Why is my refund $70 more than I expected?

As I've said previously, I make an effort to get a small refund on my taxes, "small" meaning approximately $50 or less.

In order to accomplish this, I developed a withholding worksheet in Excel, which, coupled with the IRS withholding calculator, meant that I should not have expected more than $70 back. (Its final determination was that "any refund or balance due should be less than $50", and I pushed in a little extra to make sure I was on the positive side of the ledger.)

Everything appeared to be calculated correctly. So why, when I ran TaxAct, did my refund amount come out to $143?

Because the student loan interest phase-out range moved up $5,000. My AGI (thanks to retirement contributions) was solidly within the range instead of approaching the very top, so I was able to take more of the deduction than I would have otherwise.

I'm not really fussed about the lost interest, since most of the extra contributions were made in December. So I'd still have paid as much or more to make an electronic payment or to mail the return with delivery confirmation.

And I'd like to say that I will be saving this, but I'm planning on sending $100 of it to my travel fund in anticipation of my cousin's wedding. The remainder will go to my condo fund.

At any rate, if you do your taxes by hand, make sure that you account for the higher phase-out range. You may be able to deduct more than you thought!

So, Uncle Sam will pay off your student loans? Not so fast.

In the wake of the student lender scandal, the College Cost Reduction and Access Act was intended to make student loans easier to bear for payees across the United States.

One of the chief provisions allows workers in "public service" jobs to have their remaining debt forgiven after 10 years in public service. That sounds great! And it probably is, for students who are just starting out and aren't making very much.

For those of us who have been in the work force for awhile, the deal isn't necessarily so good.

The reason is that the legislation only provides forgiveness for payors on a standard repayment plan (which has a 10-year term, and so would be repaid anyway), or an income-based repayment plan.

The income-based repayment plan isn't the simplest formula, but generally speaking, it assumes that your payments will be no more than 15 percent of your discretionary income. Discretionary income is defined as the difference between adjusted gross income and 150% of the federal poverty line. For a single person, the federal poverty line is $10,210.

When I consolidated my federal loans after grad school, I chose the extended repayment plan (30 years) because I had other loans with which to contend, and because my interest rate was (and is) extremely low (2.75%). This kept my payment low, which allowed me to rent a nice place, pay my other loans, and save extensively for retirement (and somewhat less extensively for a condo).

If I were to switch to IBR now, given prevailing interest rates, a shorter loan term, and a much higher salary, I would basically double my monthly payment. My cash flow simply can't take that kind of hit. As nice as it would be to be done years sooner (and save thousands and thousands in interest payments), I would rather concentrate on paying down my higher-interest rate loans and saving for a condo.

Depending on your circumstances, you may make a different decision.

You might want to look at these tools:

Finaid Income-Based Repayment Calculator

Department of Education Repayment Calculators

And the gyre just keeps widening.

Sallie Mae Forced Out CEO.

The continuing bad press regarding improper subsidies, anti-competitive preferred lender agreements, and everything else involved with the FFEL lenders presumably has Sallie Mae and others running scared.

When I get out of this crazy work cycle, I am going to try and do a timeline of the investigation since February.

U.S. Dept. of Education Sued for Overcharging Students on Student Loans

A math teacher claims that her consolidated loan under the Direct Loan program had improperly capitalized interest between her June payment and June 30.

Apparently repeated requests to fix this went unresolved.

I've held my loan consolidation at the Direct Loan program since 2004, and have not noticed this personally. (I did pay more in interest in July 2005 than June 2005, but my payment cycle was longer from June to July than from May to June because of business day constraints.) I've never had any other problems, either.

I certainly hope that this situation is resolved quickly and appropriately. No student should be paying interest on interest if she is making her payments as agreed.

All About Education at the Washington Post.

Sunday's Business section had three separate articles regarding educational finance. While I didn't see anything particularly revelatory, they do make a solid introduction to the issues surrounding paying for a child's education.

Forget Yale--Go State serves up the usual advice to:

• start saving in 529s when the children are young,
• spend time figuring out exactly how much of the school bill the parents are willing to pay a few years before the children visit and apply to schools, and
• remember to take advantage of all applicable tax credits when the children start attending college.

