Understanding Student Loan Debt: Navigating Financial Aid and Repayment Options

1. Beyond Financial Aid NYSFAA 2012 Priscilla D Armsby, Siena College Stephen G Brown, Fordham Law School

2. Who Cares? Why are you doing this?

3. Student Loan Debt • In the news, how much is true? • Increased as federal limits have increased • Especially at Grad/Prof level • Families and choices • Easy to borrow federal loans • Harder to be creative

4. Payment Plans • No interest • Fee • Can cover charges not covered by aid • 10 months-8 months-4 months • Earnings from “float” • TMS, NELNET, Sallie Mae

5. PLUS and GradPLUS • Federal • Guarantee, Consolidate, IBR, ICRa, FPSLFP, death/disability • Published credit criteria • Parent as borrower or endorser • Grad Student as Borrower • 7.9%, but 4 % fees

6. Private Loans • Imagine walking into a bank… • Fixed v variable interest • Fees • Credit worthiness • Credit score • Parents on behalf of students • Lack of federal benefits • School certified or not

7. Employer tuition benefits • Not only for schools • Benefit – often awarded through HR • Undergrad no tax implications for education employees • Grad no tax if perform teaching or research • Taxed above $5,250 • May require certain grades • Payment may be after completion of the course • Waiting period? Commitment after payment? • May require courses related to job

8. Student work for School • Resident Assistant • Room • Perhaps meal plan and some tuition • Teaching or Research Assistant • Tuition • Other employee benefits? • Really depends on school • At REAL job • Part time school, but free or reduced!

9. The Tuition Exchange tm • Consortium of IHEs • 600 schools • Worked mainly through HR/Benefits office • Offers tuition benefits at many institutions • Ties to school policies • Schools require application • Balance of trade • Admissions requirements

10. Veterans Benefits • Montgomery Bill • Chapter 30 • Contributed while enlisted • Up to 36 months • Chapter 35 • Dependents of dead or disabled vets • Post 911 GI Bill • Chapter 33 • Tuition and fees – $17,500 maximum unless grandfathered • Housing stipend • Books stipend • May be transferable to beneficiaries

11. Yellow Ribbon • In conjunction with Post 911 GI Bill • Schools “opt- in” • For schools that are more expensive than highest public tuition – often private • VA will match schools contributions up to half of costs in excess of Post 911 GI Bill

12. UGMA/UTMA • Uniform Gift to Minors Act • Uniform Trust for Minors • Involves planning • Irrevocable • Reverts to minor at age of majority • Asset? For FAFSA reporting – owned by student

13. 529 Plans • Section 529 of the Internal Revenue Code • “Qualified Tuition Programs” • Pre-paid tuition or college savings • Allows anyone to set up a plan for beneficiary • Sponsored by states in cooperation with investment firms • Large selection of investments • Accrues tax free and withdrawals federal tax free for • Tuition and fees • Room and board • Books, computer

14. Coverdell Education Savings Account • Section 530 of IRC • Many investment options • Beneficiary must be under 18 when set up • $2,000 annual limit • Accrues tax free • Tax free withdrawals for educational expenses • Must liquidate at age 30 • Contribution limits based on contributor’s MAGI

15. Home Equity • Can you (your parents) afford to lose your home? • Long term debt • Secured by house • Up to $100,000 over the amount needed to purchase home is deductible • “Second Mortgage” • Home Equity Line of credit

16. Is my Scholarship Taxable? • 117c qualified Scholarship • Degree candidate • Qualified educational expenses • Tuition, fees, books, supplies, equipment • Not compensation for teaching, research, work

17. Qualified Tuition Reduction • Received from eligible education institution • Used at eligible education institution • Need not be the same • Employee or dependant • Undergraduate not taxed • Graduate – requires teaching or research

18. American Opportunity Credit • TAX CREDIT up to $2,500 • MAGI Limits • $90,000 single, $180,000 married/joint • Up to 40% refundable • First 4 years • Only 4 years • Tuition, fees and books • No LLC or T & F deduction • Loans used for Qualified expenses count • Not Coverdell exemption

19. American Opportunity credit … • 100% of first $2,000 in expenses • 25% of next $2,000 • Reduction for MAGI $80-90k ($160-180k) • Form 8863

20. Lifetime Learning Credit • TAX CREDIT of up to $2,000 • Cannot be combined With American Opportunity Credit • MAGI limits • $61,000 (s) $122,000 Married Joint • Non Refundable, Unlimited years • No matriculation required • Tuition and fees and books paid to institution • $20% of first $10,000 • Reduction at $51 – 61k ($102-122k) • Form 8863

21. Student Loan Interest Deduction • Qualified Student Loan • Reduce Income by up to $2,500 • Enrolled at least half time when borrowed • MAGI $75,000 ($150,000) • Not from a related person • Tuition, fees, housing, books, transportation (COA) • Amortize fees ( but not reported on 1098-E) • Voluntary interests OK

22. Student Loan interest… • Phaseouts $60-75k ($120-150k) • Directly deductible • Line 33 1040 • Line 18 1040 A • Line 9 1040 EZ

23. Tuition and Fees Deduction • Not if AOC or LLC • Not if married filing separately • MAGI $80,000 ($160,000) • $4,000 income deduction • Tuition and related expenses paid to institution • Not required matriculation

24. Tuition and Fees… • Income from $65k - $80k (130k-160k) • Max deduction $2,000 • Income below $65k ($130k) • Max deduction $4,000 • Form 8917

25. Coverdell ESA • MAGI less than $110,000 ($220,000) • MAGI = AGI for most taxpayers • Can establish account for beneficiary under 18 (or special needs) • Distributions tax free for ADJUSTED Qualified Educational Expenses • $2,000 annual contribution limit • Must be distributed by time beneficiary is 30

26. Coverdell ESA • Tuition and Fees • Books, supplies, equipment • Special needs • Room and board (if registered at least half time) • Transfer to other family member 530

27. QTP (529) Plans • No income restrictions on contributions • Withdrawals for Qualified Educational Expenses --Tax free • Tuition and Fees • Books, supplies, equipment • Special needs • Room and board (if registered at lesat half time) • Transfer to other family member QTP

28. Early IRA Distribution penalty • Not subject to 10% penalty • May be subject to regular taxation • Tuition and Fees • Books, supplies, equipment • Special needs • Room and board (if registered at least half time)

29. Education Savings Bond Interest • Phaseouts MAGI $71,100 and $86,100 • $106,650 to $136,650 married jointly • Series EE issued after 1989 or series I • Owner older than 24 at bond issue date • Only for DENENDENT for whom you claim exemption on tax return • Tuition and fees • Form 8515

30. Employer provided Educational Assistance • Up to $5,250 • Tuition and fees • Books and supplies

31. Business Deductionfor Work Related Expenses • Must be working • Must itemize or • Must file Schedule C or F • Must be Qualifying Work Related or maintain or improve skills • Required by employer or law to keep job • Serve bona fide business purpose • Not needed to meet minimum requirements for current job • Does not qualify for a new trade or business

32. Qualifying Work Related • Must be Qualifying Work Related or maintain or improve skills • Required by employer or law to keep job • Serve bona fide business purpose • Not needed to meet minimum requirements for current job • Does not qualify for a new trade or business

33. Maintain or Improve skills • Refresher • Current developments • Academic • Tuition and Fees • Books and Supplies • Transportation--Work to school and school to home • Travel—Is this session deductible?

34. Contact Information Stephen Brown, Fordham Law sbrown@fordham.edu Priscilla Armsby, Siena College parmsby@siena.edu