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Clark Howard’s student loan guide

Published: Monday, May 14, 2018 @ 5:21 PM

Do you need to borrow to fund college education for yourself or your child? I wrote this guide to tell you about my Clark Smart approach to student loans.

Read on and let me help you with the #1 problem in so many people’s financial lives!

Types of student loans available for 2018-2019

Loan type

Interest rate

Amount you can borrow

Does interest accrue while in school?

Direct Subsidized Stafford Loans 5.04% (undergraduate students) $5,500 – $9,500 annually for first-year students NO
Direct Unsubsidized Stafford Loans 5.04% (undergraduate students)

6.59% (graduate students)

$5,500 – $9,500 annually for first-year students

$20,500 annually

YES
PLUS loans 7.59% Up to the cost of attendance minus any other financial aid the child is receiving Repayment of principal and interest begins 60 days after loan is made. Parents can defer payments while the child is in school.
Private student loans Varies Varies Varies

Subsidized Stafford loans are the single best source of money you can borrow for school. The interest is picked up by taxpayers while you’re getting your education. New subsidized Stafford loans carry a fixed interest rate starting at 5.04% for the 2018-2019 school year.

Once you exhaust your subsidized Stafford stockpile, you want to move on to unsubsidized Stafford loans. New unsubsidized Stafford loans for the 2018-2019 school year carry a fixed interest rate of 5.04% for undergraduates and 6.59% for graduate students.

You should borrow as little as possible in unsubsidized loans because the interest on these loans accumulates while you’re in school, and you are responsible for the total interest and principal amounts.

As a third option, parents can help their kids by taking out PLUS loans, which are issued at a fixed rate of 7.59%. A parent can borrow up to the cost of attendance.

You apply for federal student loans by visiting FAFSA.ed.gov and completing the Free Application for Federal Student Aid.

Dangers of private student loans

I want you to avoid private student loans at all costs. Back in 2005, the private student loan industry bought off enough politicians to gain the right to do any and all tactics short of causing you bodily harm in their efforts to collect on their money. You have no wiggle room when it comes to repayment options, like you do with federal loans as I explain below. Private student loans typically can’t even be dismissed in bankruptcy.

My rules of student loan borrowing

  • Never borrow more for a four-year degree than the entry-level salary you expect to earn your first year after receiving that degree.
  • Consider doing the first two years of your studies at a community college, and then transferring those credits to the school from which you want your degree.
  • Never borrow any private student loan money! If a degree exceeds what you can borrow under the federal student loan program, you should either pick a cheaper school or work your way through school.

Ways to pay off your student loans

Program

Who qualifies?

What do you get?

Income-based repayment (IBR) Federal student loan borrowers with either Direct or FFEL loans Payment based on their income and family size. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.
Pay As You Earn (PAYE) All federal student loan borrowers Caps your monthly payments on federal loans at 10% of your income. In addition, your outstanding debt is forgiven after 20 years of on-time payments.
Public Service Loan Forgiveness Public service workers (see below) with federal Stafford, Grad PLUS, or consolidation loans in the Direct Loan program. Full loan forgiveness after 10 years of on-time payments.

Are you struggling with federal student loan debt now that you’re out of school? Fortunately, there is a lot of help for you if you limited your borrowing to federal student loan programs. Unfortunately, there are no similar programs to help with repayment of private student loans, which is partly why I advise against them!

The Income-Based Repayment (IBR) and Pay As You Earn repayment (PAYE) program are both income-driven repayment (IDR) plans to help borrowers keep their loan payments affordable with payment caps.

After you qualify, your monthly payment may be adjusted each year based on changes in income and family size. You will have to verify your income every year, which means if you start to make more money, your payments may go up.

With PAYE in particular, your monthly payments are capped at 10% of your income, and all debt is forgiven after 20 years of on-time payments.

There are also two other kinds of IDRs: Revised Pay As You Earn Repayment Plan (REPAYE) and Income-Contingent Repayment Plan (ICR Plan). An explanation of the nuances of each is available at StudentLoans.gov.

Federal student loan forgiveness options

There are new student loan forgiveness laws that actually benefit a wide range of workers. Public service employees can qualify for full loan forgiveness after making 10 years of monthly payments on their federal student loans.

