student loans

5 Tax Breaks You May Have Overlooked

January 3, 2020 By Tamila McDonald Leave a Comment

When a typical person or couple files their taxes, they are usually eligible for at least a few tax breaks. The trick is, deductions and credits aren’t typically applied automatically. In many cases, you have to choose to pursue that tax deduction on your return. If you don’t, then you end up overpaying.

Most Overlooked Tax Breaks

There are certain tax breaks that people are fairly familiar with, regardless of whether they apply to their tax situation. For example, most people know about the child tax credit and earned income credit, even if they don’t personally qualify.

However, there are many others that aren’t as widely known. As a result, tax filers may miss them simply because they don’t realize the deductions or credits are available.

By understanding which tax deductions are frequently overlooked, you can decrease your odds of overpaying. See if any of the situations apply to you and, if so, make an effort to secure that tax break.

Here is a look at five tax breaks that taxpayers frequently miss.

1. Gambling Losses

Whether you live in a state with casinos, spent some time at the track, played the lottery, or took a trip to Las Vegas in 2019, you might be eligible for a tax break. Gambling losses are deductible in some situations.

If you want to claim the deduction, you do have to itemize. In some cases, that approach won’t make sense. But, if you are itemizing anyway, it could help you lower your tax bill.

Additionally, the deduction is limited to how much you report as gambling winnings as part of your taxable income. As a result, it could help you offset how much you owe if you happened to come out ahead when gambling.

2. Jury Pay Given to Your Employer

If you work for a company that pays you your usual wage when you’re on jury duty but requires you to hand over your jury duty pay to them, then you are eligible for a small tax break. Jury pay has to be reported as taxable income. But, if you had to give that check to your employer, you can deduct that amount.

3. Child Care Expenses

Through the Child and Dependent Care Tax Credit, you might be to reduce your tax bill. You can get between 20 and 35 percent of up to $3,000 or $6,000 of your dependent or child care costs back as a credit if you qualify.

Eligibility is based on a few factors. First, you have to be using the service so that you can work. Second, for child care, the child must be under the age of 13. For spouses’ or parents’ or other dependents’ care, they must be deemed incapable of self-care and live with you for more than half of the year.

The size of the credit decreases for higher-income households, though it never disappears completely. While the credit isn’t refundable, it can help you reduce your liability significantly.

4. Dependent Tax Credit

Even if a dependent no longer qualifies you for the child tax credit, that doesn’t mean you can’t get a break. Older children, including college-aged kids, as well as aging relatives who you are providing care for in your home, can make you eligible for a dependents credit of $500.

This tax credit does phase out for higher-income households. If your adjusted gross income is above $200,000 ($400,000 if you are married filing jointly), you’ll fall in that category.

5. Student Loan Interest Paid by Parents

If a parent is paying back your student loans, you are the one who can legally claim the student loan interest deduction. Only the person who is responsible for the debt can deduct the interest, regardless of who is actually paying the bill. This includes adult children who aren’t being claimed as dependents by their parents.

The best part about this deduction is you don’t have to itemize to claim it. That makes it significantly more accessible. Additionally, you aren’t taking a deduction from your parents, as they can’t legally claim it anyway.

Claiming a Tax Break

In most cases, the federal government doesn’t just take your word when you say you are eligible for a tax break. Instead, it requires some form of evidence or proof.

Depending on the deduction or credit, what you need to support your claim varies. You might need details from a specific tax document, like a 1098-E for student loan interest. For the child care tax credit, you have to provide information about the care provider and have proof that you incurred the expenses.

Incorrectly claiming a tax break has consequences. If you aren’t sure you have what you need to claim a deduction or tax credit, it’s wise to review the IRS website. It will outline what you need in each scenario. You can also speak with a tax professional, as they are typically well aware of what it takes to qualify.

Do you know of any other tax breaks people accidentally overlook? Share them in the comments below.

5 Things You Should Know Before You Take Out a Direct PLUS Loan

June 27, 2019 By Tamila McDonald Leave a Comment

Today, at least 3.4 million people have a Direct PLUS Loan, a form of student loan available through the federal government that parents can take out to help fund their child’s education. Together, they owe around $90 billion. While many parents want to help pay for their child’s college degree, taking out a PLUS loan is not without risk.

What You Should Know Before You Take Out a Direct PLUS Loan

Parents of eligible college students have access to Direct PLUS Loans through a federal government program. The US Department of Education serves as the lender, leaving many to believe that Plus loans are a safe option to help fund a child’s education.

However, like any loan, there are pros and cons to using PLUS loans. Here are five things you need to know before you take out a PLUS loan to help fund your child’s education.

