Debt Management
Making Your Money Work For You
One of the biggest challenges you face while attending school is managing money. It is sometimes difficult to make money last, especially if you have to meet the financial needs of family or other unexpected expenses. Loans are a major source of funding for students. However, it is important to understand that there are long-term effects associated with borrowing. The goal is to use your money wisely, and find ways to budget your money.
Included below are links to information, strategies and tips that will assist you in managing your funds in order to reduce your future debt:
- Why Reduce My Loan?
- Budgeting Your Money
- Strategies on Stretching Your Dollars
- Credit Cards
- Maintaining Good Credit
- Glossary of terms
- Loan Counseling
- Repaying Your Educational Loans
- Avoiding Defaulted Loans
- Loan Consolidation
- Other Sources to Pay for College
- Educational Tax Benefits
- Recordkeeping
Budgeting Your Money
The key to successfully manage your money is planning. Controlling your expenses through budgeting requires understanding simple budgeting techniques. Budgeting your money requires planning and an understanding of the budgeting techniques. Listed below are some of the steps to take in the budgeting process.
- Step 1 - Calculate income sources
The first step is to determine the amount of income, either fixed or projected, that you have available for each semester/academic year to cover your expenses. Some examples of income include:
- Earnings from work (including spouse, if you are married)
- Support from other individuals, such as family
- Savings/checking accounts
- Financial aid awarded
- Benefits (i.e., Social Security Benefits)
- Step 2 – Subtract Expenses
List the expenses that you incur for the semester/academic year. There are two kinds of expenses: fixed expenses that do not change, and variable expenses that may change due to varying costs and conditions. Expenses include:
- Tuition and fees (fixed)
- Room and board (may be fixed or varied)
- Books and supplies (varied)
- Transportation (varied)
- Personal expenses (varied)
- Insurance (fixed or varied)
- Clothing maintenance (varied)
- Step 3 – Determine Budget
Subtract your expenses (Step 2) from your fixed or projected income (Step 1)
for the semester/academic year. If your expenses are higher than your income, you will have to determine ways to reduce your spending or increase your income. For ways to reduce spending, check Stretching Your Dollars below.
Strategies in Stretching Your Dollars
There are certain strategies you can use to cut costs, especially if your expenses are more than your income. In most cases you cannot cut your fixed costs. Some of these cost-cutting strategies include:
Housing and meals
- Compare costs of housing that may be less money per month and include utilities.
- Consider a roommate, if you are single
- Consider living with your parents, if single
- Cook at home rather than eat out
- Take your lunch
- Clip coupons
- Don’t go food shopping when you are hungry
Books and Supplies
- Buy used books
- Borrow books from students who had the class (if edition is the same)
Transportation
- Take public transportation, if you can
- Ride with a friend or a classmate and share the cost
- Buy a used car, not a new car
Personal Expenses
- Buy what you need and avoid impulse buying
- Compare costs, such as insurance and childcare
- Try to buy items without using your credit card – use cash
- Find inexpensive ways of entertainment – rent videos with friends or family
- Take your own snacks to the movies
- Shop in a second-hand store or buy sale items
- Use prepaid phone cards for long distance calls
- Borrow only what you need. Remember you have to pay loans back.
- Put your financial aid funds in the bank and let them gain some interest.
These strategies will assist you in cutting your costs. Although you cannot borrow more than the cost of attendance, minus other aid received, there may still be some latitude in your financial aid budget. You should always borrow the least amount necessary to meet your needs.
Credit Cards
Credit cards can make life simple. Sometimes it is so easy, you don’t realize how much you have spent until you receive your monthly bill. By that time it is too late. Many credit card companies set up a table at college campuses to draw students in with free tee shirts and other freebies in exchange for completing a credit card application. Do not just sign up for a credit card without thinking the process through.
Before deciding to apply for a credit card, ask yourself a few questions. When making your decision about a credit card, ask yourself the following:
- Do I need a credit card?
- Can I afford a credit card?
- Will I be able to pay off my balance each month?
If you decide to apply for a credit card, be a smart consumer and shop around. Look for a company that offers the following:
- Low interest rates or finance charges (combined, they are called APR)
- Low or no annual fees
- A grace period (time during which no payments are due) before finance charges are posted
- Other benefits including purchase warranties, free gas, airline miles, etc.
There are advantages to applying for credit card. Some of the advantages include:
- Using the card only in case of emergencies.
- Not needing to carry cash or checks
- Creating a good credit rating for future purchases
- Enhancing personal responsibility and independence
There are also disadvantages to credit cards. These include:
- buying items that you do not need.
- not paying bills on time and paying late charges and interest.
- creating a bad credit rate, which will affect future purchases such as homes and cars.