Below is a partial list of the public service fields that will qualify for loan forgiveness. Ask your loan servicer for complete details about how to take advantage of this generous program:

  • Government, military service, emergency management, public safety, law enforcement, public health, public education. (In addition, military personnel on active duty will be able to defer payments on their loans, and service members who are returning to civilian life will be able to defer payments for more than a year.)
  • Social work in a public child- or family-service agency; public interest law services, including prosecution or public defense or legal advocacy in low-income communities for a nonprofit organization; public child care; public service for individuals with disabilities; public service for the elderly.
  • Public library sciences, school-based library sciences and other school-based services.
  • Certain employees at nonprofit groups, as defined by the tax code, and full-time faculty members at tribal colleges or universities.

In addition, this comprehensive list compiles some of the most popular loan forgiveness opportunities . A state-by-state list of loan forgiveness programs has also been compiled by the American Federation of Teachers .

RELATED: 3 key things to know about the student loan forgiveness program

A special path to forgiveness for Corinthian students

Students who attended Corinthian College campuses — including Everest College and Wyotech campuses across the country — may be eligible for a special forgiveness process following the company’s bankruptcy. Call (855) 279-6207 or visit StudentAid.gov/Corinthian for more info.

Refinancing private student loans

SoFi.com is one of the largest providers of student loan refinancing, allowing you to refinance both private and federal student loans.

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Downtown Dayton office building/Table 33 home sells for $2.8M

Published: Tuesday, May 01, 2018 @ 2:08 PM

Dayton city garage maintenance worker Kevin Price points upward at the 130 W Second St./ 1st National Plaza in downtown Dayton in this 2001 photo. FILE
Dayton city garage maintenance worker Kevin Price points upward at the 130 W Second St./ 1st National Plaza in downtown Dayton in this 2001 photo. FILE

A downtown Dayton office building near the federal building sold for just over $2.8 million today, according to local property records.

Titan Loan Investment Fund L.P. is identified as both the buyer and the seller for the May 1 transaction at 130 W. Second St. in downtown Dayton, according to Montgomery County property records.

The transaction is a sale to an investor named Brian Lash, a new owner coming into the market for this building, said Katie Doup, a Columbus-area spokeswoman with  real estate firm CBRE. She said a fuller press release was being prepared now on Lash’s investment in Dayton and his plans. 

 MOREMaker of Gibson guitars declares bankruptcy

Doup also said a second announcement on the sale of another Dayton building may be forthcoming in the near future. 

The 22-story building at 130 W. Second was on sale with an asking price of $4.25 million, according to a LoopNet real estate listing. It offered a rentable building area of just over 326,000 square feet and was built in 1972.

Acadia, the Table 33 restaurant, IT firm DataYard and County Corp. are some of the building’s most notable tenants. 

Acadia moved to the building last year from Kettering. The company moved to 4,800-square-feet of offices in that building.

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6 tax mistakes procrastinators make and how to avoid them

Published: Thursday, April 05, 2018 @ 11:46 PM
Updated: Thursday, April 05, 2018 @ 11:46 PM

What Happens If You Don’t Pay Your Taxes

We get it. Doing your taxes is no fun, especially if you know you’re going to owe money. But as with any project on which you procrastinate, leaving everything to the last minute can lead to errors, both large and small, and some of those errors could cost you serious money.

If you’ve gone and done it, though, and are still looking at that pile of tax forms over there in the corner, we’ve compiled a list of six quick-and-dirty tips that could keep you from making some obvious, and not-so-obvious, mistakes when you finally sit down and tackle the task. They could also help you maximize your tax refund.

1. You Forgot to Sign It

You might wonder how anyone could forget to sign their tax form, but this simple process is one of the most common tax mistakes, according to the IRS. Just like forgetting to sign a check or a contract, it means your return isn’t valid. Usually, there isn’t a penalty or interest associated with this error (since you’ve already included a check or electronic payment if you owed), so the IRS will just send a notice asking for a valid signature, but it will delay the processing of your return. If you’re getting a refund, that too will be delayed.

So check, double-check — heck, triple-check — that you signed or completed the e-signature process before filing your return. Also, check out these last-minute filing tips from the IRS.

2. You Miscarried the 9

Math errors are also a very common mistake made by folks in a hurry. Fortunately for most people, the IRS corrects any miscalculations, so there’s no need for filing an amended return. But these mistakes can mean the difference between you thinking you’re getting a refund and the reality that you actually owe taxes, so be sure to check your calculations carefully.

One way to help you avoid math errors is to file electronically so the calculations are done for you. Bye-bye, No. 2 pencil! So long, calculator!