PLUS Loan Eligibility, Amounts, Fees, and Interest Rates

First and foremost, it is important to understand that not every parent can receive a Direct PLUS Loan. Along with being a biological, adoptive, or (in some cases) stepparent of a dependent student who is going to an eligible school at least half-time, you also have to have a decent credit history. There are situations where parents with adverse actions on their credit report can qualify, but that usually involves having a cosigner or proof of extenuating circumstances.

Parents can borrow amounts that cover their child’s cost of attending their selected college, minus the value of any other financial aid the student receives. Each school defines its own cost of attendance so that that number can vary from one institution to the next. However, this means there is no formal limit on how much a parent can borrow each year through the PLUS loan program.

The federal government sets the interest rate on a PLUS loan. For disbursements made between July 1, 2018, and July 1, 2019, that rate was 7.6 percent fixed. While the rate on loan will not fluctuate, the federal government can change rates on new loans during each subsequent one-year period.

Direct PLUS Loans are unsubsidized. Interest begins accruing immediately. While you can defer the payments until your child leaves college, your balance will grow based on the interest added to the loan over time. If you do not request a deferment, payments start right away.

Along with interest charges, parents also have to contend with a loan fee. The percentage also varies depending on the year, though sits at 4.248 percent from October 1, 2018, to October 1, 2019. This fee is deducted proportionately from each disbursement. It does not increase the amount of the loan. Instead, it reduces the amount that is sent to the school or can be used for qualifying costs, keeping the loan balance the same.

Repayment Programs for Parent PLUS Loans are Limited

Like other federal student loans, there are several repayment options for PLUS loans. Along with a standard repayment structure – equal payments over 10 years – there are alternatives. The graduated repayment plan has lower payments initially. Every two years, the size of the payment increases throughout 10 years.

On the extended payment plan, the payments can be spread out over 25 years. This leads to lower monthly payments, but you pay significantly more in interest based on the longer life of the loan.

Federal student loans obtained by students come with additional repayment options that simply aren’t available on PLUS loans. As a result, it is important to understand which plans are and are not available, ensuring you can factor that in before you take out a PLUS loan.

Loan Repayment Responsibility is Non-Transferable

Some parents may consider funding a child’s education with a PLUS loan believing that they can transfer the debt to their child after they graduate. However, that isn’t an option. The parent is the legal borrower and cannot transfer responsibility.

There are instances where the debt may be discharged. For example, should the borrower or their student die, the remaining balance is discharged. This can also happen if the parent becomes permanently disabled.

Otherwise, the expectation is that the parent will repay the loan in full during the designated time frame.

PLUS Loans Impact Credit Scores and Borrowing Power

Federal student loans are reported to the major credit bureaus, including PLUS loans. If you obtain a PLUS loan, the balance and payment history appear on your credit. Even if you make on-time payments, the balance of the PLUS loan can impact your borrowing power. Lenders consider the total amount you owe and payment sizes when determining if you qualify for more credit, and these factors also affect your credit score.

Additionally, like any other loan, late payments, missing payments, and defaults are reported on your credit history, impacting your credit score.

Default Comes with Serious Consequences

Failing to repay a PLUS loan comes with serious financial ramifications. Defaulting puts a parent at risk of being subjected to a range of forced repayment efforts, including wage garnishments, tax refund offsets, and Social Security offsets.

Even if you are in a dire situation and file for bankruptcy, you can’t escape a PLUS loan. These loans can’t be dismissed during bankruptcy, regardless of the hardship they create or the severity of your financial situation.

There are steps parents can take if they cannot repay a PLUS loan, including requesting a deferment or forbearance. However, these are only temporary solutions that stop payments for a period or allow for lower payments. Neither forbearance or deferment stop the accrual of interest, so the balance of the loan can still increase if at least the monthly interest charges aren’t paid during that time.

Ultimately, PLUS loans are not risk-free. Since there aren’t formal borrowing limits, parents can find themselves with massive loans. If repayment becomes challenging, there are few options to pursue that can provide relief, as even bankruptcy won’t stop these loans in their tracks. While PLUS loans can be viable options to help fund a child’s education, it is important to consider the risks before you sign on the dotted line. Otherwise, you could be putting your financial well-being in jeopardy.