There is a very nice sidebar of Internet resources including the usual suspects (FAFSA, Finaid, Fastweb, and Savingforcollege) along with less well-known resources (NCES school profiles, College Board).

The article does mention that a student may get sufficient aid to cover the difference between a "high sticker-price" school and an ostensibly more affordable one, but it's somewhat glossed over. They do emphasize that the time to fill out the FAFSA is NOW.


Financial Futures--Save for You, Too means pretty much exactly what it says. Parents shouldn't save for college at the expense of their own retirement savings.

The article makes the point that lower-income families might not have as many costs to cover, because aid packages for lower income students may include grants. However, as Pell Grants have declined per recipient, this may be overly optimistic.

The larger point, however, stands. Families can't borrow for retirement.

Beware the Scholarship Hucksters reminds us that aid resources on the Internet are free, so there is no reason to pay for scholarships in any way. This includes scholarship searches, "recipient fees," or anything else. I wish this were simply common knowledge by now, but I guess not.

House Bill to Halve U.S. Stafford Loan Rates.

The bill would target subsidized Stafford loans. (Public Blog link here.)

The plan is to reduce interest rates over five years, from 6.8% to 3.2%. It remains unclear how PAYGO legislation will interact with this bill, although moving to lower-cost direct loans rather than administered loans from private companies (Sallie Mae, Nelnet, et. al) is a distinct possibility. Regardless, that $6 billion will have to come from somewhere.

I know Uncle Bill is not a fan of this plan, but I think he misinterprets how student loans are funded. Private companies administer Stafford loans on behalf of the government; they don't just start offering them out of the goodness of their hearts. They do it because it is highly profitable (which, again, leads back to expanding the cheaper direct loan program). At any rate, if the government chooses to fund lower-cost loans, then it WILL be a hit to the taxpayer, but the Department of Education estimates that every $1 of student loan assistance returns $3 in revenue over a student's lifetime. (pdf, page 7)

I'll be watching this with great interest.

This time, Michelle Singletary gets it right.

I've given Michelle Singletary some grief in the past over her stance on student loan debt.

But her most recent article is a clear-eyed look at the struggle students face in trying to pay for an education, particularly in the loan market.

(As Free Money Finance points out, most parents aren't saving enough for college. And outside scholarships generally reduce need-based aid dollar for dollar. So loans are probably going to be part of all but the most well-off students' aid packages.)

She makes the VERY salient point that with static Stafford loan caps (although some year-by-year limits are increasing for dependent undergraduates, the overall limit is $23K, the same as in 1992), and increasing tuition, students are frequently turning to private lenders to make up the gap. And private lending obviously doesn't have the same rates or subsidies for in-school interest that federal loans do.

The only quibble that I have is that her quote of 7 to 9 percent on private loans still sounds lower than what I've seen. With LIBOR at 5.37% and PRIME at 8.25%, plenty of private loans are going for 10 to 12 percent, or more.

Other than that, the only change I'd make to this article would involve parents of potential college students to start this conversation FAR before senior year.

Public and Private Tuition and Fees Increase While Pell Grants Decrease

The AP and Bloomberg report on The College Board's 2006 Trends in Higher Education Series.

The good news:

• Tuition increases are slowing.
  
• Two-thirds of students are receiving some form of grant aid.
  
• College graduates continue to earn 60-70 percent more than workers with high school diplomas.
  

The not-so-good news:

• Prices at public schools are still up 35 percent in five years.
  
• Pell Grant aid has dropped $120 per recipient.
  
• Colleges and universities face reductions in non-tuition revenue (from state and local appropriations) and increases in costs (for health benefits and utilities). This has helped boost tuition.
  
• Students are increasingly turning to more expensive private loans to meet the cost of their education.
  

I'm definitely going to spend some more time going through this report.

To the U.S. Department of Education--"We're drowning in debt."

Secretary Spellings has sent out staff across the country to discuss proposed rulemaking for the amended Higher Education Act. Unsurprisingly, this has attracted a LOT of attention from educators and loan-holding students. Articles about the Berkeley and Chicago hearings cover some of the highlights.

