Wednesday, December 12, 2012

Will the American Opportunity Tax Credit be Another Victim of the Fiscal Cliff?

As I was driving to work yesterday, I heard an interesting article on NPR’s Morning Edition (link provided below).  Now, I am aware that everyone is probably either very tired of hearing about the Fiscal Cliff or very stressed!  However, as a heads up, here is another potential victim of the Fiscal Cliff – the American Opportunity Tax Credit.  Although originally set to expire in December of 2010, the Tax Relief and Job Creation Act of 2010 extended the American Opportunity Tax Credit for an additional two years, through December 2012.  In retrospection, a very bad date for the expiration of the tax credit because this lumps the American Opportunity Tax Credit in with all of the other services that will be under scrutiny for adjustment or elimination as Congress wrestles with the adjustments necessary to begin cutting the nation’s deficit.

Popular Student Tax Credit Will Expire:

Under the American Recovery and Reinvestment Act (ARRA), more parents and students qualified for a tax credit, the American Opportunity Tax Credit, to pay for college expenses.  A modification of Hope Credit, the American Opportunity Tax Credit has been in effect for tax years 2009, 2010 and, under ARRA, 2011 and 2012.  The American Opportunity Tax Credit has been very popular because it was accessible to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible qualified for the maximum annual credit of $2,500 per student.  Created to help tax payers whose modified adjusted gross income were $80,000 or less, or $160,000 or less for married couples filing a joint return, the credit allowed tax payers to actually receive the credit, whether they owed taxes or not, a feature that proved a huge benefit to lower income families. The credit was phased out for taxpayers with incomes above these levels. The income limits for the American Opportunity Tax Credit were higher than under the existing Hope and Lifetime Learning Credits.
Since extending this tax cut is estimated to cost $10 billion, I personally do not think it will be extended again, but I am optimistic and live in hope…..  So, what will happen if this tax credit is not extended?  The Hope College Tax Credit will come back into effect. 

Hope Tax Credit

Although the Hope Tax Credit is better than nothing, it iss a less generous program than the American Opportunity Tax Credit.  Here is a brief summary of some differences:
·         It is not refundable; it can only reduce the amount of federal taxes you pay.
·         It is worth up to $1,800.
·         100% of the first $1,200 in qualified tuition and related expenses.
·         50% of the next $1,200 in qualified tuition and related expenses.
·         It can only be used for tuition and required enrollment fees- not required course materials.
·         It can only be used for the first two years of undergraduate study.
·         It can only be claimed for two tax years.
·        The credit can be only be claimed in full for single filers' income of $50,000; partial credit is allowed up to $60,000. For joint filers, the full credit can be claimed for incomes up to $100,000; partial credit is allowed up to $120,000.
·       You can claim the Hope educational credit even if the qualified expenses were paid by college loans for students.
·       You can also claim the credit if the student withdrew from school and these expenses were not refunded.
·       Students are eligible if
    • they have been enrolled at least half-time in a degree, certificate or otherwise recognized credentialed program for a semester that started in the tax year
    • not already taken this education tax credit for two years
    • not completed their first two post-secondary years before the tax year
    • been free of a drug conviction as of the end of the tax year
SOURCES for this article were National Public Radio’s Morning Edition and the IRS Publications website. 

Hopefully, after the first of the year, this IRS website  will provide information for the upcoming year. (questions and answers

Thursday, September 13, 2012



Beautiful leaves falling, crisp cooler days, and thoughts of school….. Fall is the season that inspires many of us to return to school to continue our education.

Whether you are finishing your first degree or returning to pursue an advanced degree, please make sure your current student loans are placed back into an in-school deferment.

Although the actual forms must be submitted by the school you are attending, as the borrower, it is your responsibility to make sure the forms have been submitted by the school and processed by your current servicer. Too often the forms are either not submitted or not processed by the servicer.

As a result the loans become delinquent and the march toward default begins. I see this all of the time – borrowers who have been attending classes, signing new financial aid forms, thinking they are doing the correct things; however, they ignore those pesky late notes and e-mails from their servicer - assuming  that they keep getting them " in error” and then one day, BAM! Their accounts are in default, financial aid funds and pell grants are cut off!

Don’t let this happen to you.

If you have recently returned to school take a moment and a few simple steps to ensure your student loan accounts are in their correct status:

1. Call your servicer or sign in to your on-line account to verify the current status of all of your student loans. (Don't know who your servicer is?  Visit to locate your student loans)

2. Make sure all previous student loans are in a deferment, as opposed to forbearance. What’s the big deal? If your loans are in forbearance, all of the loans will accrue interest.  In a deferment, the interest will only accrue on your unsubsidized loans; it will not accrue on your subsidized loans. Believe me, this can really add up over the life of a loan.

3. If the loans are not in a deferment, immediately contact or visit your school’s financial aid office.  Have the in-school deferment completed while you are there – you should sign the form. Ask for a copy of the completed form for your records.

