can browse for sales. You’ll find cheaper options in many locations, but a nice suit should put you right around that $400 mark. (What else can you do to get yourself ready for a job interview? Check your credit — many employers look at a version of your credit as part of the application process, so it’s helpful to know where yours stands. You can see two of your credit scores — absolutely free — on Credit.com.)
3. A Durable Mattress
What does anything matter if you don’t get a good night’s sleep? When you have extra cash at the end of the month, put it toward a high-quality mattress that will ensure you wake up ready to tackle each morning with spunk. High-quality mattresses come at a price. But they also last for years. You could spend thousands on a name-brand mattress, but a foam mattress from IKEA could work just as well.
4. Digital File Protection
External hard drives and online storage are perfect for backing up all those vacation shots, your wedding album and imperative side-business files. Hard drives are easy to find online, and they’ll run you about $82 for one with worthwhile storage capacity. Online storage pricing varies when it comes to options and personal preferences, but you can choose between services, such as Mozy, Dropbox or SugarSync. These cloud-storage providers charge a monthly fee but give discounts for yearly subscriptions. Expect to pay between $28.98 and $99.99 per year.
5. Online Classes
The most successful people will tell you learning never stops. As workforce trends continue to change, the need for specialized expertise grows. Devoting a few extra bucks to improving your knowledge is a practical expense. Maybe you want to become a better public speaker. Or pick up a new hobby to clear your head at night. And maybe you’ve heard tech gurus ramble about an increasing demand for coding professionals. Buy books, go online and enroll in a course. Do whatever you can to set yourself up for future success.
6. A Commuter Bike
Why spend what you could save? One of the smartest purchases you can make with $400 or less is a commuter bike. When considering what you’d also pay for gas, maintenance and car insurance, a commuter bike will pay for itself. There are definitely good, better and best when it comes to bikes, but you could find a quality road bike for around $300.
7. An Emergency Fund
It’s never a bad idea to start establishing an emergency fund. Experts say three months’ worth of expenses is a reasonable amount of cash to stash away just in case. A good trick is to make your savings automatic. Once you’re unable to see your money coming in, it’s easier to get by without it and find ways to work with what you have. Then, when you break your arm doing back flips off a boat or blow a radiator in your car, it’s covered.
8. Retirement Savings
Expanding on the previous point, try to accumulate as much wealth as you can for early retirement. Consider creating a moderately aggressive investment plan by opening IRAs, 401K accounts, brokerage accounts, etc. Take advantage of your employer opportunities and set up automatic contributions to your company’s 401K plan. Start at a respectable 3% contribution, and gradually increase it until you get to at least 10%. When in doubt, seek a fiduciary financial planner.
9. Solid Clothing
Some of us find it absolutely insane to buy a pair of jeans that cost more than $39.99. However, quality clothing items, such as boots and winter coats, hold up over time. And the money you shell out is worth it later. Reddit’s Buy It for Life adheres to this philosophy. This subreddit aims to “emphasize products that are durable, practical, proven and made to last.” It might seem insane to pay $219 for insulated L.L. Bean Duck Boots, but you’ll be grateful when they’re still keeping your toes warm and dry 10 years later.
10. A Coffee Maker
Does life really exist without coffee? Another smart purchase is to invest in a solid coffee maker. If you fancy those specialty drinks, you could buy a combination machine from DeLonghi for $162 on Amazon. Considering the price of specialty drinks from coffee shops — and our dependency on caffeine — this is a purchase that will pay for itself in a matter of weeks.
11. Various Fitness Programs
There’s no safer bet than to invest in your health. Health equals wealth, right? Whether you buy a treadmill for $399.99 or invest in various meal prep services popular for those always on the go, they’re all worthwhile expenses.
Depending on your employer, you might also be eligible to receive reimbursements for health-related expenses, such as gym memberships, fitness classes or playing in sports leagues. While you’re at it, look into other reimbursement programs you might be eligible for, such as cellphone plans, moving costs or professional-development classes.
American consumers owe mountains of debt, but one of these mountains looms large over all the others: student loans. It’s astonishing to consider: Add up every auto loan in the country, and total student loan debt is bigger. Add up every credit card bill in the country, you only get about three-quarters of the way up the student loan mountain. Only mortgage debt is greater, but those with mortgages have homes to show for their debt. These days, many Americans aren’t really sure what they got in return for their oppressive student loan bills.
There is little disagreement that adult life in America without a college degree is a struggle, and it’s only going to get harder as the economy continues to modernize and manual labor continues to be devalued. So it’s imperative that America figures out how to educate its young people without bankrupting them — but it’s important to understand how we got here.
A History Lesson
In some ways, you can blame the Russians. Sputnik, and the Space Race, specifically. The federal government first got into the student loan business as a direct result of the USSR’s successful launch of Sputnik into orbit, and widespread fear that America was losing the Space Race. In fact, the law that created student loans was called The National Defense Education Act.