Have you taken out a Direct PLUS loan? Is there anything you wish you knew before you did? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

21 Reasons Dave Ramsey Sucks at Giving Credit Score Advice

February 17, 2019 By Jeffrey Strain 116 Comments

There are huge disadvantages of having no credit score. I actually know this better than most. After living over ten years in Japan, I came back to the US naively assuming that the credit history I had built over there would transfer back to the US. That wasn’t the case and I found myself having to deal with numerous situations without a credit score. From my personal experience of having to deal with all the negatives that come with having no credit score, as well as knowing a number of others who experienced a similar situation to me when they returned, I can say with conviction that Dave Ramsey gives horrible credit score advice.

For those unfamiliar, Dave Ramsey refers to a credit score as the “I-Love-Debt Score” and makes the statement that “the only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly — without adding too much debt or paying too much off. In other words, stay in debt for as long as you can.” This is patently false as I currently have no debt whatsoever and yet have a good credit score. Others do too.

He then advises that since you are working to become debt free, once you reach that goal you “…don’t need a credit score, anyway, since you don’t plan on using credit!” While this might sound nice, I can attest that even when you are debt free, a good credit score comes in extremely handy. I would even argue that having one is essential if you want to truly be financially savvy since it can save you a lot of money. If you care about getting the most out of your money, a credit score, whether we like it or not, is important to have.

While you may have heard some of the below arguments before regarding why a credit score can be important, my guess is that some of my arguments you may never have considered before. Below are 21 reasons that it’s important to keep a good credit score even if you’re debt free (and why Dave Ramsey sucks at giving credit score advice).

Wasted Time

This one is huge and one that I rarely see mentioned. I can’t over emphasize this point enough, and I would argue for this reason alone, you want to keep a good credit score. Not having one will mean that you will have to spend a lot more time when it comes to numerous financial situations, including any of the ones mentioned below. If you believe that your time is worth something as I do, wasted time can be a huge cost. Even when you are able to get what you want, you usually have to spend a lot more time explaining why you don’t have a credit score even though you don’t have any debt. I had to spend countless extra hours, many being extremely frustrating, sorting out my financial situation which should have been straight forward and simple all because I had no credit history.

Difficulties Even When Successful

Another problem with having no credit score is that even when you successfully get what you want, it’s much more difficult to get it than if you had a good credit score. Not having a credit score often means going through several layers of management until you can reach someone who will approve what you need. The fact is that for most entry-level employees, if anything isn’t exactly correct, they can’t approve it. That means that people who don’t have credit scores have to work much harder to get things than others that have a good credit score can get without any hassles.

Poor Customer Service

This is another aspect of not having a credit score that is often not mentioned, but the reality is that if you have no credit score, you don’t get treated nearly as well in many situations as you do when you have a good credit. When institutions look up my credit these days, they always seem to come back with a smile and an attitude that they are willing to do anything they can to help me. When I had no credit score, they always came back with concerned looks and a demeanor telling me that it was going to be difficult to help me even if they did the best that they could. The fact is, having a good score means that you will get better treatment from anyone who looks it up.

Lack of Financial Flexibility

Having a good credit score gives you a lot of financial flexibility that isn’t available for those with no credit score. When you have a good credit score, there are many financial institutions that want to work with you. That’s not the case when you have no credit score. Having a quality credit score means that you can get a much better deal when it come to virtually any financial transaction than you could get with no credit score at all. When the unexpected happens and you need to get funds for something that you had never anticipated, you simply have more flexibility in getting them than you do without a score to your name. This include the flexibility of financially helping out others if you choose to do so.

Increase Large Transaction Risks

One of the things that I immediately realized when I was still trying to get a credit card (which I was having trouble doing because I didn’t have a credit score) was the additional risk that came when making large purchases. I have always put the purchase of my airline tickets on credit cards because years ago I had a ticket on an airline that suddenly went bankrupt. Since I had made the purchase with a credit card, the credit card company refunded the amount back to me since I never received the service I had paid for. Had I not paid with a credit card in that instance, I would have simply lost the money. I had to make a number of large purchases upon arriving back in the US and although I was able to make them in other ways, I felt a bit uneasy knowing that if things went wrong, I really had no protection simply due to the lack of a credit rating.

Emergency Cash

Having lived through the Great Hanshin Earthquake (along with a number of smaller natural disasters), I know the importance of having access to emergency funds. When these disasters happen, it’s often impossible to get access to money that you have in your bank account (in the case of the Hanshin Earthquake, it was over 2 weeks before I had access to those funds). It helps to have cash in the days immediately after the disaster when many of the electronic transaction systems are down, but it also helps to have a credit card. During that time, my credit card was a lifesaver in securing a hotel room and other needs when I needed to spend thousands of dollars to get out of the city and find other lodging, but still didn’t have access to my bank accounts. Living in an area of the US where I knew a similar disaster could take place, I found that I needed to keep a lot more cash on hand in case of an emergency. I ended up losing interest on the cash I took out of the bank account plus there was the risk that it might get stolen, or in an emergency I wouldn’t be able to get to where I kept it in my house. Even with a large amount of cash on hand, I still felt my financial preparation was far from adequate had a true emergency happened. That is not the case now that I have good credit and credit cards.

