Publisher and VP of Research
Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college.
Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions.
Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship.
Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association.
Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation.
Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis.
Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.
What is an Unsubsidized Student Loan?
Unsubsidized student loans are more expensive than subsidized loans because interest starts accruing sooner on unsubsidized loans. The borrower is responsible for the interest that accrues on unsubsidized student loans during in-school and grace periods, as well as deferments and forbearances. Borrowers can choose to pay the interest as it accrues or to defer paying the interest until the student loans enter repayment.
What is a Subsidized Student Loan?
Subsidized student loans are among the least expensive student loans. The federal government pays the interest on subsidized student loans during the in-school and grace periods, as well as during authorized deferments. Borrowers are responsible for paying the interest on subsidized student loans after the loans enter repayment. Borrowers are also responsible for the interest that accrues during forbearances. The federal government pays the interest during deferments but not forbearances.
Most Families Pay More than the Expected Family Contribution
Despite the name, most families will pay more than the expected family contribution (EFC). The actual family contribution is greater because of unmet need and the inclusion of student loans in the financial aid package. Most colleges do not meet full demonstrated financial need, leaving the student with a gap of unmet need. Unmet need is the difference between financial need and financial aid.
What is a Private Student Loan?
Private student loans are non-federal education loans, offered by banks, credit unions, state loan agencies and other financial institutions. Private student loans can be used to pay for college costs after you’ve reached the loan limits on federal student loans and have exhausted all other sources of college funding.
What’s the Difference between Student Loan Consolidation and Refinance?
Student loan consolidation and student loan refinance both combine two or more student loans into one new loan with just one monthly payment, streamlining the repayment process. Consolidation and refinance also provide borrowers with an opportunity to reduce the monthly loan payments by increasing the repayment term. But, there are important differences between consolidation and refinance, such as the impact on interest rates and borrower benefits.
Tax Rates on Scholarships Triple
Scholarships used to pay for tuition and textbooks are tax-free, but scholarships used to pay for other expenses, such as room and board, are treated as taxable income to the recipient. A change in the Kiddie Tax enacted by the Tax Cuts and Jobs Act of 2017, however, triples the tax rates on such scholarships.
Reasons for Creating a Custodial 529 Plan Account
There are several reasons why a family might create a custodial 529 plan account instead of using a regular 529 plan account. The contribution may have come from an UGMA or UTMA account. A contributor may want to retain control over the 529 plan account without hurting the student’s financial aid eligibility.
Pending 529 plan legislation
Several members of Congress have introduced legislation during the 116th session of Congress (2019-2020) to make changes that would affect 529 plans, the annual gift tax exclusion, Coverdell Education Savings Accounts, ABLE programs and other tax-advantaged savings programs.
Can I Pay My Mortgage with 529 Plan Money?
Some parents save on room and board costs by buying a house or condo near the college campus and letting their child live in it while they are enrolled in college. After the student graduates, they sell the property at a profit. Since they can use a 529 plan to pay for room and board, can they use 529 plan money to pay the monthly mortgage bills?
Strategies for Using a 529 Plan to Repay Student Loans
The SECURE Act, which became law on December 20, 2019 as part of an annual appropriations bill, allows families to take a qualified distribution from their 529 college savings plans to repay up to $10,000 in student loans owed by each of the beneficiary and the beneficiary’s siblings. But, why would anyone want to use a 529 plan to repay student loans?
Congress Passes Kiddie Tax Fix
A fix for the Kiddie Tax fiasco is included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was attached to the Further Consolidated Appropriations Act of 2020. The Tax Cuts and Jobs Act of 2017 changed the so-called Kiddie Tax, which taxed a child’s unearned income at the tax rates of the child’s parents. Starting in 2018, however, the Kiddie Tax was based on the much higher tax rates for estates and trusts.
College Students Lack Financial Literacy and Student Loan Literacy
The U.S. Department of Education included three financial literacy questions and three student loan literacy questions on its most recent nationally-representative survey of college students. The survey demonstrated that most undergraduate and graduate students lack financial literacy and student loan literacy.
Test Your Student Loan Literacy and Financial Literacy
The U.S. Department of Education administered a short test of financial literacy and student loan literacy to more than 100,000 undergraduate and graduate students. Only about one in six students were able to answer all six questions correctly. Check your financial literacy and student loan literacy skills on the same test.
The best 529 plans: 5-Cap Ratings
The Savingforcollege.com 5-Cap Ratings provide an independent and objective evaluation of direct-sold and advisor-sold 529 plans. The 5-cap ratings, updated quarterly, help consumers consider their college savings options and choose the best 529 plans. We are pleased to share the top rated plans from our latest quarterly analysis.
Financial Guide to Becoming a Grown-Up
College students and new graduates can learn how to adult, when it comes to finances. Get help understanding how to manage money, including dealing with student loan debt, buying insurance, opening a checking account, building good credit, renting your first apartment, buying a car for the first time, making a budget and starting to save for retirement.
How to Get a Disability Discharge of Your Student Loans
Borrowers who have a severe disability that prevents them from engaging in substantial gainful activity or renders them unemployable may qualify to have their federal and private student loans forgiven. The disability discharge process is somewhat complicated. This guide will help you understand the steps you need to take to qualify for a disability discharge of your student loans.