America has lent money to teenagers ever since, with the good intentions of helping them compete in the global economy. Today, some 44 million Americans owe student loan debt — a majority of college students graduate with at least some debt, and the class of 2016 had an average student loan debt of $37,000.
But even before the National Defense Education Act went into effect, America had committed to helping young kids who showed promise get college degrees. The federal government’s first real foray into pushing people towards college was The Servicemen’s Readjustment Act — the GI Bill — passed at the end of World War II. Colleges swelled as America repaid some of its debt to the Greatest Generation through free or discounted college.
By the 1950s, there were calls to extend what was generally considered a wildly successful program. But three terms in a row, a Senate-passed measure to increase federal funding for college died in the House. Then, on October 4, 1957, the Soviets sent shock waves through the country with their successful launch of Sputnik into space. That day Sen. Lister Hill (D-Alabama), chair of the Education and Labor Committee, read a memo from a clerk with a clever idea.
Hill latched onto the idea and National Defense Education Act was born.
Despite widespread public opinion demanding government action “in the wake of Sputnik” (the Senate history page’s words), House members were still resistant, calling federal college grants “socialist.” Other critics worried that the legislation interfered with the long-held principal that states and local communities were responsible for schooling. As debate progressed, supporters in the Senate offered a compromise: Much of the aid offered would come in the form of low-cost loans instead of grants.
That argument won the day. Dwight Eisenhower signed the National Defense Education Act in September 1958, 11 months after Sputnik’s launch. Uncle Sam was now a bank for college students.
Uncle Sam Becomes a Direct Lender to Students
NDEA loans are generally considered precursors to subsidized loans that became known as Perkins Loans.
That because it wasn’t long before the NDEA was expanded, and its inherent encouragement of defense-friendly subjects dropped. An amendment to the law signed by Eisenhower in 1964 increased funding, raised borrowing limits, and struck the provision that special consideration should be given to students who showed proficiency in math, science, engineering, or foreign languages.
By 1968, America had spent $3 billion extending student NDEA loans to 1.5 million undergraduate students.
In other words, Uncle Sam’s role as a direct lender for higher education was fairly well established by the time Lyndon Johnson’s Great Society ideas took hold. In 1965, the Higher Education Act included a further expansion of both loans and grants, this time aimed at lower-income Americans. The HEA established what we now know as the Free Application for Federal Student Aid (FAFSA), and directed the Department of Education to administer lending. Thus, the Guaranteed Student Loan (precursor to the Stafford Loan) was created.
HEA loans were different than NDEA loans in an important way, however. Students borrowed from banks, with the federal government acting only as a guarantor. That made Uncle Sam a co-signer, expanding the kind of funding available. (Since then, Congress has vacillated between preferring the co-signer role, and the banker role. Today, most federal loans are direct loans, but that could change again.)
Not surprisingly, college attendance soared, more than doubling from 1960 to 1970 (from 3.5 million to 7.5 million).
The Higher Education Act requires reauthorization every five years, each one a chance for Congress to change the law. Many of those provisions have been intended to expand the opportunities afforded by it. The 1972 Equal Opportunity in Education Act, known as Title IX, was passed to prevent discrimination based on gender. That same reauthorization also created the Student Loan Marketing Association (Sallie Mae), designed to encourage lending. In the 1980 reauthorization of HEA, PLUS loans were created, ultimately allowing parents to borrow money from Uncle Sam to pay for their kids’ college.
As Enrollments Rise, So Do Tuitions
Each loan expansion meant college attendance continued to expand, hitting 10.8 million by 1983. Today, it’s 20 million.
With more customers, and more funding, it should be no surprise that college tuition has soared right along with them. According to the College Board, annual tuition at a public (state) college averaged $428 in 1971-72. This year, it’s $9,648. During that same span, private tuition rose from $1,883 to $33,479.
So it should be no surprise that a chart showing the total outstanding student loan debt looks like a picture of the steep side of Mt. Everest. In 1999, former students owed $90 billion. By 2011, that figure had grown to $550 billion, an astonishing 550%. Since then, student loan debt has more than doubled … again.
It’s important to note, however, that while one theory holds that the history of ever-widening availability of credit has led directly to higher tuition costs and higher debt, that’s not the only possible explanation. Higher education advocates also point to reduced state government spending on state colleges. As one example, Ohio State received 25% of its budget from the state in 1990. By 2012, that percentage had fallen to 7%. Students, often via borrowed money, must pay the difference.
F. King Alexander, president of Louisiana State University, painted a bleak picture in testimony before a Senate committee during 2015. More generous federal loan programs created in the 1950s and 60s had an unintended consequence: They nudged budget-crunched state governments towards a dark solution.
“State funding for higher education sits currently around 48% to 50% below where it was in 1981,” he said. “It was assumed that any new federal funding policies would simply supplement state funding, not replace it.”