4. In order to verify the situation has been corrected, repeat steps 1, 2 and, if necessary, step 3.

5. Stay enrolled ½ time or greater until you complete your next education step!  You will not have to worry about this process again!

OK – with that off of your mind, it is time to hit the books!

Thursday, May 31, 2012

Here's the Pitch .......

DEFAULT such an ugly word and so much personal financial pain wrapped up in those 7 little letters.  In all of my many years of helping delinquent borrowers learn to manage their student loan debt more efficiently, the one thing that I believe to my very core is that very few borrowers set out to default on their loans. 

Life happens and often throws us some real curve balls. Probably 99% of the delinquent borrowers that I have worked with were in their situation because of an unrelated life crisis that overwhelmed or distracted them. By the time they realized they were behind on their student loan payments, the collection activity had already started – and the headaches that represents! I have always told my students that it is much easier to get results (and help) from customer service representative than from a collector. 

I was listening to Pandora this afternoon and I heard an ad "pitching" a company promising to help out if you had defaulted student loans, including stopping wage garnishment! Since I am always looking for additional sources of help for borrowers in distress, I wanted to check things out. Of course, as with most ads on Pandora, I couldn’t catch the company’s name from the ad’s speed talking announcer. After the third time, I did manage to get the full contact phone number, but I  still could not locate the company on the wide web.

Determined to track this source down, I decided to do a few internet searches for assistance with defaulted student loans or stopping wage garnishment. WOW – was I amazed by the results! I found over 10 companies promising to consolidate your loans. I found dozens of links to web sites promising assistance. It reminded me of the consolidation boom of early 2000 (when I first cut my teeth on the student loan industry). I was particularly surprised by the number of companies offering to help resolve a borrower’s default problems – especially since the ONLY way to consolidate Federal Student Loans and maintain your federal rights and entitlements is to use Direct Loans as your lending source. You can apply directly on-line ( ) or you can ask your DOE loan servicer for assistance.

Buyer Beware:
I was unable to ferret out details about these companies, since their websites seemed to start with the application process.  Call me skeptical, but I am leery of any company that is not completely up front about their services, cost or affiliations.

I have urged this many times, but it bears repeating – you must take responsibility and become an educated consumer. Learn to make choices that are in your best interest. So when you are shopping for help on defaulted or very delinquent student loans, make sure you know exactly who you are dealing with. Unless you are using the approved source for Federal Student Loans, you will most likely be giving up some valuable rights and tools. 
Rights and Tools You May Need:
For example, when was the last time that the lender on your auto loan, mortgage or credit card said “oh, you’re out of work, we are very sorry. You don’t have to make you payment for the next 6 months”? I am assuming that would be a “NEVER”. If you use a private student consolidation loan, you will probably never have these options either.  However under the Federal Student Loan Program, you can temporarily defer loan payments if you are:
  • Unemployed or
  • Working less than 30 hours per week and looking for full-time employment or
  • Are receiving state or federal assistance or
  • Serving in the military
These are just a few of the deferment rights that borrowers are entitled to under the Federal Student Loan Program.  

When was the last time one of your creditors allowed you to select a new payment plan, because you had run into difficulties? Again, I am assuming that would be another “NEVER”. However, unlike private consolidation loans, the Federal Student Loan Program allows borrowers to change payment plans, then switch back again when things stabilize and change again later if the need arises.

Now, I am not going to kid you, the standard 120 month repayment plan is always the best way to pay your loans off. However, the alternative payment plans offer a lot of options to help temporarily manage loan debt. These plans can be very low, including $0 payments on the IBR (Income Based Repayment Plan). Now obviously, you are not going to clear your student loan debt with a $0 payment, but it can provide relief when you need it and allow you to get back on track when your finances stabilize. That is another benefit of the Federal Student Loan Program – there is never a prepayment penalty!

So to wind things up, I am not saying that the new companies are not offering a valuable product or service; however, I do urge borrowers to do their homework, shop wisely and consider the full picture. If you aren’t sure who to trust, contact your DOE servicer or your school’s financial aid department.

Saturday, May 26, 2012

The Must Know before You Go to College and how much Student Loan Debt are you willing to be saddled with?

Walking away from student loan debt is not an option. It will follow you for the rest of your life or the next 25 years and wreck havoc on your financial affairs.

Exhaust all scholarship and grant opportunities before you shackle your life with student loans debt. Scholarship Information

I do not know much about this site but it seems to be a website that will assist in the scholarship and grant process:

Taxable interest for student loan debt from the IRS:,,id=177520,00.html

More information to assist in any question you may have on student aid:

More on ‘Pay As You Go Plan’ a brain child of President Barak Obama. It is still in a pre-legislative stage.

More on how to manage your student loan debt.

NSLDS National Student Loan Data System.

The US Department of Education; what college costs.

A check list of what is needed to know for your college experience:

Thursday, May 24, 2012

Several YouTube Videos on The Student Loan Debacle




If you are Unhappy by the Status Quo Make Some calls!

Call your Senator and Congress person Today - Address & Phone Directory: (

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