Debit Cards Have Drawbacks

It’s often argued that there really is no need to have credit cards if you have a debit card, but in my experience, there are some definite drawbacks to this argument. I had a friend who had his debit card stolen and his account compromised. While he eventually got all the money that was taken out of his account back, his account ended up being frozen for a few weeks while an investigation took place. During this time, he had no access to any of his banking funds. As mentioned above, in an emergency you might need to access more funds than are in your debit card account with no way to transfer additional funds to it. It also doesn’t cover you with large transactions like an airline ticket refund if an airline goes bankrupt.

Difficulty Getting Security Clearance

One of my friends who came back after living overseas for a number of years landed a great job, but the job required security clearance. The lack of a credit score turned out to be a major stumbling block for him to get his clearance. He eventually did, but it took a lot of time and effort since his lack of one sent up a red flag, and even ended up meaning much more scrutiny in other areas of his life as well to get the clearance. Again, if you consider time and aggravation as a cost, then there is a definite one when you don’t have a score to your name.

Difficulty Getting an Apartment

I remember talking with one apartment manager when returning to the US that told me as soon as I mentioned that I didn’t have a credit score that I wouldn’t get approved for an apartment in his complex. He explained that there was high demand for the apartments so it simply wasn’t worth the risk to management even though I had a good explanation as to why I didn’t have one. While I did eventually find an apartment, the lack of a score caused some type of issue at each complex I looked at, making the entire process much more difficult than it ever should have been, and definitely much more so than if mine had been good.

The Possibility of Divorce

Nobody ever thinks they are going to get divorced when they first get married, but the truth of the matter is a high percentage of couples do. If you go into a divorce without a credit score, this can cause a number of issue both during and after. When people believe that they will never have to take out another loan when they become debt free, they are probably at a point where they never think they will get divorced either. The problem with divorce is that it can be an extremely expensive process and can quickly wipe out any savings and emergency funds that you might have had. Once divorced, financial circumstances can greatly change to where loans you thought you would once never need, might be needed to bridge gaps until you can create a new budget for your new reality. Hiring lawyers, finding a new job, getting a new place to live all become more difficult without a score in an already stressful time.

Difficulty Getting Loan Approval

If there is ever a situation when you need a loan, not having a credit score will make it many times more difficult to secure it than if you have a good credit. The thing is, even if you anticipate never needing to get another loan again, circumstances change and life could place a wrench into your best laid plans. Even if you are debt free at a moment and don’t anticipate ever needing a loan, that can quickly change if you unexpectedly lose a job and are unable to find a new one as quickly as you hoped. Life throws curve balls from time to time and if you are thrown one without a good credit to your name, recovering from it can be a lot more difficult than if you had it.

A More Expensive Mortgage

If you need to take out a mortgage, you will end up paying much more if you don’t have a credit score. The problem is that no credit score is equivalent to a bad credit score to most lending institutions. If they have no records that you can pay off your debts, they assume the worst and assume that you can’t. This means no score is the same as having a terrible score in the eyes of lending institutions. While you still may be able to secure a loan (and you may not), you will end up having to pay a larger interest rate to do it which can mean paying tens of thousands of dollars more over the lifetime of the loan.

Difficulty Securing Utility Services

When I needed to get utilities in my name after returning from Japan, I couldn’t just call and have them turned on like I expected. Several required me to pay a deposit in order to put the service in my name since I had no credit history of paying these bills in the past. It makes for an extra step in the process, it takes more time to get the service and you lose the interest that you could have earned from the money that you must give as a deposit.

Trouble Getting a Cell Phone Contract

Upon my return to the US, I was actually denied the first cell phone contract I tried to get due to no credit history. I was eventually able to secure one, but I ended up having to pay a deposit to do so much like I had to when it came to the utilities. While the deposit wasn’t a huge amount, I did lose the interest that I could have been earning on it. Far more frustrating was the extra time and headaches (and the costs associated with them) caused by not having a score that would have never come into play if I had a good one.

Possible Negative Effect on Job Opportunities

One thing that many people fail to realize is that as many as 70% of companies will check the credit history of a candidate for a job before they hire. With so many qualified people in the job market these days, it’s often the little things that end up determining who gets hired. A lack of a credit score compared with someone with the same qualifications that has a stellar one could be the difference in who gets the job. Similar small details can make the difference on promotions within certain corporations, especially for sensitive positions. If you lose a job or are passed over a promotion, that can mean thousands of dollars in lost income.

