Q&A: When student loan payments overwhelm, here’s a pathway out

Dear Liz: I went to college in 2004. I did it the American way with student loans. Well, my son had a bad seizure that put him on life support for three weeks. I had to quit college to take care of him. So now I’m in hock with no degree. He is on disability but that doesn’t cover much.

The federal government is now taking my tax refund. I used to get money back that helped him and me. So now what? I still don’t make enough and never will to pay back the loans.

Answer: Because these are federal student loans, you have some options to get out of default and get a payment plan you can afford. Otherwise, the government will continue taking your refunds until the debt is paid back. (The feds can even take a chunk of people’s Social Security checks, which are protected from other creditors.)

Since you can’t pay the debt in full, the fastest way out of default would be to make three full, on-time monthly payments and then consolidate the loans into a new Direct Consolidation Loan. (It’s important to know these terms, because the private companies that service federal loans don’t always give complete or accurate information.)

Once you have a Direct Consolidation Loan, you can qualify for an income-driven repayment plan. Your payments would be 10% of your discretionary income, defined as the difference between your total income and 150% of the poverty guideline for your family size and state of residence. Your payments can be reduced to zero if your income is low enough.

Another option is to “rehabilitate” your loan, which would require you to make nine monthly loan payments within 10 consecutive months. You can’t be more than 20 days late on any payment. Your new monthly payment will be 15% of your discretionary income as defined above. You also may request a lower amount.

You can find more information about getting out of federal student loan default at the Education Department’s student aid website StudentAid.ed.gov.

Friday’s need-to-know money news

Today’s top story: Credit basics you need to know. Also in the news: How a new homeowner bought a house in Vegas, 11 cheap date ideas, and what to do if your tax preparer can’t file your taxes by April 15th.

More Than Your Score: Credit Basics You Need to Know
You’re more than just a number.

How I Bought a Home in Las Vegas
One new homeowner’s story.

11 Cheap Date Ideas
Spend less without feeling like a cheapskate.

What to Do If Your Tax Preparer Can’t File Your Taxes by April 15
A look at extensions.





Thursday’s need-to-know money news


Today’s top story: Why you should love robo-advisors. Also in the news: 7 ways to trim your tax bill in retirement, how Roth IRA taxes work, and how to save money for the future when it’s uncertain.

Why You Should Love Robo-Advisors
Keeping costs low and advice honest.

Taxes in Retirement: 7 Ways to Trim Your Bill
Ideas that can reduce financial stress in retirement.

How Roth IRA Taxes Work
A good investment at tax time.

How to save for the future when it’s uncertain
Preparing for a variety of outcomes.





Wednesday’s need-to-know money news

Today’s top story: How your tax refund could improve your credit. Also in the news: 5 smart ways to invest your tax refund, how the Apple Card stacks up against the competition, and how moving between states could raise or lower your tax burden.

How your tax refund could improve your credit
Using your refund strategically.

5 Smart Ways to Invest Your Tax Refund
Your refund could help fund your future.

How the Apple Card Stacks up Against the Competition
Comparing features.

Will Moving Between States Raise or Lower Your Tax Burden?
Dramatic swings in both directions.





Tuesday’s need-to-know money news


Today’s top story: 5 empowering tips for women on Equal Pay Day. Also in the news: 5 smart ways to invest your tax refund, 7 ways to trim your taxes in retirement, and how changes to the ACA might affect your insurance premiums.

5 Empowering Tips for Women on Equal Pay Day
It’s time to bridge the gap.

5 Smart Ways to Invest Your Tax Refund
Putting it towards the future.

Taxes in Retirement: 7 Ways to Trim Your Bill
Making your retirement a little less stressful.

How Changes to the ACA Might Affect Your Insurance Premiums
Playing the waiting game.






Why you should love robo-advisers

Robo-advisers have been around long enough that the question is no longer whether you should turn your investment decisions over to a computer. Now the question is: Why wouldn’t you?