HELPER Act Proposes More Tax-Free Student Loan Repayment Options
Senator Rand Paul (R-KY) introduced legislation to allow tax- and penalty-free distributions from retirement plans to pay higher education expenses and to repay student loans starting in 2020. The Higher Education Loan Payment and Enhanced Retirement (HELPER) Act (S. 2962) will also expand the student loan interest deduction and exclude up to $5,250 in employer-paid student loan repayment assistance programs (LRAPs) from the employee’s income.
History of Income Share Agreements
Income-share agreements (ISA) have experienced a series of false starts since the early 1970s. Each attempt to implement income-share agreements has provided insights about what doesn’t work. Eventually, proponents will be able to eliminate most of the flaws, developing income-share agreements as an alternative to traditional student loans.
Upromise College Savings Rewards Program
The Upromise rewards credit card and college savings program automatically sweeps rewards and rebates into the family’s linked 529 college savings plans. Upromise combines a cash back rewards credit card, rebates from an online shopping portal, dining rewards and a round up savings program.
How to Choose the Best 529 Plan for You
529 plan rankings tend to be one size fits all. But, the 529 plan that is best for other people is not necessarily the best 529 plan for you. When choosing the best 529 college savings plan, the choice should be personalized to your family’s specific situation, such as your state of residence, your risk tolerance and your investment time horizon.
Beware of the Asset Forfeiture Clause on ABLE Accounts
When saving for a disabled person’s disability-related expenses, ABLE accounts provide several financial aid and tax advantages over special needs trusts and 529 college savings plans. But, these advantages are offset by an asset forfeiture clause that is triggered upon the death of the beneficiary of an ABLE account.
What is a National College or University?
A national college or university draws its enrollment from the nation as a whole, as opposed to enrolling students primarily from the same or adjacent states. This is in contrast with a regional college or university, where more than half of the students come from the same or adjacent states.
How to Save for College
College is expensive. Parents pay for college using a combination of college savings, contributions from income, scholarships, grants, tax credits, student employment and student loans. Increasing the amount of college savings can make college more affordable and reduce the amount of student loan debt. But, how do you get started saving for college? What is the best way to save for college? This introduction to college savings will help you get the answers you need to your questions about saving for college.
College Scholarships Statistics
Each year, more than 1.7 million private scholarships and fellowships are awarded, with a total value of more than $7.4 billion. About 1 in 8 students Bachelor's degree programs have won scholarships, an average of $4,200. Only 0.1% have won $25,000 or more in scholarships.
Financial Aid Fraud
If you’re thinking about committing fraud on a financial aid application, don’t. You will get caught. Not only will you ruin your own future, but you will also ruin your children’s future. You will also be depriving deserving students from the financial aid funds they need to pay for college.
The Free Application for Federal Student Aid (FAFSA) is an application for financial aid from the federal government,state government and most colleges. The FAFSA application season officially starts on October 1. Students should file the FAFSA ASAP to maximize the amount of financial aid for which they are eligible.
What is the FAFSA?
The FAFSA is the Free Application for Federal Student Aid. Students submit the FAFSA to apply for financial aid for college from the federal government, state governments and most colleges and universities. About 20 million students file the FAFSA each year. Financial aid includes grants, scholarships, student employment and student loans.
What’s the Difference between a Deferment and a Forbearance?
Private student loans may consider deferments and forbearances to be synonymous, but there are important differences with regard to federal student loans. Both deferments and forbearances provide borrowers with a pause in their student loan payments. The difference between a deferment and a forbearance affects who is responsible for paying the interest on a federal student loan.
How to Avoid Late Payments on Student Loans
There are several simple ideas that can help borrowers avoid making late payments on their student loans. These ideas include signing up for auto-debit, using text alert reminders, budgeting, changing the payment due date, changing the repayment plan, increasing income, deferments and forbearances.
What's the Difference between Subsidized and Unsubsidized Student Loans?
The federal government pays the interest on subsidized federal student loans during in-school and grace periods, when the student is enrolled on at least a half-time basis. The federal government also pays the interest during other periods of authorized deferment, such as the unemployment deferment, economic hardship deferment and military service deferment.
Capitalization of Interest on Unsubsidized Student Loans
The federal government does not pay the interest on unsubsidized loans during a deferment or forbearance and the interest on subsidized loans during a forbearance. If the borrower does not pay this interest as it accrues, it is capitalized by adding it to the loan balance, leading to interest being charged on interest.
Federal Income Tax Form Simplification Complicates FAFSA Form
Recent changes in federal income tax returns affect the Free Application for Federal Student Aid (FAFSA), starting with the 2020-2021 FAFSA. The 2020-2021 FAFSA, which families begin filing on October 1, 2019, replace requirements based on IRS Forms 1040A and 1040EZ with IRS Form 1040 Schedule 1.
Why Borrowers Don’t Qualify for Loan Forgiveness
A recent GAO report provides new insights into why borrowers don’t qualify for Public Service Loan Forgiveness (PSLF) and Temporary Expanded Public Service Loan Forgiveness (PSLF). It seems that both the borrowers and the PSLF servicer may be at fault.
GAO Finds Flaws with Expanded Public Service Loan Forgiveness
The U.S. Government Accountability Office (GAO) has issued a report reviewing the performance of the Temporary Expanded Public Service Loan Forgiveness (TEPSLF). The report finds that the process of applying for loan forgiveness is not clear to borrowers and could be simplified. The GAO also recommends improvements in the U.S. Department of Education’s efforts to publicize TEPSLF.
Do You Need an Emergency Fund While You Are Enrolled in College?
College students should build an emergency fund into their budgeting for college costs. The emergency fund will help them cover unexpected expenses, reducing the likelihood that they will be forced to drop out of college because of a financial shortfall.
