Archive for Personal Finance

The Great Student Loan Lie

photo of student loan applicationWhile we’re talking about the many problems caused by student loan debt and how to address it, I think we need to start at the beginning and address a basic falsehood.

Student Loans are not financial aid. They are debt, plain and simple.

Let’s Play “Let’s Pretend”

Colleges, banks and the government may all collude to dress loans up as financial aid, but student loans are long term debt obligations. They come with compounding interest, repayment plan options and the interest is tax deductible.

Sounds like it has all the makings of a typical financial contract to me.

Student Debt Equals Aid?

Ever had a mortgage company tell you that they are giving you financial aid at the closing table?

No, I didn’t think so.

Instead, they give you pages & pages of disclosures about how much you are going to pay and how the compounding interest will significantly increase the total amount you will eventually repay.

And you need to prove that you have a reasonable chance of repaying the debt.

Not so with Student Loans:

Are you in school?

No income?

No job on the horizon?

No idea how much you will earn after you graduate?

No problem.

We’ll loan you money and you won’t have to start repaying it until after you graduate. Of course, we’ll start charging and compounding the interest from the initial date of the loan so at graduation you’ll owe more than you think you are borrowing.

But hey, no worries, we’ll just add that to the balance of your loan (capitalizing it) and then charge you interest on that too.

Who Wins?

From my vantage point, the financial aid recipient is actually the lender who receives the interest. The rest of us lose.

Student loan debt is a major problem for students and for our economy. The debt hampers graduates’ ability to save, to buy homes, to invest and to begin building solid financial lives. And that ultimately impacts economic growth, the housing market and all of us.

I was very lucky. Thanks to my parents and a true Financial Aid package I came out of college and graduate school with no debt, so I started my professional life on an even financial footing.

The jobs market was really lousy, but at least I didn’t start out behind the financial eight ball. What I earned, I could use to begin to build my financial future.

No Simple Solutions

There are many issues related to this topic that need resolution, including addressing the absurd cost of obtaining a higher education in this country.

But maybe if it wasn’t so easy to pretend that debt is financial aid, universities and other educational institutions would have a more difficult time filling all those freshman classes. And then they’d have to address questions such as why tuition cost increases are far outpacing inflation.

So let’s be honest and admit our complicity in letting the government and the education establishment redefine “debt” as “aid.”  By encouraging students to borrow significant amounts of money without any guardrails or a real world understanding of how much time & effort it takes to pay back thousands of dollars in debt, we undermine their future and fail a very basic financial planning test.


Paying for College Tuition? Don’t Miss Out on These Tax Credits

Education Tax creditsPutting yourself or kids through college is very expensive, so don’t miss out on these 2 education tax credits if you’re eligible.

Tax credits reduce your taxes dollar for dollar, so they can take some of the bite out of your tax bill.

The credits are available for you, your spouse or claimed dependents. But you can’t take both credits for the same expenses or same student.

The American Opportunity Tax Credit:

• has a maximum credit of $2,500
• is available for all taxpayers but is subject to certain income limits which adjust annually
• is a credit for tuition, some types of fees and course materials
• applies to the first four years of post-secondary education expenses
• applies to the taxpayer, spouse or dependents

For more information and current income restrictions, check out the IRS FAQ page.

The Lifetime Learning Credit:

• has a maximum credit of $2,000.
• is available for taxpayers with modified adjusted gross incomes (MAGI) up to certain limits that change each year. It can be used for expenses such as tuition, certain fees & course supplies

Get more information on the IRS website.

To see if you are eligible for either credit, use the IRS education tax credit calculator tool.

To claim the credit you must complete Form 8863 & attach it to your tax return.

Visit the IRS website or talk with your tax preparer for more information. There are numerous rules about which educational institutions are eligible and how to calculate the credit.


Worried about Tax Return Identity Theft?

Tax-Identity-FraudIf you’re not, you should be. Filing fraudulent tax refunds with stolen identity information is one of the fastest growing areas of identity theft.

Here’s how it works:

Scammers steal your ID info, including your social security number, and then file a fraudulent tax return in your name. They get the refund & disappear with it.

You usually don’t find out until you file your own tax return or are notified by the IRS that you’ve been a victim.

Then you are stuck sorting the whole mess out.

Once you’ve been victimized, the IRS assigns you a PIN number to put on all future tax returns so that you are clearly identified. This should help prevent it from happening again.

Florida, Georgia & the District of Columbia residents seem particularly at risk for this type of identity fraud, so the IRS has a new program to help prevent it.

If you filed a tax return from one of those locations last year, you’re eligible to get a PIN number to help identify you when filing your return this year. It’s a proactive way to tell the IRS that it is really your tax return, not a fake.

Get more information on this program at


The Business Will Pay for It

expense report photoWhat a loaded statement that is, but I’ve heard it a thousand times. “The business” isn’t some disembodied entity with limitless cash resources. If you’re a small business owner, the business is you.
So, you’re paying for it…whatever “it” is.
For most people, the translation of this phrase means that it’s a deductible business expense and so therefore the true cost is somehow discounted. But just because “the business will pay for it,” doesn’t mean it’s a good way to spend money…and it is your money if you own the business. This line of reasoning is particularly prevalent among small business owners who came out of corporate and had a business expense account. In that case, the business was paying for it. Now that you are the business, you’re paying for it and it is important to understand that distinction.
When choosing which business expenditures to make, evaluate them in light of their absolute cost and decide if it’s worth it or not.  Just because something is tax deductible doesn’t make it a smart business move. Some business owners push the envelope on this business expense issue, especially around entertainment expenses. Don’t get caught in the trap of “letting the business pay for it” if the expense is actually a personal one and it doesn’t have a legitimate business purpose. If you’re audited and the deductions are disallowed, you could be facing a hefty tax bill along with penalties or interest.

Military Service Financial Protections

flag millitary servicemembers photoI was completely disgusted when reading the news articles in the last month about how mortgage companies have illegally foreclosed on active service members’ homes. The Service Members Civil Relief Act (SSCRA) was written to protect active duty personnel from that type of personal financial disaster. And it has been in place since World War II!
If we truly support our military service members, shouldn’t we at the very least start by affording them and their families the protections they are legally entitled to? And shouldn’t we make certain that they don’t have to fight for those rights to be enforced at the same time they are fighting to protect us? Saying you’re sorry, just doesn’t seem to cut it in this kind of situation.
Many small business owners are Reservists and their businesses often close or provide significantly less financial support for them and for their families when they are called to active duty. This law won’t help keep their businesses running while away from home, but it can help them stave off financial disaster while they are gone. So if you are currently serving, know your rights.