But, today, states are ”getting out of the higher education funding business, to the point that the federal government has now become the primary funding source,” Alexander said. And while schools, states, and the federal government argue about the higher math of higher education, many students are left with personal education budgets that just don’t add up. To put a fine point on it, attorney and student loan expert Steven Palmer offers this sobering example:
“In 1981, a minimum wage earner could work full time in the summer and make almost enough to cover their annual college costs, leaving a small amount that they could cobble together from grants, loans, or work during the school year,” he says in a blog on the topic. “In 2005, a student earning minimum wage would have to work the entire year and devote all of that money to the cost of their education to afford one year of a public college or university.”
A Longstanding (But Growing) Problem
It’s important to note that burgeoning student loan debt — and the inherent problems those bills present to borrowers and their families — did not go unnoticed until recently. In fact, back in 1987, a New York Times article summarized the issue in a paragraph that sounds an awful lot like something Vermont Sen. Bernie Sanders might have said during the 2016 Democratic Party primary races.
The growth of the problem is affecting not only individual lives, some authorities believe. They say the burden of debt is also chasing many students away from poorly paid public service jobs and forcing others to defer the start of a family and the purchase of a home or car, with economic and social consequences that have not been measured … Such cases worry education officials and other experts, who say that record borrowing for college threatens the financial stability of a generation of young people and their families.
At the time the article was written, the average debt for public college graduates was $7,000 ($15,000 in 2017 dollars). Since then, college tuition has risen at about four times the rate of inflation, and student debt, right along with it.
How Do We Fix Those Inherent Problems?
President Donald Trump did discuss the student loan problem on the campaign trail; his most significant proposal involved slightly more expensive, but also more generous income-based repayment plans for debtors. His plan would require 12.5% income contributions, but provide loan forgiveness earlier. The timetable for such a proposal is unclear.
The newly-minted head of the Department of Education, Betsy DeVos, said during confirmation hearings that the (then) $1.3 trillion in student loan debt is “a very serious issue,” but didn’t indicate support for any particular solution. In her testimony, there is this tea leaf:
There is no magic wand to make the debt go away. But we do need to take action. It would be a mistake to shift that burden to struggling taxpayers without first addressing why tuition has gotten so high. For starters, we need to embrace new pathways of learning. For too long, a college degree has been pushed as the only avenue for a better life. The old and expensive brick, mortar, and ivy model is not the only one that will lead to a prosperous future.
A comprehensive solution will almost certainly require another reauthorization of the Higher Education Act. The last reauthorization was signed by George W. Bush in 2008. It has been temporarily extended since then — Congress punted on a reauthorization during election season, which means it is overdue for another overhaul. DeVos told the Senate that she’s ready to get to work on that.
“I look forward to working with Congress and all stakeholders to reauthorize the Higher Education Act to meet the needs of today’s college students,” she said. The Education Department did not immediately respond to Credit.com’s request for comment as to whether there were any updates regarding DeVos’ plans since she testified.
Many issues remain on the table: Stakeholders are already arguing about enforcement of new rules against for-profit schools and the future of government direct lending vs. “co-signing” for borrowers. But the $1.4 trillion, 70-year-old problem is now an elephant in America’s living room — and no administration can make debt like that simply disappear.
What Can Students Do?
While solutions to the systemic student loan problem are unlikely to come to fruition overnight, there are some steps struggling borrowers can take to stay current on their payments — and to preclude that debt from harming their credit. (You can see how your student loans may be affecting yours by viewing two of your free credit scores, updated every 14 days, on Credit.com.)
Federal student loans borrowers, for instance, can apply for a deferment or forbearance if they’re temporarily unable to repay those bills post-college. They can also apply for an income-based repayment plan that can help lower monthly payments to an affordable level. Private student loan borrowers may also have these options available to them, but it varies by lender and there may be fees attached to certain requests. (It’s best to ask about these options ahead of time — you can find more about vetting private student lenders here.)
There are also ways to lower the cost of your college education before and while in school. These options include looking into scholarships and grants, working part-time while taking classes and attending community college for few years before transferring to a four-year institution — more on how to pay for college without building a mountain of debt here.
But you might not know: Student loan forgiveness is often taxable.
These taxes can create huge hidden costs when the forgiven amount gets added to your tax bill.
Here’s what you should know about student loan forgiveness and taxes before you’re surprised with a tax bill.
You Could Be Hit With a Tax Bill
For many borrowers, income-driven repayment plans, such as Pay As You Earn, coupled with student loan forgiveness, can be financial saviors. These repayment plans cap your student loan payments each month at 10% to 15% of your income.
After some period—usually 20 to 25 years—of steady repayment, your remaining balance is forgiven.
However, there is an important factor to consider: Under current IRS rules, any loans forgiven under these programs are considered taxable income.
This means you could face a hefty tax bill when your loans are forgiven.
Let’s say that after making payments under an income-driven repayment plan for 25 years, you’re left with $40,000 in debt, which is forgiven. That $40,000 becomes taxable income.
In this case, your lender would send both you and the IRS a 1099-C form with the amount of debt forgiven—the same amount you’ll use when completing the necessary tax forms.
