Should you send your kid to college with a credit card?

teen-creditSavvy parents know the importance of building a good credit history. They also know that paying with a credit card can be more convenient and secure than other methods.

But personal finance expert Janet Bodnar has one word of advice for parents thinking of providing their college-bound children with a credit card: don’t.

“It’s dangerous and it’s not necessary,” said Bodnar, editor of Kiplinger’s Personal Finance and mother of three college graduates.

On the other hand, personal finance columnist Kathy Kristof—who also writes for Kiplingers and who has sent two children to college—says students who have been taught how to handle money can be responsible credit card users. She added her kids as authorized users to one of her credit cards, and said it’s worked out well.

You can read more in my Reuters column this week, “Start college kids with bank accounts, not credit cards.” Bodnar has more tips for parents at “Rules for raising money-smart kids.”

 

 

 

 

 

Social Security’s divorce and survivors benefits for same-sex married couples

gay-marriage-cake-toppers-485x320Same-sex marriage has been legal long enough in a couple of U.S. states that its pioneers may qualify for Social Security benefits even if they divorce.

Marriages that last at least 10 years before they end qualify the participants for both spousal and survivor benefits from Social Security. Spousal benefits equal up to half the benefit a spouse or ex-spouse has earned, while survivors benefits typically are equal to what the spouse or ex-spouse was receiving at death.

More information on the benefits available to same-sex married couples can be found in my column for Bankrate.

Also on Bankrate, I answer a reader’s question about using her 401(k) account to delay taking Social Security benefits. And on Reuters, I take a look at why parents are spending more and worrying less about college.

Monday’s need-to-know money news

air-miles-cardToday’s top story: How your medical debt impacts your FICO score. Also in the news: Signs your parents are victims of a financial scam, what you need to know when hunting for scholarships, and how to fly first class on the cheap.

The Impact of Medical Debt on FICO Scores
A new formula treats medical debt differently.

5 Signs Your Parents Are the Victims of a Financial Scam
Older adults are more susceptible to scams.

Everything You Need to Know When Hunting for Scholarships
Helping your kids on the road to college.

How to fly first class for free (or on the cheap)
Bargain your way out of coach this summer.

Q&A: American Opportunity Credit for college expenses

Dear Liz: I am confused regarding my ability to take advantage of the American Opportunity Credit for college expenses in filing my 2014 tax return.

My accountant told me I didn’t qualify because my adjusted gross income exceeds $80,000. Yet when I researched on the IRS website, I seem to qualify. I paid qualified education expenses for my son to get an MBA and am claiming him as a dependent on my return, since he is unemployed and I support him. My adjusted gross income was $84,905.

The IRS rules discuss modified adjusted gross income less than $90,000. Is my accountant thinking of another tax credit that I don’t qualify for? Can I take advantage of any credit for providing educational expenses for my son to obtain a graduate degree? I filed for an extension in order to resolve this issue.

Answer: Education tax breaks can be baffling because each has different income limits, eligibility requirements and qualifying expenses.

Three of them — the American Opportunity Credit, the Lifetime Learning Credit and the tuition and fees deduction — are mutually exclusive. That means you can take only one per year, and you can’t use any of them for expenses paid with a tax-free 529 plan withdrawal.

It’s no wonder that many people who may be eligible to take these breaks don’t take advantage of them, even though they could shave thousands of dollars off their tax bills.

The American Opportunity Credit is usually the most valuable credit. It reduces taxes by up to $2,500 per student and is 40% refundable, which means people can get up to $1,000 back even if they don’t have any taxes to offset.

But the credit can’t be claimed for more than four years, and any year in which the old Hope Credit was claimed counts toward that limit. Since your son was in graduate school, it’s possible you already used up your ability to claim the credit.

You can qualify for the full tax break if your modified adjusted gross income is below $80,000 as a single filer or $160,000 for a married couple filing jointly. The credit gets smaller as your income goes up. After $90,000 for singles — and $180,000 for a married couple filing jointly — the tax break is no longer available.

If you can’t take the credit, your son might be able to claim it — if he had taxable income last year and you opt not to take a dependency exemption for him. Discuss this possibility with your tax pro.

You make too much money for the other two options: the Lifetime Learning Credit and the tuition and fees deduction. The Lifetime Learning Credit offsets 20% of tuition and certain other required expenses up to $2,000 per tax return.