3. You Didn’t Account for All Your Income

Did you have a side hustle early last year? A freelance design gig for a friend’s business? If so, you’re going to need to account for it, regardless of whether you received a W-2 or 1099 from whomever paid you. That’s because, while there’s an IRS threshold for filing these documents by employers, there’s no similar threshold for claiming the income. Income is income is income. If you made money and don’t report it — and the IRS catches it — it’s going to cost you penalties and interest at best, and open you to a possible audit at worst.

4. You Forgot Deductions or Tax Credit

It’s easy to forget these things when you’re in a hurry, but they can end up saving you some serious money and are well worth the extra time to figure out if you qualify. So if you’re just claiming the standard deductions because you’re under the gun, you might want to take a deep breath and check out TurboTax’s list of 10 commonly overlooked tax deductions that can keep you from overpaying the tax man.

5. You Filed for an Extension but Didn’t Understand the Rules

Filing for an extension is a great idea if you’re down to the wire and don’t really understand your tax situation. But remember that an extension gives you an extra six months to file your paperwork, but not an extra six months to pay any taxes due. So, if you’re confused, tax pros recommend doing a quick calculation of your taxes, filing for your extension and making any required payment of taxes you think you owe. This will help you avoid penalties and interest once you get your final calculations together.

6. You Didn’t Bother to Request an Extension

You gave up. You shoved, slammed and jammed your return through and now it’s full of mistakes that are going to cost you money by way of penalties or because you’ve left money on the table. It’s a much better idea to file the extension, then get the help you need from a tax professional to ensure you’re not overpaying your taxes.

Whatever you do, make sure you file your taxes. Unpaid taxes can have serious consequences on your personal finances, including your credit scores if they go unpaid long enough.

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11 ways to reduce next year’s tax bill

Published: Thursday, April 05, 2018 @ 11:55 PM
Updated: Thursday, April 05, 2018 @ 11:55 PM

SAN FRANCISCO, CA - APRIL 14:  Liberty Tax Service tax preparer Ronn Seely works on tax returns on April 14, 2011 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan/Getty Images
SAN FRANCISCO, CA - APRIL 14: Liberty Tax Service tax preparer Ronn Seely works on tax returns on April 14, 2011 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)(Justin Sullivan/Getty Images)

If you claimed the right number of dependents and standard deductions on your 2017 federal income tax return and you still ended up owing the IRS, you’re probably looking to avoid a repeat performance next year. Luckily, there are several ways to increase your chance for a refund (or at least reduce the amount you’ll owe) and you don’t have to be a tax whiz or accountant to take advantage.

Here are 11 ways you can pay less in federal taxes for your income return next year.

1. Contribute to a 401K or IRA

Contributing to a retirement fund is an important way to ensure financial independence in your golden years, but it can also convey short-term tax benefits. In most cases, the contributions you make to your 401K and IRA plans are tax-deductible and are not included in your taxable income at the end of the year. (Note: If you didn’t contribute to an IRA in 2017, you still have time. You have until April 17 to contribute up to the maximum amount and shave off a good chunk of your tax bill. Filed your taxes already? That’s OK. You can file an amended return to reflect the contribution.)

2. Buy a Home

There’s a distinct tax benefit to home ownership. The interest you pay on your mortgage is tax-deductible, and the interest is front-loaded. For the first several years, most of your mortgage payment goes toward interest, which will drastically reduce your adjusted gross income at tax time. Want an extra boost for your taxes next year? Consider paying January 2019’s mortgage payment in December to get a tax benefit before the end of the year.

3. Donate to Charity or Volunteer

You probably know charitable donations can be itemized and deducted from your income, so you’ll want to save receipts anytime you donate cash or items to charity. You can even deduct miles you travel for volunteering or other charity work.

“Miles you travel on behalf of a charity are deductible at 14 cents per mile for 2018,” said Gail Rosen, CPA.

4. Start a Home Business

Starting a home business can provide you with a new source of income and allow you to take deductions off any income the business generates.

These deductions include business costs you incur throughout the year, a portion of your mortgage and utilities if you use a home office and the cost of goods needed to keep your business running. You can even deduct startup costs.

“Any expenses that are incurred before the first sale are ‘start-up costs,’” Rosen said. “These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can deduct the first $5,000 in the first year.”

5. Search for a New Job

If you hunt for a new job in your field this year, you can write off some qualifying expenses as you search. There are exceptions, but potential write-offs include things like clothes or travel.

“If you looked for a new job in 2018, you should be aware of the income tax deduction that may be available with respect to job-search costs,” Rosen said. “Qualifying expenses are deductible even if they do not result in a new job being offered or accepted.”