So while you might no longer have to pay back $40,000 in student loans, you’ll instead owe a big tax bill. That $40,000 in loan forgiveness could mean a $10,000-plus federal tax bill, which doesn’t include potential state income taxes.
If you can’t pay the tax bill, you could be forced to set up a payment plan with the IRS to resolve your tax debt. If you don’t take any action, you could face a penalty and have to pay interest on this debt.
And you thought your student lender was tough — imagine dealing with the IRS.
Possible Changes to the Current Tax Law
Lawmakers have discussed changing tax laws to get rid of the prospect of paying massive tax bills on student loans. Last year, U.S. Reps. Mark Pocan and Frederica Wilson introduced the Relief for Underwater Student Borrowers Act.
This act would exempt student loan borrowers in good standing with their repayment from being taxed on their forgiven loans.
Currently, only borrowers who qualify for forgiveness as a result of their jobs (e.g. teacher loan forgiveness or public service student loan forgiveness) are exempt from being taxed.
Pocan said the bill is important because it “closes a major gap in our tax code which penalizes some borrowers who have been granted debt relief after at least 20 years of consistent repayment towards their student loan debt.”
However, the bill has made little headway in Congress. Meanwhile, the student loan crisis continues to affect borrowers.
In the absence of a legislative fix, some borrowers can claim insolvency to avoid paying taxes on forgiveness. However, this likely only applies to a portion of borrowers who receive student loan forgiveness.
The laws may yet change as more people start to have their loans forgiven.
In the meantime, it’s crucial to understand the current tax law so that you can avoid unpleasant surprises in the future.
It’s also a good idea to see how your student loan is affecting your credit score. If you’re paying them back on time, it’s a way to boost your scores while you’re young. You can check two of your scores free, updated every 14 days, on Credit.com.
The average tax refund is more than $3,000. When you hear that number and do your taxes, only to find out that your refund is much less — or worse, that you owe money — it can be tempting to fudge the numbers and increase your refund.
But misrepresenting your income on your return counts as tax fraud, and has serious consequences. Below, find out what happens if you lie on your taxes and what IRS penalties you could face.
1. You Can Get Audited
Because the IRS gets all of the 1099s and W-2s you receive, they know if you do not report all of your income. Even if you accept unreported payments in cash or check, your financial activity can reveal red flags about what income you do not report, potentially triggering an audit.
An IRS audit is an extensive review of your taxes and financial records to ensure you reported everything accurately. Though most people have a less than 1% chance of being audited, it’s not worth the risk.
Undergoing an audit is a time-intensive and costly process that involves providing years of documentation and even in-person interviews. If the IRS audits you, you can (and probably should) hire a professional to represent you and your interests. While that’s a smart idea, it can be a pricey, unexpected cost.
While the IRS may have only flagged one return for audit, they can review any return from the past six years. If they find more issues, they can add penalties and fines for every year they find problems. If you made tax mistakes for the past several years, you could end up owing thousands for taxes you misrepresented.
2. Tax Fraud Carries Heavy Penalties and Fees
If the IRS does select you for audit and they find errors, the penalties and fines can be steep.
According to Joshua Zimmelman, president of Westwood Tax and Consulting, fudging your taxes to reduce your tax bill or boost your refund can cost you more in the long run.
“If you don’t pay your tax liability by the due date, the IRS will charge you a late payment penalty. Even if you file on time, you may still be charged a late payment penalty if you under report your income and the IRS finds out,” Zimmelman said.
And the penalty is just the start. The IRS can also charge you interest on the underpayment as well. “If you’re found guilty of tax evasion or tax fraud, you might end up having to pay serious fines,” said Zimmelman.
While tax evasion or tax fraud is normally imagined as something that affects high earners and big executives, even those with lower incomes need to be careful. When describing the penalties for tax fraud, the IRS does not differentiate between income amounts or how much you underpaid your taxes. If you falsify any information on a return, they can fine you up to $250,000.
3. Criminal Charges Are Possible
Besides potentially owing thousands in IRS penalties, fees, and interest, you could also face criminal charges.
“Tax fraud is a felony and punishable by up to five years in prison,” said Zimmelman. “Failing to report foreign bank and financial accounts might result in up to 10 years in prison.”
Criminal investigations and charges start when an IRS auditor detects possible fraud during their audit of your returns. Courts convict approximately 3,000 people every year of tax fraud, signaling how serious the IRS takes lying on your taxes.
The odds of the IRS charging you for fraud is relatively small — if you’re investigated, the chances are less than 20 percent that you’ll face a criminal charge — but the potential consequences are severe. It’s not worth the risk to get a little extra money in your refund.
4. You May Miss Out on a Mortgage or Loan
Finally, not reporting all of your income can have serious ramifications when it comes to buying a car or a home.
“If you under-report your income, it might hurt you when you try to buy a house or apply for a personal loan,” said Zimmelman. “You might not get it if it looks like you cannot afford to pay it back, so lying on your taxes may hurt in that respect.”