In 2014, the credit was gradually reduced for modified adjusted gross incomes between $54,000 and $64,000 for singles, and $108,000 and $128,000 for married couples filing jointly.

The tuition and fees deduction reduces taxable income by a maximum of $4,000 for incomes up to $65,000 for single filers and $130,000 for joint filers, and by up to $2,000 for incomes over $65,000 for singles and $130,000 for joint filers. There’s no deduction for incomes over $80,000 for singles and $160,000 for joint filers.

Why “Get scholarships!” is bad advice

Student-LoansWe had a great Twitter chat today about preparing financially for college, hosted by Experian. (You’ll find the tweets using #creditchat.)

I was distressed, though, that many believe people should look for scholarships as a way to reduce college costs. That’s not how it usually works.

If you have financial need, colleges typically deduct the amount of so-called “outside” scholarships from the free aid such as grants and their own scholarships that they otherwise would give you. Schools don’t have to reduce the loan portion of your package unless your outside scholarships exceed the grants and other free aid they were planning to bestow.

They’re not just being mean. It’s what federal financial aid rules require, according to FinAid. If you don’t have financial need, outside scholarships could reduce the merit aid a school would otherwise give you.

Does that mean you shouldn’t search and compete for outside scholarships? No. But it’s certainly not a reliable solution to the college affordability problem.

A better approach for students and families is to look for generous schools. Colleges themselves are the greatest source of scholarships, but most don’t meet 100 percent of their students’ financial need. Some meet 70 percent or less. If you want a better deal, look for schools that consistently meet 90 percent or more of their students’ need. College Board and College Data are among the sites that can help you find this information.

 

What you need to know about paying for college

My recent Reuters columns have focused on some of the most common issues families face in trying to pay for college, from getting the most financial aid to how to cope when you haven’t saved enough. Read on, and please share these columns with people you know who might benefit.

Increase economic mobility by busting college myths

One way to improve economic mobility in the United States may be to fix the misconceptions that high-achieving, low-income teenagers often have about college.

Avoid easy-to-make mistakes on your financial aid application

One of the worst mistakes you can make with college financial aid is simply failing to file the all-important Free Application for Federal Student Aid. But there are plenty of other ways to mess up this application.

Last-minute moves to boost financial aid

Financial aid filing season starts Jan. 1. It may be too late to rearrange your finances this year, but here are some ideas for maximizing what you can get in future years. First, though, make sure your hopes are realistic.

What to do if you have not saved enough for college

Soaring college costs and stagnant incomes mean many families will not be able to save enough to pay for a typical undergraduate education. But there are still ways to find a college degree you can afford. The good news is that most people will pay significantly less than the sticker prices.

Busting the myths of haggling for college aid

My daughter learned this little ditty in preschool: “You get what you get, and you don’t get upset.” Parents who are convinced they can haggle their way to a better financial aid package might want to learn it, too.

No need for irrational fears of student loans

The next generation of college students has heard the message loud and clear about the perils of taking on too much student loan debt – so much so that many are unwilling to go into debt at all in order to attend college. The drawback to this wariness is that most of those who do not borrow are unlikely to get four-year degrees.

What will you pay for college? Probably more than you think

Zemanta Related Posts ThumbnailI recently used the College Board’s “estimated family contribution” calculator to see how much we’ll be expected to pay when our (currently pre-teen) daughter heads off to college.

The answer? Roughly half our annual incomes. Each year.

No colleges actually charge the amount we’d theoretically be expected to pay. So our out-of-pocket costs would be somewhat less. But the exercise drives home how important it is to run these numbers, early and often, if you want a college education for your kids that doesn’t bankrupt you, and them.

Because I know how the formulas work, I was able to tweak some numbers to lower our EFC. Moving more money into retirement accounts and using savings to pay down the mortgage helped a lot with the federal formula, and helped some with the institutional formula (which, unlike the federal, counts home equity). We still wouldn’t get any need-based help from most colleges but could get some breaks if our daughter gets into one of the most-expensive elite schools. (The total cost of the average public college is $20,000 to $25,000; $40,000 for privates and $60,000 for elites.)

If we didn’t have a fat college savings account, we likely would steer our daughter toward public schools or privates willing to offer merit scholarships to reduce the total cost. It’s much better to start a college search knowing what you can afford than to have to tell your kid, dream school acceptance letter in her hand, that you can’t send her there. Or worse, that you will–and then never be able to retire.