6. Open a Flexible Spending Plan

Many employers offer flexible spending plans that let you contribute toward yearly medical expenses pre-tax. These contributions typically don’t count toward your taxable income.

7. Deduct Medical or Dental Expenses

Many medical and dental expenses are tax-deductible. According to Rosen, the cost of getting to and from medical treatment is deductible at 17 cents per mile, plus the cost of tolls and parking, and dependent expenses are also deductible.

“If you cover the medical cost of dependents, these can be deducted. Additionally, if you are covering the costs of an individual who would qualify as your dependent except that they have too much gross income — for example, an elderly parent — you may be able to deduct these costs as well,” said Rosen.

8. Education-Related Expenses

Current and former students have many eligible deductions and credits related to their education expenses. Paid student loan interest and tuition and fees can be claimed as deductions. Eligible current students can also access the American Opportunity Credit, which can cover up to $2,500 annually for four years, and the Lifetime Learning Credit, which can cover up to $2,000 per tax return.

9. Install Solar Energy

Homeowners who install solar energy systems in their home can get back tax credits at up to 30% of the cost of installation. This credit will begin to decrease after 2019 so you may want to act soon if you’re planning on installing solar panels.

As an added bonus, solar energy can significantly reduce your energy bills.

10. Hunt Down Every Available Tax Credit

We’ve named several tax credits above, but there are more, including credits for adopting children, the cost of child care and low-income households. Tax credits are more valuable than deductions, as they reduce your taxable income on a dollar-for-dollar basis, so make sure you’re taking advantage of every option.

11. Get a Pro to Do Your Taxes

No matter how much research you do, a professional may be able to identify tax deductions and credits that hadn’t occurred to you. Paying a reputable professional you trust can help you stay organized and minimize your tax liability. Here’s a handy guide to finding the right tax professional for your needs.

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5 surefire ways to retire earlier than you thought

Published: Monday, October 23, 2017 @ 11:27 AM

The following are five surefire ways to get to retirement quicker Set clear goals for yourself and track your progress Working hard and being disciplined is the most reliable ways to retire early Streamline your spending and scale back on luxuries Cut your housing expenses Put your money to work - wisely

Retirement can seem like a difficult goal to reach, so the thought of achieving it early may seem downright impossible.

But getting to retirement quicker doesn't require genius-level investing knowledge or extreme deprivation. With a plan, hard work and discipline, you may be able to get there sooner rather than later.

RELATED: House hunters, here are 5 secrets to getting the best home loans

The following are five surefire ways to get to retirement quicker:

Set clear goals for yourself

Consumer adviser Clark Howard recently shared advice from Chris Reining, who decided in his late 20s that he wanted to retire early. By the time he turned 37, he was able to reach this goal.

Howard said he thought setting clear goals was one of the most important things that Reining did. He labeled his investment account "Retire early" so he could see the words every day. In addition, Reining tracked his progress by using a spreadsheet you can get on his website. He wanted to save up 25 times his annual expenses before retiring.

(Getty Images/iStockphoto)

Work hard

The Forbes Finance Council recommends working hard and being disciplined as the most reliable ways to retire early.

This can be achieved through a high-paying job combined with saving as much of your income as possible. Another path is starting your own business.

Reduce spending

Forbes quotes a blogger who retired early and says that streamlining your spending is an important step toward achieving this goal. It's not glamorous or complicated, but it works.

He suggests scaling back on luxuries and investing your savings in a low-cost index fund. When you accumulate 25 to 30 times your annual spending in this type of account, you can quit working for the rest of your life.

This Wednesday, Sept. 6, 2017, photo shows a new home for sale in a housing development in Raeford, N.C. On Thursday, Sept. 21, 2017, Freddie Mac reports on the week’s average U.S. mortgage rates.

Cut your housing expenses

If you're like most people, your home is your biggest expense, so it's also your biggest opportunity to save, according to Money.

Housing costs take up about a third of the average budget, so Money recommends not taking out the biggest mortgage you can get. Live in a more modest-sized home when possible, and in some cases, homeowners can purchase a two-family home, living in one side and renting out the other.

Put your money to work - wisely

CNBC talked to Scott Alan Turner, who had more than $70,000 in debt at age 25, yet managed to turn things around and retire by age 44.

He put his money to work and although he made some mistakes in the beginning, he evolved into what he calls a boring investor. His savings are automatically funneled into low-cost index funds, which Warren Buffet calls a surefire way to build wealth.

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