Pay More for a Car

There have been a number of surveys over the years that show that some car dealers have a tiered system on how much they mark-up a car depending on the credit score of the individual buying the car. Those who are deemed the least credit worthy, which would include those with no credit score, can be charged as much as 3.5% more for a car than those with top scores. This has nothing to do with the interest rate on a car loan, but the actual amount that is charged for the car. That means that even if you don’t need a car loan, you can potentially end up paying more for a car when you don’t have a score.

Another way that lack of a score can cost you more, as pointed out by Anni in the comments, is that you can often get dealer discounts by financing a car worth thousands of dollars, then pay off the car loan soon after. I know that this situation arises because I did it once for one of my car purchases. I had the cash to purchase the car in full, but there was a deal to save $2000 through the credit section of the car maker if I agreed to finance the car, so it made good financial sense to do so. I took the $2000 discount and the loan, but as soon as the $2000 credit came through, I paid off the entire loan. The key here is that to take advantage of these car maker financing discounts, you have to qualify for them, and if you don’t have a credit score, you’re not likely to do so.

A More Expensive Car Loan

If you do need to take out a car loan, you will end up paying thousands of dollars more in interest charges with no score than you would with a good one. Interest rates for those with good credit are usually in the low single digits, while those without will pay double-digit interest rates on the exact same loan. While you may not think you will ever need to take out a loan again, something that you never expected like a divorce or a lost job could result in you needing to get one.

More Expensive Insurance

The insurance industry is in the business of assessing risk. They look at a wide variety of things to determine the risks of the individuals and families that use their services. One of the things that they look at is your credit score. Having one that is poor makes you a higher risk than an individual who has one that is high. The problem is that having no score doesn’t allow them to determine whether you are a higher or lower risk, so they will always make the assumption that you are a higher risk when the risk is unknown. What that all means is that if you have no score, you will end up paying more for life insurance, car insurance and homeowners insurance than you would if you hade a good score.

Difficulty Getting a Credit Card

One of the things that Dave Ramsey says is that you don’t want credit cards, but this is only true if you can’t control yourself. The truth is that credit cards are only a disadvantage if you don’t pay them off fully each month. Once you are out of debt and have built an emergency fund so that there is no need to put expenses on your credit card that you can’t pay off in full each month, credit cards are actually a financially savvy tool to use. They give you insurance in many transactions you may not have otherwise, they may provide additional insurance for you with certain purchases such as airline tickets and car rentals, and they can even pay you cash back for purchases you would otherwise make. The problem is that if you ever find yourself in a situation where you need a credit card, but you don’t have a score, it can be extremely difficult to get one. Even when you do, you can expect to have a very low credit limit that will take years to grow to where it can be useful for larger purchases. I know because the only credit card I could qualify for when I returned was with a bank that I had been with for over 20 years, and they still would only give me one with a $500 limit to start.

Difficulty Getting School Loans

If you ever decide to go back to school, having no score can make it difficult to secure loans. Again, many assume that they will never need to go to school again, but further education might be the only way to secure a job if you happened to lose the one you have. If you can’t qualify for student loans from your school or federally funded loans to pay for your education, you will have to turn to private loans which have interest rates much higher and can end up costing you thousands of dollar more for the same education.

Difficulty Getting Business Loans

If at any time you decide that you would like to start a business, not having a score can hurt you financially in trying to secure a loan for the business. When banks give business loans to individuals, they want to see that they have a track record of paying out the other loans that they have taken out. With no score to your name, that record doesn’t exist and you become a greater risk to give a business loan to. With no score, you might not be able to qualify for one at all without putting up a large amount of collateral, and even if you do, you are likely to pay a higher interest rate on the loan than if you had good credit. You will definitely have a much more difficult time securing the loan which can mean many more hours (if not days) trying to get the money you need.

Dave Ramsey gives lousy credit score advice because he fails to take into account that life can get messy in ways that we never anticipate. In addition, he doesn’t take into account the costs associated with the extra time and aggravations that can come with not having a score. If it were true that you needed to always remain in debt in order to have a good credit score as he states, I might give him some slack, but the fact is that this statement is patently false, I know because I’m currently debt free with a good score. While I’m certainly not saying that all the advice that he gives is bad, the advice he gives regarding credit scores sucks.

