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Follow-Up Corner
In our March newsletter "POSITIVE WAYS TO HANDLE YOUR TAX OBLIGATIONS" we mention various ways to handle your tax obligations in a positive way and placed much emphasis on the Internal Revenue's Service "Fresh Start Initiative". Even if you haven't filed your 2011 tax returns you can still qualify for the IRS Installment Agreement. The new threshold for requesting an installment agreement has been raised from $25,000 to $50,000. The maximum term for streamlined installment agreements has been raised to six years from the current five-year maximum. Installment agreements also allow you to pay less in penalties but the interest continues to accrue on the balance until paid off in full. |
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FEDERAL SUBSIDIZED STUDENT LOAN RATES x 2
If you're reading this newsletter and currently have federal subsidized student loans outstanding, you likely do not have to worry about your rates DOUBLING come July 1, 2012. The biggest myth we've heard thus far is that all student loan rates will increase which is not true. Only federal subsidized student loans that are originated or disbursed on or after July 1, 2012 will include the new interest rate (currently at 3.4%, expected to increase to 6.8%). Federal subsidized loans include Stafford Loans, Federal Perkins Loans, and some institutional loans. To be completely transparent, if you received any federal subsidized student loan disbursements for college between July 2008 and June 2010, you're currently paying approximately 6.0% on average today.
Currently, about 30% of undergraduates carry subsidized student loans (not all of their college cost is paid by subsidized student loans). The other 70% of student loan financing compromises of private student loans and unsubsidized federal student loans (at a current fixed interest rate of 6.8%).
Let's run some numbers both ways to see how it will affect those if legislation is or isn't passed to halt interest rates of doubling come July 1, 2012. Student A and B graduates December 2013, both has total student loans outstanding of $30,000.00 and only 30% ($9,000.00) of their loans are subsidized through the federal government:
- Student A Subsidized Est. Monthly Payment at Current Rate of 3.8% = $90.00 with the total interest paid over the life of the loan (standard 10 years) of $1,832.00
- Student B Subsidized Est. Monthly Payment at Proposed Rate of 6.8% = $104.00 with the total interest paid over the life of the loan (standard 10 years) of $3,429.00
Student B under the proposed doubling of interest rate will pay approximately $14.00 more a month and $1,597.00 more over 10 years compared to Student A at the current interest rate. In conclusion of the DOUBLING of INTEREST RATES, we just want to inform every one of the facts.
We're sure this is going to become more of a political issue between both parties calling for bipartisan support but we believe there's a more pressing issue around student loans that should be addressed. Consumer Financial Protection Bureau reported that student loan debts surpassed $1 trillion last year which is about 16% higher than the Federal Reserve Bank's report of $870 billion. If you're unemployed and exhausted all options with the lender for deferring or reducing the payments to the student loans and like many Americans, bankruptcy may be the only solution. The issue within bankruptcy is that student loans are protected under Congressional law passed in 2005 that won't allow consumers the ability to just discharge these loans during bankruptcy. We believe some sort of reform to this law should be considered to assist those wanting a fresh start, even if it's simply discharging a sizable portion of student loan debt making it reasonably easier for the person to repay once out of bankruptcy and back on their feet. |