When mortgage companies and banks review your application, they request copies of your tax returns to check your total income. If you lied about your income to lower your tax liability, your full income won’t be on the return. That means you may be denied for the loan you need, hurting your financial future.
Accurately Report Your Taxes
No one likes owing money at tax time or missing out on a big refund. But tax fraud is a serious criminal action, and glossing over your income or boosting your deductions counts as lying to the IRS.
Saving yourself a little money at filing time can end up costing you thousands of dollars with auditing, penalties, and fines. Save yourself the trouble and report your information accurately.
“I LOVE my student loan debt,” said no one, ever. Not only can student loan repayment be difficult to understand, it can crush your budget, and whenever there’s confusion and desperation, there’s someone trying to make money off it.
There are a handful of legitimate ways you can make your student loan payments more affordable, but it’s very likely you’ll come across student loan scams if you’re researching repayment options. These scams vary widely — some are looking to steal your personal or financial information, while others are trying to profit from high fees or misleading claims. Here are some red flags you need to watch out for.
1. It’s Too Good to Be True
The age-old scam identifier holds true for student loans: If it’s too good to be true, it is. Some common scams include terms like “instant forgiveness” or that you’re “pre-qualified” for lower loan payments, said Matt Ribe, senior director of legislative affairs and corporate secretary for the National Foundation for Credit Counseling. A company can’t know if you’re qualified for federal student loan programs like income-based repayment (IBR) or public service student loan forgiveness unless they’ve assessed your student loans and your personal financial situation. Ribe said to watch out for any broad, blanket guarantees that a company can get you a particular outcome — it’s really not that simple.
2. They Charge High, Upfront Fees
It doesn’t cost anything to apply for federal repayment or forgiveness programs (IBR, public service student loan forgiveness, revised Pay As You Earn aka RePAYE, etc.). You can do that through your student loan servicer (talking to your servicer is always free, too).
There are a lot of companies out there that charge fees for helping you apply for such programs.
“We pay people to fix our cars and prepare our taxes all the time; there’s nothing inherently wrong about that,” Ribe said. “It’s the misleading advertising that really irks consumer protection folks and the Department of Education, for sure.”
Joshua R.I. Cohen, a student loan lawyer in Vermont and Connecticut, said he’s seen student loan scams offer consumers “relief” and charge upfront fees between about $300 to $2,000. The company may not clearly explain what the fees are for — people often confuse monthly maintenance fees with their actual student loan payments — or they might just take your money and run. Your loans may not even qualify for a federal repayment program (private student loans don’t), but they’ll charge you a consulting fee anyway.
3. They Say ‘You Have To’
Any company that demands a specific form of payment (often paired with high-pressure sales tactics like, “This offer will expire at the end of the year!”), should make you suspicious, Cohen said.
You’ll also want to be wary of an offer that tells you how you should handle your loans, because it’s up to you to decide what makes most sense for your finances. For example, you generally do not need to consolidate your loans to qualify for IBR (except for Federal Perkins Loans, which must be consolidated to qualify for IBR).
“The scam company doesn’t say why you need to consolidate they just say, ‘Oh you need to do this,'” Cohen said.
4. ‘The New Obama Student Loan Relief Program’
Both Cohen and Ribe cited this one. You may have even seen ads for it online.
They say something like, “‘By consolidating you can qualify for the Obama Loan Forgiveness Program’ — there is no Obama Loan Forgiveness Program,” Cohen said.
Falling for this one may mean you pay a fee or you end up “consolidating” into a loan with murky terms and a high interest rate — all for a program that doesn’t exist.
Also watch out for companies claiming to be affiliated with the government or the Education Department — only student loan servicers and debt collectors work directly with the government.
5. They Want to Take Control of Your Loan
Cohen and Ribe said there’s no reason to pay your loan through a third party. Scam companies have been known to ask for your Federal Student Aid ID (FSA ID) or your National Student Loan Data System (NSLDS) PIN. This is personally identifying information that can allow a third party to take control of your loan.
“You don’t know what the company is actually doing, (or) if they’re actually forwarding the money onto the servicer,” Ribe said. The company may also change your contact information on your student loans, so you won’t know if you miss payments or default.
Why You Need to Be Careful With Student Loan Repayment
If you ever have questions about your student loan payments, you can ask your student loan servicer for guidance. The Education Department, the Consumer Financial Protection Bureau and local consumer advocates (like a student loan lawyer or a non-profit credit counselor) are also good sources.
Paying interest is no fun. But if you have student loan debt, you don’t have much choice.
Wouldn’t it be great if the government gave you a break on that student loan interest you pay each year?
Well, here’s some good news: You might be able to deduct a portion of student loan interest from your taxable income — up to $2,500 — thanks to the student loan interest tax deduction. Find out if you qualify for this deduction and learn how to claim it below.
How the Student Loan Interest Tax Deduction Works
The IRS lets you claim the student loan interest tax deduction on Form 1040, Line 33. Because it’s considered an “above the line” deduction (i.e., an adjustment to your income), you don’t have to itemize your taxes in order to claim it.