However, the official Department of Education page includes the most information. I found the PDF of the Berkeley transcript particularly enlightening.

Some of the most requested policy changes seem to be:

• Clarify and expand articulation agreements. If students attend career-focused or community colleges to save money, their transcripts should not be rejected out of hand by four-year colleges. At the very least, all schools should be required to make their articulation agreements and transfer credit standards publicly available.
  
• Simplify the aid form process. The ability to navigate bureaucracy is still economically privileged, and for lower-income students, most of the necessary information could probably fit on a postcard. It was also suggested that students and parents be able to request that financial aid offices receive tax records at the time they file their returns with the IRS. (I'm not sure how I feel about that from a privacy perspective, but it would certainly make things simpler.)
  
• Relax the restrictions on Income Contingent Repayment, and end the term at 20 years. Students who go into fields like social work and education make the argument that their service is more valuable than salaries reflect, and that if they pay X percent of their income for 20 years, they should be forgiven the remaining balance.
  

Obviously, most of these proposals would be costly, and would have to be justified in the budget process. But I think many of them would go a long way towards making education more attainable for everyone.

There are also upcoming hearings in Orlando and DC for anyone who is interested. Again, the Dept. of Ed. page has the details.

Michelle Singletary uses improbable assumptions to "prove" she's right.

As I mentioned a few weeks ago, Michelle Singletary advised a student with $30,000 to pay down her $39,000 debt loan rather than parking it in savings.

Well, I wasn't the only one who thought she was skimming over the assumptions. So her new article attempted to refute the saving advocates' point of view.

She did some basic rate calculations for the loan interest, trimmed 28 percent off that to account for the tax deduction, and compared it to parking the funds in a savings account for one year and paying the same tax rate on the interest. And lo and behold, she found that you'd pay more in interest on the $39,000 loan than you would receive on the $30,000 deposit.

Which is fine, except her assumption was that a savings account would only earn 4 percent.

As I said, and she should know, there are any number of accounts that beat that 4 percent. Even if this student didn't go with E-Loan, there are still tons of accounts besting 5 percent.

Based on her assumptions, in fact, the deposit would really only need to earn 4.6 percent to break even. That leaves the former student in question with almost 30 accounts from which to choose.

She makes the point that we might be in a declining interest rate environment, but even that doesn't hold that much water. If the questioner went to E-Loan (and why wouldn't she?), and E-Loan began drawing back their rate by 0.1% every month starting in November, she'd STILL be earning above 4.6 percent for at least another year.

She cheated to get that answer that she wanted. And I've lost some respect for her because of it.

Michelle Singletary drops the ball.

[cue Joan Crawford voice]

No...Student Loan Debt....EVER!

I don't disagree that many students have overborrowed. I'm a card-carrying member of the club. And I don't disagree that it's generally good to figure out ways to avoid that debt.

But she could have questioned the increases in tuition or the fact that limits on federal loans (which are more often cheaper and more likely fixed than private) have not increased since 1992 [pdf]. She could have suggested flex programs or workplace education incentives. Instead, she jumped straight into the glorified situation in which someone who already HAS a job was deciding whether or not to pay off their debt.

I was particularly confused by her reaction to the son whose father left him $30K to help pay off his loans ($39K). He wondered if he shouldn't save the money elsewhere and pay back his loans while the funds earned interest.

"Your father did know best. Pay down the debt."

This is not exactly an unreasonable final answer. It makes sure that he is (almost) debt free, and that he knows he's complied with his father's final wishes immediately. But to ignore the fact that there are almost dozens of insured savings accounts making better than 5 percent when he has his loans at below 3.5 percent seems disingenuous. Maybe he has a tenuous job situation. Maybe he has health issues that might require cash on hand in the future. I don't know.

But neither does Ms. Singletary, and yet the "debt is bad" drumbeat was the only one she played. I think this question deserved a little more nuance. And if she'd still come to the same conclusion, after raising those points, I might even have agreed with her.

As it is, I would argue that if he has cheap debt, then he has the luxury of deciding on his financial priorities, and one of those might be to cover all his bases by saving and paying down debt at the same time.