Finally, if you don’t like my analysis and want to see what Dave Ramsey has to say, think about getting a copy of his book The Total Money Makeover. The book is an combination of educational handbook, inspirational coaching guide and self study manual. It has sold something like 5 million copies – so its a good example of his best work.

The Grace Period For Student Loans Is Coming To An End

November 18, 2018 By Amanda Blankenship 1 Comment

For those who graduated in May, the grace period for student loans is ending. Many graduates will find their first payment date approaching in late December to early January. With nearly 40 percent of student loan borrowers expected to default on their loans by 2023, it is important to know when your payment is due as well as the different options you may have.

What is the Grace Period For Student Loans?

Many students have a grace period of six months after graduation to make their first payment on their student loans. Folks who graduated in the spring will begin receiving statement letters in the mail this month.

That is, unless you received a Perkins loan (a specific type of federal student loan). If you received a Perkins loan you generally have a nine month grace period.

What Now?

If you’ve received that first bill in the mail, don’t panic. Now is the time to take stock of your loans and create a plan. Know how much you owe and who your servicer is. The servicer company typically will handle sending out statements, collecting payment, and managing your account. Borrowers with multiple loans may have more than one servicer. Check the student loan website to see a full list of loans and servicers.

During this time you should also be sure your student loan servicers have all of your current contact information. This includes a valid email address, home address, and telephone number. Giving them your current information will prevent you from missing a payment.

Private Loans

It is important to note that the federal student loan website will not have any information about your private loans if you took any out for school. If you don’t have the original loan documents, you can reach out to your alma mater to get copies. However, you’ll likely want to begin payments on private loans as well because their grace period is also likely approaching.

Payment Options

If you’re already feeling overwhelmed, remember you have options. Generally, borrowers are automatically enrolled in a 10-year repayment plan. You can get as much as 30 years to repay your student loans.

Some borrowers may find that a 10-year repayment plan is too high of a monthly payment than they can afford. If that’s the case you can request a temporary postponement of payments.

You can also apply for an alternative plan with overall lower monthly payments or income-based payments. This can bring your monthly payment down drastically and, sometimes, lead you to making no monthly payment. It is important to note that this can extend the amount of time you’re paying on loans though.

Each payment plan has different criteria to be deemed eligible. However, having an open line of communication between you and the lender is never a bad idea.

Repayment options can be a bit confusing and, for the most part, many students are required to find everything out for themselves. Even though it may feel awkward to talk about your debt situation with someone over the phone, it is better to explain it than risk going into default.

This Man Escaped His Student Loan Debt By Moving to the Jungle

October 28, 2018 By Amanda Blankenship 6 Comments

Just months ago student loan debt reached a high, ugly milestone of $1.52 trillion. Unsurprisingly, many people find their student debt to be overwhelming, leading to depression and suicidal thoughts in some individuals. In fact, people who are undergoing serious financial stress are eight times more likely to have suicidal thoughts – and some engage in extreme behavior to avoid paying.

Growing Student Loan Debt

Student loan debt has seen a 145% increase in the past decade with no signs of slowing down any time soon. In many cases, individuals carry more student debt than they do in auto loans or credit card debt. For some individuals, the weight of their personal student debt is too heavy for them to carry. Chad Haag was one of those people.

Chad Haag Delt With His Debt by Fleeing the Country.

Haag considered living in a cave in the United States to escape his student debt. According to Yahoo Finance, he already knew a friend doing it. However, for Haag, this wasn’t leaving his problems far enough behind. He wanted to get as far away from his debt as possible.

After majoring in philosophy in college, he held a student loan balance of about $20,000. While that is pennies compared to many other borrowers in the U.S., Haag pointed out that not being able to a land a college-level job made his $300 monthly loan payment devastating to his finances. He was only making $1,700 per month, living with his mother, and rarely going out with friends. “I couldn’t make the math work in America,” Haag said.

Running to the Jungle to Get Away From Debt

He relocated to a jungle in India to escape his student loan debt. In an interview, he said, “I’ve put America behind me.” Now, thousands of miles away from where he once lived in constant anxiety from his debt, Haag says his loans don’t even feel real to him anymore.

His student loans are on their way to being in default and they only thing Haag has to say is, “It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” Of course, this kind of care-free attitude has not come without its trade-offs.

Where Haag is living is far from his Colorado home. He is living in a concrete house in a village in India. The house only costs about $50 per month and Haag says he sees elephants outside his home regularly. Haag also referenced the poor living conditions in some areas of India, stating, “Some toilets here are holes in the ground you squat over.”

Food quality can be a problem as well. He recently ate spoiled goat meat that landed him in the emergency room. However, dreams that would have escaped him in the U.S. because of his debt are now becoming realities for him in the jungle of India.