Legal Documents for Students Who Are Headed to College
Before your child crosses through the ivy-covered gates on the start of their college journey, there are a bunch of legal documents you might need. These documents include a FERPA waiver, HIPAA authorization, health care proxy, living will and a general power of attorney. It’s also a good idea to review your health insurance and homeowner’s insurance policies to make sure your child is covered.
The FAFSA’s Asset Protection Allowance Continues to Crash
The Free Application for Federal Student Aid (FAFSA) shelters a portion of parent assets using an asset protection allowance (APA). The asset protection allowance has dropped significantly since peaking in 2009-2010 and continues to decline. If current trends continue, the asset protection allowance will disappear completely in just one more year, by the 2021-2022 FAFSA.
Surge in Number of Colleges Cutting Tuition
The number of colleges pursuing tuition resets (tuition cuts) has surged in recent years. From 1987 through 2011, an average of one college a year cut tuition rates. From 2012 through 2018, the number of colleges cutting tuition increased tenfold to an average of 10 colleges per year, peaking at 18 in 2018.
Historical Federal Student Loan Interest Rates and Fees
The interest rates on federal student loans are among the lowest interest rates available to college students. Interest rates on Federal student loans reset annually on July 1, based on the last 10-year Treasury Note auction in May. Previously the interest rates were pegged to the 91-day T-Bill, 12-month T-Bill or Constant Maturity Treasury (CMT).
Historical Federal Student Loan Limits
Federal student loans have annual and aggregate limits on the maximum amounts that may be borrowed. These dollar limits are in addition to cost of attendance caps on the amounts that may be borrowed. The loan limits depend on degree level, year-in-school and dependency status.
Student Loan Servicers
A student loan servicer performs customer service functions for a student loan, such as sending out statements and coupon books, collecting payments and responding to borrower questions. The servicer may also provide a secure web site that borrowers can used to review their loan status, current balance information and payment history, and to make payments on their loans.
Student Loan Repayment Assistance Programs
Employers offer their employees student loan repayment assistance as a recruiting and retention tool. With a student loan repayment assistance program, or LRAP, the employer makes monthly student loan payments to the employee’s lender, helping the employee to repay their student loans quicker.
Student Loan Statistics
More than two-thirds of Bachelor’s degree recipients in the Class of 2019 graduated with an average of $29,900 in student loan debt. Collectively, 45 million student loan borrowers owe $1.6 trillion in federal and private student loan debt. These, and other student loan statistics, were first developed by Mark Kantrowitz, the nation’s leading expert on student loan debt.
Statistics Concerning Student Loan and Borrower Characteristics
As borrowers grow older, they tend to make progress in repaying their student loan debt, to a point. The remaining borrowers are increasingly the ones who struggle to repay their student loans. Older borrowers are more likely to be in deferment, forbearance or default. Student loan debt also varies by the type of college and the location of the college.
Student Loan Repayment Statistics
Student loan repayment statistics suggest that many student loan borrowers are struggling to repay their student loans. However, these statistics are attributable mostly to borrowers who drop out of college and not to borrowers who graduate. College dropouts have the debt, but not the degrees that can help them repay the debt. Thus, we don’t have a student loan problem, at least not yet, so much as a college completion problem.
Total Student Loan Debt Outstanding
There is a total of $1.6 trillion in student loan debt outstanding, owed by 45.1 million borrowers, as of Q1 of 2019. Total outstanding student loan debt demonstrates linear growth and will reach $2.0 trillion by the end of 2023 or beginning of 2024, if current trends continue.
Average Student Loan Debt at Graduation
Two-thirds (69%) of Bachelor’s degree recipients in the class of 2019 graduated with federal and private student loans, an average of $29,900 per borrower. The average parent loan debt was $37,200 among the 14% of parents of Bachelor’s degree recipients who borrowed to pay for their student’s college education. It does not include parent loans borrowed for other children.
How to Evaluate the Risk of Investment Glide Paths
Measuring the risk of age-based investment glide paths and target date funds is challenging because they consist of a series of portfolios, as opposed to a single static portfolio. With a static portfolio, the risk is the percentage of the portfolio’s assets that are invested in equities (e.g., stocks). This white paper defines the risk of an investment glide path as the average of the initial and final percentage equities.
What Happens When You Borrow Too Much Money for College?
People who borrow too much money for college may struggle to repay their student loans in a reasonable amount of time. They are more likely to be late with their student loan payments, or even go into default. Missing loan payments ruins their credit, affecting access to credit cards, auto loans and home mortgages. Borrowing too much money can also cause delays in major life-cycle events that are part of the American dream.
Student Loan Debt Causes Delays in Achieving Major Financial Goals
Borrowing too much money for college can cause delays in major life-cycle events, such as buying a car, getting married, having children, buying a home and saving for retirement. Student loan payments may divert funds that could be used to achieve these financial goals. Although student loan stress correlates with the amount of debt, low income seems to contribute more to student loan default than high debt.
What Happens When You Default on Student Loans?
When borrowers default on their student loans, the consequences are severe. Default ruins the borrower’s credit, limiting access to future forms of consumer credit. The borrower will have to pay collection charges, which can significantly increase the cost of the debt. The federal government has very strong extrajudicial powers to compel repayment of federal student loans.
What are the Differences between the FAFSA and CSS Profile?