For more about how financial aid formulas work, read my Reuters column this week: “A guide to figuring out the real cost of college.”

 

Most colleges worry they won’t have enough students

Zemanta Related Posts ThumbnailGetting into an Ivy League school is basically a lottery for smart kids. There are no guarantees. Winning admission at many highly-regarded public universities is easier, but only by comparison. UCLA accepts about a quarter of its applicants, instead of the single digit acceptance rate at Harvard or Yale.

Look outside that privileged circle of “name brand,” well-known schools, though, and it’s a whole different universe. Most colleges are worried about getting enough students to enroll, not about how many they can turn away. The competition is particularly tough for small- to medium-sized private colleges that don’t have fat endowments. You can read “College is a now a buyer’s market,” my Reuters column this week, for more.

Here’s another fact you may have missed when reading breathless media accounts of “how hard it is to get into college”: where you go matters a lot less than your experience while you’re there. Elite schools apparently offer no advantage it comes to success in life.

I attended a small private college in the Pacific Northwest: Pacific Lutheran University. My alma mater recently named me one of its distinguished alumni. I was honored to be part of this impressive group, which included best-selling author Marissa Meyer and Air Force flight nurse/helicopter pilot Ed Hrivnak, who wrote the book “Wounded” about his experiences in Iraq and who was one of the first responders to the Oso landslide disaster in Washington state.

Research indicates a good reason for our success after school was the relationships we had with our professors. They weren’t far away creatures at the bottom of some cavernous lecture hall. They were accessible, they taught in small classrooms and they cared about our progress.

It’s only in the past few years that I’ve fully appreciated my college experience. For years I wondered if I should have attended a name-brand school. (I was accepted as a transfer student to Stanford, but opted not to go, since the financial aid office offered loans rather than the scholarships and grants I got at PLU.) Now I’m really glad I studied where I did.

So my advice to families contemplating college: open your eyes, and look beyond the name brands. There are some real gems out there that will be happy to have your kids and that will give them what they need to succeed.

Regulators sue for-profit college chain

DrowningCorinthian Colleges–which includes the Everest, Heald and WyoTech schools–has just been sued by the Consumer Financial Protection Bureau for what regulators call its “predatory lending scheme.”

The CFPB alleges that the for-profit college chain exaggerated students’ job prospects to get them to take out private loans to cover its schools’ high tuition costs. The bureau says Corinthian then used illegal debt collection tactics “to strong-arm students into paying back those loans while still in school.”

The Bureaus wants the courts to halt these practices and grant relief to people who have taken out more than $500 million in private student loans.

As I wrote in my Reuters column “What to do when your college shuts down,” Corinthian is in the process of closing or selling its schools as part of an agreement with the U.S. Department of Education. People who have federal student loans have a shot at getting their debt discharged when a school closes, but those with private student loans are often stuck with the debt, even if they get no value from the education.

If you or anyone you know attended a Corinthian school, getting educated about your options is key. (The CFPB posted information for current and former students here.) So is alerting the CFPB if you feel you were deceived about the value of your education or your career prospects. You can file a complaint here.

 

Gamers helping gamers…get into college

Zemanta Related Posts ThumbnailSamantha Castillo drove her family a bit crazy with her love for video games–and her criticisms of the ones that could be better. She loved educational games when she was little, for example, but found the games for older kids could be pretty dull.

So she jumped at the chance to learn game design from USC’s Game Innovation Lab when she was in high school. In return, the lab wanted high schoolers’ help in designing games to make it easier for first-generation students to apply for college.

“First generation” students are those whose parents haven’t gone to college. The knowledge gap between those parents, and the ones with college degrees, can be huge. Kids without parents to guide them through the application and financial aid processes are less likely to attend college, and less likely to get college degrees when they do. A big problem is “under-matching,” when the student settles for a much less challenging or selective school than the ones for which she’s qualified.

That could have been Castillo, who lives in a neighborhood where just getting through high school is considered an accomplishment. She had a vague idea that she might go on to community college, but wasn’t sure what that would involve.

So she asked a lot of questions, and helped to research the answers. Just the fact that the game developers listened to her and her opinions gave her more confidence.

Fast forward to today: Castillo is about to graduate USC with a degree in neuroscience. She credits the game lab, and working on its college application games, with the big step up in her ambition and accomplishment.

For more on Castillo, and the games, read my Reuters column this week: “To get into college, play a game or two.”