He has gotten married and he and his wife have plans to own a home soon. Currently, he has a five-year spousal visa and has plans to renew it when it comes time. Haag has absolutely no plans to return to the U.S. or repay his student loan debt.

Is This Responsible?

There is no doubt that many Americans find this type of behavior abhorrent. Student loan debt is only expected to continue to rise in the years to come with estimates projecting students will owe $2 trillion by 2022.

Half of the student loan borrowers haven’t paid a single dollar towards what they owe five years into repayment. Another 40% of those loans are expected in be in default by 2023.

However, moving away from the problem doesn’t make it go away. If anyone is moving away, like Haag, to escape their debt, they’ll find that if they ever return to the U.S. their debts will not be gone. Given the structure of many loans, debts are in fact more likely to grow than be excused. Compound interest, late fees, and collection charges are all typically added to your balance if payment is not made. In addition, late payments will impact your creditworthyness.

Not only will it not go away, but running away will make it worse. The best thing you can do is work out a debt repayment plan that works for you.

How to Keep Your Student Debt Manageable

Many people look at student loan debt as “healthy debt.” And while it is much “healthier” than, say, credit card debt, or even an auto loan sitting on your credit report, it still is a huge responsibility. If you or someone in your household is getting ready to head off to college or go back to school, consider thes money-saving tips.

Go to school in-state. It has been common knowledge for years that going to school closer to home costs less money. If you aren’t getting a full-ride out of state, keep your eye on public schools closer to you. A private university’s tuition sits around $34,740 per year on average. An out-of-state public university isn’t much cheaper at $25,620. However, community colleges and in-state public universities are priced at $3,570 and $9,970, respectively. That’s much less in tuition.
Stay at home to avoid room and board fees. Another great thing about going to school closer to home is that you can stay at home. This will save you thousands of dollars on room and board every year.
Oh – and bring your lunches. It can also save you a ton of money on food. Instead of throwing money at a meal plan or eating on campus every day, you can bring your own lunch and save hundreds of dollars per month.
Take a fast-track in your program. Depending on what your career goals are, you may consider asking someone at the university about a fast-track course for your degree. This will shorten the amount of time you’re in college, making tuition much cheaper.
Avoid private loans. If you can help it, don’t take out any private loans. These are typically higher interested and begin to accrue interest while you’re still in school, unlike loans available through the U.S. government.
Consider taking on work-study or paying your tuition in cash while you’re in school. It’s also possible to work while you’re in school to pay off the remaining tuition you owe. Many schools will work with you on monthly payments to remain in class and will apply funds made through work-study programs to these payments. You can also hold a job off-campus to raise additional funds. This way, you can leave school without owing any money on student loans.

Student Loan Debt Repayment

Remember, if you are feeling overwhelmed by your student debt you have options. Before taking off to India or another remote jungle, consider the options below.

Get more time. Although it is not optimal, may be able to extend the repayment period on your loan to give you more time. Periods for repayment start at 10 years and go up to 30 years, depending on the amount and your ability to pay.
Take a couple months off. You can get a couple months off from paying your student loan if you need it. If you or your partner lose a job and you need a couple months to get back on your feet, you can ask for a couple of months off (most of the time) it is granted. Keep in mind, your loan will still be accruing interest during this time.
Income-based payments. Talk to someone at the bank or company you received the loan through about income-based payments. If you believe your payment could (and should) be lower, talk to someone about adjusting it based on your income. They’ll do what they can to help you.
Financial crisis assistance. If you or your family have faced a serious financial crisis, you can also ask for some time off. This is a bit longer of a period of time than the “couple months off” listed above and, similarly, your loans will still be accruing interest. However, it will keep your loans from going into default.
Keep communication open. If you keep communication open between you and your loan officer, you will be able to work on repaying your student loans. In many cases, these individuals are understanding and will work with you based on your individual circumstances.

All in all, student loan debt is just another type of debt that can help or hurt your creditworthyness. However, it is nothing you should feel like you should run away from. Tackling it head-on and paying it down is the only thing that will truly make your debt nightmare go away.

Readers, what do you think about this man running away from his student loan debt?

First Student Loan? Use This Money Wisely

August 6, 2018 By Tamila McDonald Leave a Comment

student loan uses

Currently, there are approximately 20 million students enrolled at colleges in the US. And, when they graduate, around 70 percent of them will owe money on at least one student loan. In fact, the average student loan debt owed by a single graduate is over $37,000, based on statistics from 2016.

Most students view student loans as a necessary evil. Without the funds, they can’t afford college, leaving them with little recourse.