Students submit the Free Application for Federal Student Aid (FAFSA) to apply for college financial aid from the federal government, state government and most colleges and universities. For many colleges and universities, the FAFSA is the only form students need to file. However, some colleges require a supplemental form called the CSS Profile in addition to the FAFSA. The CSS Profile differs from the FAFSA in many ways, including more than twice as many questions.
Citizenship Requirements for Financial Aid Eligibility
Federal student aid is available only to students who are U.S. Citizens, U.S. Nationals, U.S. Permanent Residents or one of a limited number of types of eligible noncitizens. Most state, college and private scholarship programs use similar criteria for their own financial aid programs.
How to Apply for Financial Aid for College
Financial aid can be complicated, but the steps you need to take to apply for financial aid are simple. File the FAFSA and, if necessary, the CSS Profile. File these forms every year, even if you got nothing other than loans last year. Also, search and apply for scholarships. The only way to get financial aid is to apply.
Some Colleges Have Very High Parent Borrowing Rates
Nationally, more than 14 percent of parents of Bachelor's degree recipients borrowed Federal Parent PLUS loans to help their children pay for college. At some colleges, however, a much greater percentage of parents are taking on parent loans. This is especially true at Historically Black Colleges and Universities (HBCUs).
Is there an Income Cutoff on Eligibility for Financial Aid?
Parents sometimes wonder whether it is worthwhile to file the Free Application for Federal Student Aid (FAFSA), especially if they think their income is too high to qualify for need-based financial aid. But, there are no simple income cutoffs on financial aid eligibility, in part due to the complexity of financial aid formulas.
Everything you need to know about the Federal PLUS Loan
The Federal PLUS Loan is an unsubsidized federal education loan for graduate students and for parents of dependent undergraduate students. The Federal PLUS Loan, also known as a Federal Direct PLUS Loan, is available after the student exhausts eligibility for Federal Stafford Loans.
How to Have the College Money Talk with your Children
If parents don’t talk to their children about college affordability and student loans, who will? Talking to your children about paying for college and student loans can be an uncomfortable subject. Parents sometimes struggle to have these conversations with their children. However, it’s best that your children hear about these topics from you first, rather than learn the hard lessons that come with enrolling at a high-cost college and borrowing too much money.
Hidden College Costs
Not all college costs appear on the college bill, which is often limited to tuition and required fees. Sometimes room and board will be included, if the student is living in campus housing. But, hidden college costs can add hundreds or thousands of dollars of unanticipated expenses each year. Most students should budget for an additional $300 to $500 per month for extra costs.
Are Scholarships Taxable?
Scholarships used to pay for tuition and textbooks are generally tax-free, while scholarship amounts used to pay for other college costs, such as housing, meal plans and transportation, are taxable. The student must also be a degree candidate for the scholarships to be excluded from income. The scholarship also cannot be fee for services, with a few exceptions.
Interest Rates on Federal Student Loans Drop for 2019-2020
Interest rates on federal student loans decrease by a bit more than half a percentage point for new loans made on or after July 1, 2019. The new interest rates are 4.529% for Federal Stafford loans for undergraduate students, 6.079% for Federal Stafford loans for graduate students and 7.079% for Federal PLUS loans.
Senator Marco Rubio Proposes a New Type of Federal Student Loan
Senator Marco Rubio (R-FL) proposes to replace interest with a fixed financing fee that is added to the loan balance. The financing fees will be 25% for Federal Direct Stafford Loans and 38% for Federal Direct PLUS Loans. Financing fees may be easier for borrowers to understand than level amortization of traditional student loans.
When is a State Tax Break Better than Lower Fees on a 529 Plan?
Sometimes, an out-of-state 529 plan may provide a better financial value than an in-state 529 plan. When saving for college, always consider your own state’s 529 college savings plan, if the state offers a state income tax deduction or tax credit based on contributions to the state’s 529 college savings plan. But, an out-of-state 529 plan may offer lower fees. Which option saves more money?
How to Rollover U.S. Savings Bonds into a 529 Plan
Interest on certain U.S. savings bonds is excluded from income if the savings bonds are used to pay for qualified higher education expenses or rolled over into a 529 college savings plan, prepaid tuition plan or Coverdell education savings account. The process for reporting a savings bond rollover can be a little confusing, but nevertheless is straightforward.
U.S. Department of Education Discriminates against Zombies
A review of guidance published by the U.S. Department of Education demonstrates that the U.S. Department of Education discriminates against zombies in the awarding of federal student aid funds. The guidance also uses insensitive language that offends the undead, such as repeated references to “living expenses.” This is despite the fact that some senior members of the administration may, in fact, be zombies themselves.
Federal Student Loans Provide Superior Benefits
Students should borrow federal first, because federal student loans offer superior benefits as compared with private student loans. Federal student loans are better than private student loans. Parent loans and private student loans should be considered only after the student has reached the loan limits on federal student loans.
Income-driven repayment plans base the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. Generally, if a borrower's total student loan debt at graduation exceeds their annual income, they will have a lower loan payment under an income-driven repayment plan.
Revised Pay-As-You-Earn Repayment (REPAYE)
Revised pay-as-you-earn repayment (REPAYE) is an updated version of the pay-as-you-earn repayment (PAYE) income-driven repayment plan. It eliminates the eligibility restrictions in the PAYE repayment plan. As with the PAYE plan, loan payments are based on 10 percent of discretionary income. But, loan payments are not capped at standard repayment and there is a marriage penalty. Also, the repayment term is 300 payments (25 years) instead of 240 payments (20 years) if the borrower has any graduate student loans.