Keep in mind, this is a deduction and not a credit. That means claiming this deduction will reduce your taxable income by up to $2,500. In terms of real dollars saved, your total tax bill could be reduced by up to $625, depending on your income and how much student loan interest you pay.
Who Qualifies for the Deduction?
There are three qualification criteria you need to meet in order to claim the student loan tax deduction:
Have a Qualified Student Loan: First, you need to have a qualified student loan. The IRS says that the loan must be taken out to pay for qualified education expenses. Not only that, but it can’t be a loan from someone related to you, or provided as part of a qualified employer plan. So, if your grandma offers you a loan for your education, and you pay interest to her on top of making principal payments, you can’t deduct that interest. The same is true if your employer offers student loans as part of a company benefit. Only loans from the federal government or a private lender will qualify.
Be a Qualified Student: Next, the loan must be taken out on behalf of a qualified student in order to deduct the interest. The student can be you, your spouse, or your dependent. So, you can still deduct student loan interest from your income, even if the loan is financing your spouse’s or child’s education and not yours. However, no matter who that student is, they must have been enrolled at least half-time in a program at an eligible educational institution when the loan was taken out. The program should lead to a degree, certificate, or other recognized credential.
Meet Income Requirements: Finally, there is an income requirement. The IRS won’t let you claim the student loan interest deduction if your modified adjusted gross income (MAGI) is at least $160,000 if married filing jointly or $80,000 for other filing statuses.
To see if you qualify and find out how much you might personally save on your taxes, you can use a student loan interest deduction calculator to run the numbers.The IRS also offers a handy tool to determine if you qualify for the deduction. It takes about 10 minutes to complete.
How the Deduction Impacts Your Tax Bill
Realize that a tax deduction reduces your income; it doesn’t mean a dollar-for-dollar reduction in what you pay in taxes (that’s a credit). With a tax deduction, your tax bill is smaller because your taxable income is lower.
In the case of the student loan interest tax deduction, the maximum tax benefit is $625. Your actual tax benefit is determined by your income, filing status, and how much you paid in student loan interest.
Say you file single, your MAGI is $45,000, and you paid $800 in student loan interest. Your income might be reduced by $800, but the actual impact on your taxes is to lower what you pay by $200.
It’s still a reduction in what you owe, and when you combine the student loan interest tax deduction with other deductions and credits, it can make a big difference in your final tax bill (or refund).
How to Claim the Student Loan Interest Tax Deduction
Start by taking a look at how much you paid in interest (not your total student loan payments). That information can be found on Form 1098-E. Each of your student loan servicers should send you a copy. You can find the interest you paid in Box 1.
Add up the amounts from all your forms and enter it on your tax form in the appropriate place. However, you might need to make sure you meet the income requirement.
According to the IRS, your MAGI is basically your adjusted gross income (Line 37 of the Form 1040) after adding back in certain deductions. Some of the deductions you add back in include:
Student loan interest
One-half of your self-employment tax
Tuition and fees deduction
IRA contribution deduction
Certain investment losses
Exclusion for adoption expenses
For example, your adjusted gross income might be $40,000. However, you claimed $3,000 in IRA contributions and $1,000 in student loan interest. Plus, your side gig meant a self-employment tax deduction of $500. That’s $4,500 in deductions. To calculate your MAGI, add that $4,500 back to your adjusted gross income. You end up with a MAGI of $44,500.
As long as your MAGI meets the IRS income requirements, you can still claim the deduction. If all those deductions you’re claiming put your MAGI over the top, you have to erase the deduction from your form.
The student loan interest tax deduction can be a great way to reduce your taxable income and lower your tax bill. It’s best used in conjunction with other tax breaks, so consider consulting a tax professional to find out how to best take advantage of all your options. You can find a quick guide to other common tax deductions and exemptions here.
Like a growing number of student loan borrowers, 60-year-old Beatrice Hogg will be paying off her loans well into her 80s.
“I’ll probably die before I pay off the loan,” says Hogg, a social worker living in Sacramento, Calif. In total, she owes $45,000 in outstanding federal student loan debt. She borrowed the money in the early 2000s in order to finance her Master of Fine Arts degree in creative nonfiction, which she received in 2004 from Antioch University of Los Angeles.
With monthly payments of $251, Hogg says she doesn’t expect to pay off her loans until well into her 80s. That could easily change if she runs into the same bouts of unemployment that have dogged her over the last decade, leading her to defer her payments several times.
Hogg’s story is further proof that student debt has become a multi-generational issue. A recent report by the Consumer Financial Protection Bureau found the share of Americans 60 years and older who carry federal student loan debt has quadrupled over the last 10 years — from 2.7% of all borrowers to 6.4%. In total, this group of borrowers carries roughly $66.7 billion — or 5.4% — of all outstanding federal student loan debt in the U.S.