The success of Wealthfront and Betterment, two startups that helped launch the trend, led mainstream investment companies including Vanguard, Schwab and Fidelity to add robo-advice services in recent years. Depending on the robo-adviser, you may also have access to human financial advisers, socially responsible investments and tax-loss harvesting to help reduce tax bills.

This is not, and never really was, a niche product only for tech-happy millennials. From the beginning, investors of all ages spotted the significant advantages of letting computers run their portfolios. In my latest for the Associated Press, the advantages of robo-advisers.

Q&A: Avoiding capital gains

Dear Liz: In a few years, my husband and I will sell our large primary residence and move into a smaller home for our retirement. We are both over 55. We currently rent out the smaller home and pay a mortgage on it. We will realize a small capital gain on the large residence when it is sold. Rather than use our one-time exclusion for the sale of a primary residence, can we avoid capital gains by putting the small profit toward paying down the mortgage principal on the smaller home when it becomes our primary residence shortly after selling the large house?

Answer: The ability to defer capital gains taxes on home sales and the one-time exclusion for home sale profits were repealed in 1997. Before that, capital gains taxes were typically due on home sale profits unless the homeowners bought a house of equal or greater value within two years of the sale. The exception was for people 55 or older, who could exclude up to $125,000 of home sale profit from their incomes once in their lives.

Now, when you sell a home, regardless of your age, up to $250,000 in home sale profits can be excluded by an individual or $500,000 by a married couple. You can do this multiple times, as long as you live in each home at least two of the preceding five years.

There are some issues with converting a rental property into a primary residence, however, especially if you should want to sell it someday. You should discuss this with a tax professional.

Q&A: Here’s a big mistake to avoid when planning your wedding

Dear Liz: Would you advise taking money out of your 401(k) for your wedding if you’re getting a lump sum of money within the same year and can pay the full amount back?

Answer: How about postponing the wedding until you can pay for it in cash?

That would be so much better than starting your life together “betting on the come” — in gambling parlance, counting on cards that haven’t yet been dealt into your hand. There are so many ways that can go wrong and only a few where it can go right.

The most obvious risk in borrowing from your 401(k) is that you will lose your job and won’t be able to pay back the money before the balance is deemed a withdrawal, incurring taxes and penalties. Plus, you can’t put the money back, so you’ve lost all the future tax-deferred compounding those savings could have earned.

You’re also setting a seriously bad precedent for your marriage when you borrow money for a luxury, which is what a wedding is. (You also might want to read the Emory University study that found the duration of a marriage was inversely proportional to how much was spent on the engagement ring and wedding. The more spent, in other words, the shorter the marriage.)

It’s easy to get in the habit of borrowing rather than making hard choices or having hard discussions. But a good marriage, and sound finances, requires plenty of both. Give yourselves the gift of a wedding you can afford, when you can afford it.

Q&A: Social Security spousal benefits

Dear Liz: My husband is 78 and receives a large Social Security check every month. I will be 66 in two years. Should I take my benefit then — we may need it — and then switch to his benefit if he dies before I do? His benefit will be much higher than mine. I see that some of your older posted responses mention a spousal benefit. I think this is no longer offered as of a few years ago — is that correct?

Answer: Spousal benefits, which can be up to 50% of the primary earner’s benefit, are still very much available. What was eliminated for people born on or after Jan. 2, 1954, was the option of filing a restricted application for spousal benefits only, and then switching to one’s own retirement benefit later.

When you apply for Social Security, your spousal benefit is compared to your own benefit and you’ll get the larger of the two. When one of you dies, the survivor will get only one check, which will be the larger of the two you received as a couple.

Friday’s need-to-know money news

Today’s top story: There’s more than one way to slay a debt. Also in the news: How to know when it’s OK to spend, 3 steps to spring cleaning your credit card debt, and what to do when you desperately need help with medical bills.

There’s More Than One Way to Slay a Debt
These key points could help.

How to Know When It’s OK to Spend
Loosening the purse strings.

3 Steps to Spring-Cleaning Your Credit Card Debt
Time to shake the dust off.

What To Do When You Desperately Need Help With Medical Bills
Looking into medical debt forgiveness.