Pay-As-You-Earn Repayment (PAYE)
Pay-as-you-earn repayment (PAYE) is an income-driven repayment plan that bases student loan payments on 10 percent of the borrower’s discretionary income, which is defined as the amount by which adjusted gross income exceeds 150% of the poverty line. The remaining debt is forgiven after 240 payments (20 years). Generally, borrowers whose debt at graduation exceeds two-thirds of their annual income will have a reduced monthly payment under PAYE.
Income-Based Repayment (IBR)
Income-based repayment (IBR) is an income-driven repayment plan that bases student loan payments on 15 percent of the borrower’s discretionary income. The remaining debt is forgiven after 300 payments (25 years). Generally, borrowers whose debt at graduation exceeds their annual income will have a reduced monthly payment under IBR.
Income-Contingent Repayment (ICR)
Income-contingent repayment (ICR) was the first income-driven repayment plan. Income-driven repayment plans base student loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. Income-driven repayment plans are intended to be a safety net, in case the borrower graduates with too much student loan debt.
Alphabeticity Bias in 529 Plan Portfolio Selection
When faced with complicated decisions, such as a choice among many possible 529 plan portfolios, consumers often choose the first option listed. Since portfolios are typically listed in alphabetical order, this can lead to a preference for portfolios with names that begin with letters earlier in the alphabet, called alphabeticity bias.
The Complexity of Payroll Withholding for Student Loan Payments
Senator Lamar Alexander has proposed automatically deducting student loan payments from borrowers’ paychecks. This is an elegant idea that would save the federal government about $1 billion a year in collection costs. Payroll withholding of student loan payments isn’t as simple as it might seem initially, but the problems aren’t insurmountable.
How Do Student Loans Affect Your Credit Scores?
Federal and private student loans are reported to the three major U.S. credit bureaus. Like any other debt, delinquencies and defaults will affect the credit history and credit scores of the borrower and the borrower's cosigner, if any. But, there are also several ways in which student loans affect credit scores differently than other types of debt.
Who Is Responsible for a Student Loan in Case of Divorce?
When a married couple gets divorced or separated, who is responsible for repaying the student loans and parent loans? The answer depends on whether the loans were borrowed before or during the marriage, whether the couple lives in a community property state, whether there is a prenuptial agreement and whether the ex-spouse cosigned the loans.
What Are the Key Differences among Age-Based Asset Allocations?
Differences in performance of age-based investment glide paths are attributable to several key characteristics in the asset allocations. Savingforcollege.com analyzed 180 age-based investment options offered by all 85 of the 529 college savings plans for which data was available in Q3 of 2018. The report, Characteristic Differences among Age-Based Investment Glide Paths, identifies eight key characteristics that contribute to differences in investment performance.
Beware of the New College Student Tax Penalty
The loss of the personal exemption in the tax cut legislation implicitly creates a new tax on college students. Although the Child Tax Credit was doubled to compensate for the loss of the personal exemption, the tax credit is available only for children under age 17. The new tax credit for other dependents does not fully compensate for the lost personal exemption for college students, since it is worth less than half as much.
How to Choose a High-Yield Savings Account
High-yield savings accounts offer higher interest rates than traditional savings accounts. High-yield savings accounts are good options for college students, parents and recent college graduates. But, how do you choose the high-yield savings account that best meets your needs?
How to Appeal for More Financial Aid for College
If you didn’t get enough financial aid, you can always ask for more. The worst that can happen is the college financial aid administrator says “no.” But, to increase the chances of a successful appeal, it is important to understand how the appeals process works. Appealing for more financial aid depends on presenting the college financial aid office with adequate documentation of special circumstances that affect the family’s ability to pay for college.
How to Avoid the 10% Tax Penalty on Non-Qualified Distributions
The earnings portion of a non-qualified distribution from a 529 plan is subject to income tax at the beneficiary’s rate, plus a 10 percent tax penalty. There are, however, several exceptions in which the 10 percent tax penalty does not apply, such as death or disability of the beneficiary and receipt of a qualified scholarship by the beneficiary.
Reauthorization of the Higher Education Act of 1965
The Higher Education Act of 1965 is the legislation that authorizes most federal student aid programs. Major changes in student aid policy occur when the Higher Education Act of 1965 is periodically reauthorized. The Higher Education Act is supposed to be reauthorized every 4-5 years, but the delay between reauthorizations has been increasing with each successive reauthorization. The Higher Education Act of 1965 is overdue to be reauthorized.
Get Ready for the Start of Student Loan Repayment
Student loan repayment begins six months after the student graduates or drops below half-time enrollment. There are several steps that student loan borrowers should take during the grace period, before the start of repayment, to ensure that the repayment begins smoothly.
Closed School Discharge for Students and Parents
If a college closes while a student is enrolled or soon after the student withdraws, and the student is unable to complete the educational program at another college, the student and parent may be entitled to a discharge of their federal student loans that were borrowed to pay for the closed school.
Student Loan Deferment for Active Cancer Treatment
Federal student loan borrowers who are undergoing active treatment for cancer may defer repaying their Federal Direct student loans for the duration of treatment and for 6 months afterward. Interest does not accrue on any Federal Direct student loans during the active cancer treatment deferment, not even on unsubsidized Federal Direct Stafford loans.
More than 15,000 children are diagnosed with cancer each year. An even greater number of parents of college-age children die of cancer. Cancer is a source of stress on a family, both financial and non-financial. Cancer drains family resources that otherwise could help send their children to college. Cancer scholarships can help alleviate some of that stress.