According to the CFPB’s report, borrowers who carry student debt late into their lives have more trouble repaying them, reflecting other possible financial issues. Borrowers over the age of 60 were twice as likely to have missed at least one student loan payment compared to the same group in 2005, the CFPB found, and 2 in 5 of borrowers 65 and older have loans in default.
The CFPB reports older Americans burdened with student loan debt are also more likely to skip important health care purchases like prescription medication, doctors’ visits, and dental care because they can’t afford it. As an example, the report cites a separate, 2016 study that found 39% of older borrowers said they skipped those needs compared to 25% of those without a student loan in 2014.
As student loan borrowers have grown older, the number of borrowers who have their Social Security benefits garnished because of student loan payments increased from 8,700 to 40,000 from 2005 to 2015 according to the CFPB. The U.S. government can garnish up to 15% of a borrower’s Social Security benefits as long as the remaining balance is greater than $750 each month.
How did we get here?
Nearly two-thirds, or 73%, of student loan borrowers 60 and older said they took on student debt for a child’s or grandchild’s education. More than half (57%) of all those who co-signed student debt are 55 and older.
Adding to the burden of debt, says Betsy Mayotte, an expert in student loan repayment strategies at American Student Assistance, is the fact that families are now borrowing more than ever to pay for rising college costs. For example, between 2006 and 2016, in-state tuition and
fees at public four-year institutions outpaced inflation by about 3.5% per year according to the College Board. In 2016, the average in-state student at a public four-year institution paid $3,770 in tuition and fees compared to $2,220 in 2009.
“You can have families with a lower income level end up taking out six figures in student loan debt,” Mayotte says.
Another reason student loan borrowers are getting older is because they now have the option to extend their repayment terms if they are struggling to make payments. The Obama administration rolled out several of these income-driven repayment plans in the years after the Great Recession.
The lasting impact of senior student loan debt
It’s simple to understand how paying student loans leaves less to save for retirement.
“For every dollar that you pay toward your student loan payment, it’s a dollar that you’re not putting toward retirement,” says Mayotte.
Hogg now works as a county social worker and began making payments again in December 2015. She says she’s “been current ever since,” but she has yet to contribute to a retirement plan.
“I’m sure that if I didn’t have the [student] loans, I could have probably set myself up better for retirement,” says Hogg. “Hopefully I’ll be able to stay at my job until I’m vested in their retirement plan.”
Tips for struggling student loan borrowers
If you have federal student loans and are struggling with your payment each month, you may want to consider requesting an income-driven repayment plan through your loan servicer. The plans can reduce your payment to as little as $0. You can also request to defer your loans or place them in forbearance if you’re going through financial hardship. Just keep in mind that interest is still accruing.
“It could be tempting to try to get the lowest payment on your student loans,” says Mayotte. But remember, “you’re trying to win the war and not the battle. The longer you pay over the life of the loan, the more you pay in interest.”
Mayotte recommends creating a budget to figure out the most you can afford to pay toward your loans each month. The Department of Education has a calculator on its website that you can use to see your estimated payments under each repayment plan.
When you’re on a income-driven repayment plan, you should keep in touch with your loan holder, and don’t forget to apply for renewal each year.
Unfortunately, if you have private loans, there’s not much you can do to reduce your monthly payment outside of consolidating or refinancing your loans with a lender like SoFi, Earnest, or LendKey. Mayotte says she sees those with private loans and those who don’t complete their degree or program struggle most with repayment.
“The people that I haven’t been able to help almost exclusively have had private student loan debt,” says Mayotte. She says it’s because they don’t have the many repayment options federal student loans do and “life can happen.”
The final word
Despite her debt burden, Hogg says she’s happy as a social worker and says she doesn’t regret getting her master’s. She regrets that she used student loan debt to finance it.
“I regret that I had that big of a gap in my payments from being unemployed. I just wish there were more grants available for getting a higher degree,” says Hogg.
Could you imagine trying to find the best student loan refinancing rate from community banks and credit unions on your own? How would you do it? Would you call every bank and credit union and ask for help? What a nightmare.
LendKey has relationships with 300+ community banks and credit unions all over the United States. LendKey* can issue loans to residents in any of the 50 states. This keeps you from having to pound the pavement by your lonesome. LendKey’s website will show you the best rate for refinancing your student loans.
Since 2007, LendKey has been a one stop shop for student loan refinancing. It also offers other types of loans. But for the sake of this review we’ll be focusing on how LendKey takes care of graduates looking to improve their debt situation. Fixed APRs range from 3.25% – 7.26%. Variable rates start as low as 2.22%. LendKey is one of the top four lenders in MagnifyMoney’s survey of where to refinance your student loan.
Who can benefit from using LendKey? Anyone hoping to refinance their student loans should consider LendKey. It is easy to apply:
If you’re on the fence about refinancing, here are some of the benefits to be gained:
Refinance your way to a more manageable monthly payment.
Spend less on interest by getting a lower rate than the aggregate of all individual student loans.