However, many students, especially incoming freshman, struggle to use the money wisely. But failing to act responsibly can come with significant consequences, ranging from failing to cover school expenses to increasing debt loads. Since approved student loan uses can vary depending on the kind of loan, knowing the right approach to managing this money is a must.

If you have your first student loan and aren’t sure how to handle the money wisely, here are some tips.

Educational Expenses

The primary purpose of student loans is to cover educational expenses. Federal student loans have strict requirements regarding how you can spend the money. Typically, funds from federal student loans are sent to the school first. This ensures the college receives payment for your primary expenses, including:

Tuition
Room and Board
Fees

After meeting these expenses, you can get a student loan refund from the school. Usually, this is a check that you can deposit in your bank account. Then, you can use the money for other qualifying costs, including:

Books
Supplies
Equipment
Personal Computers
Dependent Child Care
Transportation (Not Including a New Car)

By design, the federal student loan program almost forces you to use the money wisely. You cannot spend the funds on anything that does not qualify. If you receive an amount that exceeds your need, then an adjustment to your student loan may occur, or you have to use the excess to make a payment on your student loan.

There are 2 types of federal loans which is covered in detail here: https://www.purefy.com/learn/subsidized-vs-unsubsidized-student-loans

Private student loans are different. They aren’t always as restrictive in regards to student loan uses the bank views as appropriate. However, the exact terms vary by lender. You’ll need to read your loan documents to find out how you can use the money.

Additionally, the funds might not go to the school first, though they usually do. In cases where the money doesn’t go to the school, it is sent directly to you. After receiving the cash, you are fully responsible for paying your educational expenses.

While you aren’t under the same restrictions, it’s smart to use the federal student loan guidelines to help you spend the money in the right places. You always want to cover your educational costs first, beginning with your primary expenses and then your other qualifying costs.

After covering those, you do end up with some choices.

Additional Student Loan Uses

Once you handle your educational expenses and school-related costs, you have some decisions to make. However, if you want to use the money wisely, certain options are better than others.

For example, you can send the excess money back to the lender to pay down your student loans. This can help you lower your balance and avoid some interest, ensuring your debt remains as small as possible.

If you have a federal student loan and have an entire disbursement you don’t need, the easiest thing to do is cancel that loan. You have 120 days after the disbursement to handle the process but may need to work with your school’s financial aid office to handle it properly.

For private loans, you just send the money back as a payment. Usually, you can handle this online through your loan account portal.

What About Fun Money?

When you have student loan money that doesn’t have to be spent on educational expenses, it can be tempting to spend it anyway. The idea of a dinner out or a nice vacation during spring break may be enticing, or getting a new wardrobe may leave you invigorated.

The thought of spending the money usually relates to having a little fun, something that can be important in college. After all, earning a degree can be hard, so it’s easy to assume the mindset that you deserve a reward.

But, it’s important to remember that those examples above aren’t smart ways to spend your money.

Student loans are debt. This means you will pay interest on the amount you borrow. Furthermore, the size of your loans impact your creditworthiness, and large debts make it harder to finance other things you may want in the future, like a house or a car.

Plus, the higher your debt, the higher your payment. For example, if you borrow the average amount of $37,000 with a 6 percent interest rate, on a 10-year repayment plan, you’ll be paying around $411 per month. Over the life of the loan, that comes out to approximately $49,300, $12,300 of that being interest.

However, if you don’t use $4,000 of that money (just $1,000 per year) and send it back to your lender immediately, you’ll owe $33,000. The monthly payment then is about $366. You’ll pay a total of just under $44,000 (about $11,000 in interest), resulting in a pure interest savings of $1,300, not including the $4,000 in principal you don’t have to repay.

If you double the amount you send back, making it $8,000, you’ll get a bigger benefit. Then, you’ll borrow $29,000 and have a $322 monthly payment. You’ll repay around $38,600 over 10 years, with $9,600 being interest. That creates a total interest savings, in comparison to the first scenario, to $2,700. When you add in the principal you don’t have to worry about, you avoid $10,700 in student loan debt payments.

There are numerous repayment programs out there and there are even times your loans can be discharged, but don’t use this information to make poor choices, use it to gain more knowledge of paying loans back when the time comes.

Ultimately, limiting your student loan debt is always a smart move. It helps your creditworthiness, lowers your payments, lets you avoid some interest, and can even provide peace of mind.

If you want to be wise with your student loans, only use the money for important educational expenses. Then, if you have any left over, send it back to the lender. Your future self will appreciate your smart thinking and your wallet will too.