Bloomberg Gives $1.8 Billion to Support No-Loans Financial Aid
Philanthropist Michael R. Bloomberg, 76, is giving $1.8 billion to his alma mater, Johns Hopkins University, to support need-blind admissions and a no-loans financial aid policy. This is the largest gift ever made to a college or university.
Colleges with No-Loans Financial Aid Policies
More than six dozen U.S. colleges and universities have adopted no-loans financial aid policies. These policies eliminate loans from the financial aid packages of low-income students, replacing them with grants and work-study. Some of the colleges have extended their no-loans financial aid policies to also include middle-income students and some to all student aid recipients, not just low-income students.
Can you use a 529 plan to pay for graduate school?
A 529 plan may be used to pay for the beneficiary’s graduate school or professional school education. A distribution to pay for qualified higher education expenses at a graduate school or professional school will be considered a qualified distribution and therefore tax-free.
How to Increase Chances of Qualifying for a Student Loan Refinance
There are six steps that can improve your odds of being approved for a refinance of your private student loans, sometimes called a private consolidation loan. These include maintaining stable employment, ensuring sufficient income to repay the debt, keeping a low debt-to-income ratio, having a very good or excellent credit score, getting a creditworthy cosigner and shopping around for the best interest rates and fees.
Can you use a 529 plan to pay for travel costs?
You cannot use a 529 plan to pay for travel and transportation costs. The earnings portion of a distribution from a 529 that is used to pay for travel and transportation expenses will be considered a non-qualified distribution. Non-qualified distributions are taxable at the beneficiary’s rate, plus a 10% tax penalty, as well as recapture of state income tax benefits attributable to the distribution.
Senators Introduce Bipartisan Bill for IRS Data Sharing for Student Aid
In a sign of renewed cooperation between Republicans and Democrats in the Senate Health, Education, Labor and Pensions Committee, a bipartisan group of Senators introduced legislation to enable sharing of IRS data with the U.S. Department of Education. The sharing of IRS data will help students who are applying for federal student financial aid.
State Treasurer asks IRS to allow college savings for Pre-K
Mississippi State Treasurer Lynn Fitch wrote a letter to the IRS on November 5, 2018, asking the IRS to include preschool tuition as a qualified expense for 529 plans. The Tax Cuts and Jobs Act of 2017 expanded qualified expenses to include up to $10,000 per year per beneficiary in tuition for elementary and secondary schools. The IRS has proposed regulations that would limit the definition of elementary and secondary school to K-12, excluding Pre-K.
529 plan performance review: Q3 2018
Each quarter Savingforcollege.com analyzes the investment performance figures for thousands of 529 portfolios and ranks the 529 savings plans from best to worst for 1-, 3-, 5-, and 10-year investment performance. Our 529 plan performance rankings include plans that consumers can enroll in directly, as well as those sold through brokers and fee-based financial planners.
Celebrate National STEM Day with Math and Science Scholarships
National STEM Day, which occurs annually on November 8 (NOV8 = en-o-v-ate = innovate), presents an opportunity to explore scholarship opportunities in math, science, engineering and technology. Some of the most generous scholarships are available to students who are interested in math and science.
Can you use a 529 plan to pay for room and board?
If a 529 plan distribution is used to pay for room and board, it is a tax-free qualified distribution in certain circumstances and a taxable non-qualified distribution in other circumstances. The student must be enrolled as a regular student on at least a half-time basis.
Morningstar Publishes Paper about How to Increase Interest in 529 Plans
Morningstar Inc. has released a research paper about family use of 529 plans, New Lessons about 529s. The paper shows that getting middle-income families to shift college savings to 529 plans will yield increased investment returns. The paper also provides practical ideas for getting more families to invest in 529 plans.
What is a 529 Plan? (Video)
A 529 plan is a tax-free way of saving for college costs. Money in 529 college savings plans also has a minimal impact on the student’s eligibility for need-based financial aid for college. Since 2018, 529 plans can also be used to save for elementary and secondary school tuition.
Massachusetts to Seed Newborn 529 Plans with Birthday Contributions
All children born or adopted in Massachusetts in 2020 and beyond will be eligible for the SeedMA Baby program. This program deposits $50 to the Massachusetts 529 plans of newborn and recently adopted children in the state. A Massachusetts 529 plan must be opened by the baby’s first birthday or within one year of the child’s adoption.
College Savings Horror Stories
Saving and paying for college involves some scary statistics. A 4-year college education could cost as much as $500,000 when today’s newborn children are ready to enroll. But, even if you think you’ve got the costs covered, you may make a mistake that ruins your child’s future.
Top 10 tips to growing your 529 plan funds faster
Every investor wants to find a magical method for speeding up savings and increasing the return on investment. With college tuition inflation rates averaging about 6% to 7% over the last few decades, there is even more pressure on parents who invest in 529 college savings plans. Here are our favorite secret solutions for accelerating the growth of 529 plans.
Free credit freezes
Consumers can obtain free credit freezes for themselves and their underage children starting on Friday, September 21, 2018, due to the passage of a federal consumer protection law earlier in 2018. Getting a credit freeze can help protect you from identity theft. Parents and graduate students should be aware of the possible impact of credit freezes on applications for the Federal PLUS loan.
How to prepare for filing the FAFSA
There are several steps that students and parents can take in advance to prepare for filing the Free Application for Federal Student Aid (FAFSA). The FAFSA is a free form that is used to apply for financial aid from the federal government, state governments and most colleges and universities.