Making payments on multiple loans to multiple institutions at different times of the month can be quite the hassle. It’s much easier to remember just one payment. Many lenders even let you consolidate both private and federal loans.
Different Repayment Options
Different lenders offer different repayment options. It’s wise to explore all the options to determine what makes the most sense for your particular situation.
Pros of Using LendKey
A Unified Application Process
This is hugely important. With LendKey, you’re not shuffled through tons of screens on different domains – all using different logons and different (confusing!) user interfaces. Within 5 minutes, a person can navigate through LendKey’s application process. This means after 5 minutes, you can see how much you can save by refinancing. You can even choose what loan you want.
Cosigner Release Available
Yes, you can secure a low interest rate and then cut loose your cosigner. Once you prove you are responsible – LendKey no longer needs a cosigner tied to your account. This may help convince a cosigner to work with you initially. They won’t need to be on the hook for long. Once you’ve made 12 full and consecutive on-time payments, your cosigner may be released. LendKey does a credit check and examines your income to see if you are free to go it alone.
No Origination Fee
This is helpful since it means you are free to shop around without feeling committed.
Further Interest Rate Reduction
1% interest rate reduction once 10% of the loan principal is repaid during the full repayment period. This is subject to the floor rate.
0.25% ACH Interest Rate Reduction
Many lenders reduce interest rates by a quarter percent for borrowers who agree to automatic payments.
Federal and Private Loans Can Be Consolidated Together
However, you lose some federal benefits in doing so. Things like free insurance (provided with federal loans if you are killed or severely disabled), public service forgiveness and military service forgiveness as well as income-based repayment plans. Grace periods will likely be omitted when writing the new consolidated loan.
Over 40,000 Borrowers Serviced
As of January 2016, 40,000 people have used LendKey’s services.
Excellent Customer Support
According to cuStudentLoans (which LendKey owns so take this with a grain of salt), 97% of customers are satisfied. Customer support comes out of New York and Ohio. Phone support is available each day from 9AM to 8PM EST.
For what it’s worth, I called into support 5 times at random. The support I received from the sales team was really great. Even the gentleman with only 6 months of experience was quite knowledgeable.
This list of eligible schools is 2,200 and growing. Chances are your school is on the list. However, LendKey doesn’t encourage students to submit eligibility requests as other student loan refinancers do.
Yes, you can ‘return’ your loan. LendKey offers a 30 day no-fee return policy to allow you to cancel the loan within 30 days of disbursement without fees or interest. That’s pretty incredible.
LendKey Doesn’t Give You the Complete Picture
LendKey doesn’t help a lot with stacking institutions against each other. I suppose this is meant to not to play favorites. However, it would be nice to be able to read about each institution within the LendKey interface. I’d still advise opening up another tab to research the banks you are considering.
The Fine Print You May Miss
Since LendKey is a loan matchmaker, there isn’t a lot of fine print on the site. This means a person still needs to review the fine print of each institution before finalizing his or her loan as mentioned before. LendKey does a fantastic job of getting you 90% of the way. But that last 10% of fine print is between you and your lending institution. Read through everything before signing up for a new loan.
I read the Better Business Bureau complaint log for LendKey. There are only 11 complaints in the past 3 years. SoFi (a competitor) has 18 and another competitor, Earnest, has no complaints. These complaints were mostly small misunderstandings between the LendKey support team and the borrowers.
The Application Process
There are four steps to the simple application process. Step 1 is for estimating monthly payments for a private student loan. It’s simple. You identify the amount you’d like to borrow and fill in a radio button indicating your credit is fair, good, or excellent. The last part is where you enter which state you live in. This is because many programs are state specific. Step 1 takes 1 minute.
Step 2 takes 2 minutes. This is the step where you compare the rates and offers available to you. Choose what works best for your unique situation.
Step 4 takes 10 minutes. This is the step where a person verifies identity, school, and income (screenshots/pictures work so there’s no hassle with scanning!). You will know if you are approved during this step.
As with any company, there are competitors. Here are two worthy rivals also worth considering:
Alternatives to LendKey
SoFi stands out with a job placement programs, free wealth management for borrowers and even a dating app. More importantly, SoFi has low interest rates, with variable rates starting at 2.355% and fixed rates starting at 3.375%.
If you have a low credit score but have potential to earn a good income, Earnest will treat you well. Earnest looks beyond a simple credit score. The application process examines employment history, future earning potential and overall financial situation.
Earnest seems to take a very personal approach to each customer. A customer states an amount they can pay each month and Earnest will give them a loan, accordingly. Earnest also lets borrowers skip a payment each year. This could come in handy if money gets tight around the holidays. Just keep in mind, this can increase your future payments to compensate for the missed on.
Fixed interest rates start at 3.75% and variable interest rates start at 2.55%.
However, Earnest isn’t available for all US residents.
LendKey runs a fantastic student loan refinancing division. The company offers many, many customizable options with very few downsides. With no application fee, it’s worth seeing what this student loan refinancing powerhouse can do for you.
*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.