How to apply for financial aid at more than 10 colleges on the FAFSA
The online Free Application for Federal Student Aid (FAFSA) provides space for applicants to list up to ten colleges. So, how do you use the FAFSA to apply for financial aid at more than ten colleges? This is one of the most common questions about the FAFSA.
Tax Reform 2.0 legislation will let 529 plans repay student loans
The House Ways and Means Committee released legislative language for Tax Reform 2.0 on September 10, 2018. Among other provisions affecting 529 college savings plans, the legislation proposes to allow families to use 529 plans to repay student loans.
Is the Gerber Life College Plan a good investment?
The Gerber Life College Plan by Gerber Life Insurance promises guaranteed growth and the flexibility to use the money to pay for college or other expenses. But, the investment earnings are taxable and do not keep pace with college tuition inflation. The Gerber Life College Plan also offers inferior performance as compared with the return on investment available on FDIC-insured Certificates of Deposit and 529 college savings plans.
Age of majority
The age of majority is the age at which a minor child legally becomes an adult. The age of majority may differ from the age of trust termination, when a child gains control over a custodial 529 plan account and UTMA accounts. The age of majority and the age of trust termination vary by state.
College savings rewards credit cards
Several credit cards offer cash back to help families save for college. These credit cards automatically contribute the cash rewards to linked 529 college savings plans. Each 529 credit card has a different percentage cash back and a different set of linked 529 plans.
Income share agreements
Income share agreements are an alternative to student loans in which the borrower agrees to pay a percentage of their income for a specified number of years after graduation. Income share agreements are also known as ISAs. The total payments under an income share agreement may be higher than the total payments under federal and private student loans.
Trump administration tax rule may kill school voucher programs
The IRS issued a proposed rule on August, 23, 2018 that may unintentionally eliminate much of the funding for school voucher programs. The new rule is intended to block attempts to circumvent a cap on federal income tax deductions for state and local taxes.
Starting a 529 plan? Time to review your life insurance.
There are several reasons why a family might want to review their life insurance coverage when starting a 529 college savings plan, such as providing peace of mind and protecting family finances from unforeseen events. Your term life insurance policy should have sufficient coverage to fund the amount of future college expenses you plan to pay for.
Do you need life insurance coverage for your 529 plan?
There are several reasons why a family might want to get life insurance coverage when starting a 529 college savings plan, such as providing peace of mind and protecting family finances from unforeseen events. A term life insurance policy is sometimes necessary to protect a 529 college savings plan account.
Can you use a 529 plan to pay off student loans?
Some students graduate with leftover money in their 529 college savings plan and would like to use this money to pay off all or part of their student loan debt. Unfortunately, student loans are not considered to be a qualified higher education expense for 529 plans under current law.
How to qualify for refinancing student loans
Refinancing private student loans can be challenging, with few borrowers qualifying for a private consolidation loan. Approval depends on credit scores, income, debt-to-income ratios and other factors. Nevertheless, there are a few steps borrowers can take to increase their odds of being approved to refinance their private student loans.
Can a 529 plan be used to pay for college application fees?
Selective colleges charge college admission application fees of $40 to $90 each. With the addition of admissions testing fees, the total can be as much as $107 per college. That can easily add up to thousands of dollars if the student applies to an excessive number of colleges. So, it is not surprising that parents might want to use 529 plan funds to pay for college application fees and admissions testing fees.
How do 529 plans work?
A 529 college savings plan is a specialized savings account that is used to save money for college. The money in a 529 plan may be used to pay for the college expenses and K-12 tuition of the beneficiary, tax-free. Many families find that 529 plans work well, helping them achieve their college savings goals.
Can a Roth IRA be used to pay for college?
A Roth IRA can be used to pay for college, but there are some advantages and disadvantages when compared with using a 529 college savings plan to pay for college. Although a Roth IRA may offer some tax advantages, distributions from a Roth IRA can hurt eligibility for need-based financial aid.
Can you use a 529 plan to pay for study abroad?
Distributions from 529 college savings plans can be used tax-free to study abroad, subject to certain restrictions. In particular, the distribution must be used to pay for qualified higher education expenses at an eligible educational institution. Eligible educational institutions include colleges and universities that are eligible for Title IV federal student aid.
Differences between federal student loans and private student loans
There are several important differences between federal student loans and private student loans, besides just the source of funds. These differences include cost, eligibility criteria, repayment options and safety nets. Generally, federal student loans are cheaper, more available and have better repayment options than private student loans.
Should you use home equity instead of student and parent loans?
Consider the tradeoffs between home equity loans, home equity lines of credit and cash-out refinance, which may provide cost savings as compared with student and parent loans, and the greater risks if the borrower encounters financial difficulty.
How to calculate GPA
A student’s grade point average (GPA) can have an impact on money for college. Grandparents might reward good grades with contributions to the grandchild’s 529 college savings plan. Eligibility for private scholarships might be based on the student’s GPA. Great grades and test scores can affect a student’s admissions chances at the most selective colleges and universities.
What are sales charge breakpoints?
Some advisor-sold 529 college savings plans have up-front sales charges. For example, Class A shares may involve a sales charge of as much as 5.75%, but also involve lower annual expenses. A breakpoint reduces the sales charge on new investments when the total investments exceed a specified threshold.
Does refinancing student loans really save a lot of money?
Lenders that refinance private student loans often advertise that borrowers save tens of thousands of dollars by refinancing their student loans. The savings figures are based on the average estimated reduction in total payments over the life of the loan. Are these savings real, or is this just a marketing gimmick?
The avalanche method beats the snowball method for paying off student debt
The snowball and avalanche methods pay down debt quicker by making extra payments. The snowball method applies extra payments to the loan with the lowest loan balance. The avalanche method applies extra payments to the loan with the highest interest rate. The avalanche method is more effective for student loans.
IRS Data Retrieval Tool
The IRS Data Retrieval Tool (IRS DRT) allows applicants to transfer income and tax information from their federal income tax returns into the Free Application for Federal Student Aid (FAFSA), simplifying the FAFSA. Both students and parents may be able to use the IRS Data Retrieval Tool.
Growth in student loan debt at graduation slows as borrowers hit loan limits
Increases in average student loan debt at graduation have slowed, based on an analysis of recently released federal government data. But, don’t start celebrating just yet. Borrowing has shifted from students to parents, especially at higher-cost colleges, because more students are reaching federal student loan limits.
IRS Verification of Nonfiling Letter
Applicants who file the Free Application for Federal Student Aid (FAFSA) and who indicate that they or their parents will not file a federal income tax return may be required to obtain a Verification of Nonfiling Letter if their FAFSA is selected for verification.
Personal finance tips for recent college graduates
Now that you’ve graduated from college, it’s time to get started on the rest of your financial life. Tips on repaying student loans, building an emergency fund and saving for retirement will help you manage your money. But have you considered starting to save for your children’s college education?
Student loan forgiveness
Student loan debt may be cancelled through one of several loan forgiveness, loan discharge and loan repayment assistance programs. While it’s better to use college savings than student loans to pay for college, getting someone else to repay your student loans is almost as good an option.
How to find scholarships for college
Scholarships provide free money for college. To win a scholarship, you must demonstrate some skills, such as chasing round objects on a field, creating a prom costume out of duct tape or getting great grades. But, before you can win a scholarship, you must find some scholarships. There are several free online scholarship matching services that can provide a targeted search for scholarships.
Scholarships worth $100,000 or more
Some scholarships are so generous that they cover a big part of college costs. Every qualified student should consider applying to these scholarships. If they win one of these scholarships, they can afford to attend even the most expensive colleges and still graduate with little or no student debt. These scholarships eliminate cost as a barrier to college access.
What is the difference between grants and scholarships?
Grants and scholarships are both types of gift aid. Gift aid is money that does not need to be earned or repaid, unlike student employment and student loans. Although the words grant and scholarship are often treated as synonyms, there are important differences. Grants tend to be based on financial need, while scholarships tend to be based on merit.
Second chance for public service loan forgiveness
The U.S. Department of Education has announced how borrowers who were in the wrong repayment plan may qualify for Public Service Loan Forgiveness (PSLF). The second chance opportunity for loan forgiveness, called Temporary Expanded PSLF (TEPSLF), is available on a first-come, first-served basis.
Women owe about $1 trillion in student loans
According to a report published by the American Association of University Women (AAUW), Deeper in Debt, women owe about $1 trillion in student loans, nearly two-thirds of the total outstanding student loan debt. Gender differences in college savings may contribute to the disproportionate student debt burden.
Advantages of receiving scholarships through a 529 college savings plan
Private scholarship providers may award scholarships as contributions to the recipient’s 529 college savings plan, instead of writing a check to the college or recipient. This practice will minimize scholarship displacement, expand the tax-free treatment of scholarships to include room and board, and allow scholarship money to grow tax-free.
529 plan state tax deduction loophole
If your state offers a state income tax benefit for contributions to a 529 plan, you can get a discount on tuition costs by making a contribution and taking a distribution the next day. This loophole can save you 3% to 10% of college costs, depending on the state.
How to save for a child’s college education before the child is born
Opening a 529 college savings plan normally requires the Social Security Number of Taxpayer Identification Number of the beneficiary, which prevents parents from saving for college before the baby is born. However, a parent can set up the 529 plan and change the beneficiary after the baby is born.
What is the best way to use 529 plan funds?
When using money from a 529 college savings plan to pay for your child's college education, should you spread the money out equally across all four years, or spend as much of it as possible during the first few years? Each strategy has a different impact on eligibility for need-based financial aid and education tax credits.
Workarounds for grandparent-owned 529 plans
If a 529 college savings plan is owned by a dependent student or the dependent student's parent, it has a minimal impact on the student's eligibility for need-based financial aid. But, if the 529 plan is owned by anybody else, such as a grandparent, aunt or uncle, it will hurt aid eligibility. There are, however, a few solutions that will address the potential harm.
How to increase qualified distributions from your 529 plan
Learn how to increase the limits on qualified distributions from a 529 college savings plan. Appeal to the college financial aid office to increase various allowances in the cost of attendance to match actual costs, such as allowances for textbooks, transportation, dependent care, off-campus rent and the cost of a computer.
6-year gift tax averaging
5-year gift tax averaging lets you contribute five times as much money to a 529 college savings plan in a single year. There are, however, a few tricks that let you give even more money without incurring gift taxes, such as 6-year gift tax averaging, giving to the parents, giving the gap and giving to a different beneficiary's 529 plan.
Divorce can derail college savings
Even an amicable divorce can cause problems with a child’s college savings plans. Divorce attorneys are not financial aid experts. They may not be aware of all of the potential consequences of divorce on a child’s eligibility for financial aid or the nuances of need-analysis formulas.