Helpful Hints on Using Credit Cards
Listed below are some tips to assist you when using your credit card:
- Try to pay off your credit card debt as soon as possible
before you have to pay fees. Fees can be a concern to you regarding
credit cards, as stated below:
- Try not to carry balances forward, as some cards charge 20% or more in interest. (Interest is usually called "Finance Charges" on your statements.)
- Check your statement carefully and call the company right away if you have any questions
- Be careful of the large finance charges for cash advances. Interest begins accruing as soon as you take the money out, not after the next statement closing
- Be aware of annual fees. Many times you are charged $50 or more just to have the card
- Look at those introductory offers carefully. A low rate may expire in six months, and then increase dramatically after the “introductory offer”
- Make sure you think about the purchases you make. If you are not able to afford the purchase now, chances are you won't be able to afford it in a month when the credit card bill comes in.
- Use the credit card for emergencies only.
- Don’t use a new card to pay off existing debt.
- Try to pay the balance at the end of each month.
If you do get behind in your payments, there are several ways you may relieve the situation:
- Cut costs as stated above under Strategies on Stretching Your Dollars
- Call the credit card company and ask if they will work out a repayment schedule
- Stick to your monthly budget. Remember to buy what you need, not what you want
- Stop using the credit card. Only buy what you can pay for in cash!
- Look for credit counseling services. Some offer educational programs or individual counseling sessions to help keep you on track.
Maintaining Good Credit
It is very important to maintain good credit. By being careful in how you spend your money, buying items that you can afford, and using cash whenever possible, you can avoid going into debt. Remember: When you overspend or get into debt, it may affect your future. Adverse credit may affect your chances when you want to buy a house, a car, or request a loan. Be a smart consumer. Your future may depend on it!
The following Web sites contain information on credit and allow you to obtain your credit report:
- www.equifax.com (Equifax)
- www.tuc.com (Trans Union)
- www.experian.com (Experian)
Loan Counseling
Loan counseling is a federal requirement for students who borrow under either the Stafford or Perkins loan programs. As a first-time borrower, you are required to complete an Entrance Counseling session prior to receiving the first disbursement of your loan proceeds. Exit Counseling is required when you graduate or if you drop below half-time status. Students obligated to repay the loan even if they:
- do not complete their degree program
- cannot find employment after graduation
- are not satisfied with their education and other services
Repaying Your Educational Loan
It is important to understand the variety of loan repayment options available to you. In some cases, these options can improve your ability to repay your education loans if you are having difficulty. This can be accomplished by either delaying repayment, selecting a graduated repayment plan, or extending the repayment period. Check with your financial aid counselor, lender or loan servicer for more information on your options. Listed below are some of the repayment options:
- Standard Repayment – This option requires you to pay a set amount monthly (a minimum of $50 per month is required) for a maximum of 10 years. The amount you pay depends on your interest rate, number of payments and total principal balance.
- Income-Sensitive – This plan allows for an adjustment annually for up to 10 years according to your annual income and the amount of your loan. If this plan requires more than 10 years to complete your payments, your lender can put your loan in forbearance to lengthen your repayment time up to five additional years.
- Graduated Repayment – You begin your repayment with smaller monthly payments, which will gradually increase every two years. The repayment period varies from 12-30 years depending on the total amount you owe when you entered repayment.
- Extended Repayment – This is an option for first-time borrowers who borrowed on or after October 7, 1998. If you have accumulated debt in excess of $30,000, you may take up to 25 years to repay your loans using either a Standard or Graduated Repayment Plan.
Deferment – The type of deferment for which you may be eligible depends on the type of loan and the date on which you received your first FFELP loan. Loans may be deferred if you:
- re-enroll in school at least half-time
- are unemployed
- experience economic hardship
- engage in a graduate fellowship program
- are involved in rehabilitation training
Forbearance - Forbearance allows you to temporarily postpone your payments, extend the period of time allowed to make your payments, or allow you to temporarily make smaller payments. It is granted at the discretion of your lender or servicer. You must apply for a forbearance, and you are responsible for the interest that accrues during the forbearance period regardless of your loan type.
Common situations for which a discretionary forbearance may be granted include:
- personal problems (such as economic hardship) that are affecting your ability to make scheduled payments
- unemployment (if you've already used the maximum time allowed for that deferment)
- poor health or disability when you may not qualify for disability deferment criteria
- request for a change of payment amount or payment due date on a loan that requires the lender to bring your loan current
Depending on your situation, there are other types of non-discretionary forbearance that are available and may be granted, sometimes even without having to apply or sign an agreement. Some of these situations include but are not limited to:
- medical or dental internship/residency
- debt exceeds monthly income
- Department of Defense loan repayment program
- bankruptcy filing
- serving in a national service position such as Americorps
- natural disasters
- local or national emergency
- closed school
- military mobilization
- teacher loan forgiveness program
Forgiveness
Cancellation of all or part of your responsibility to repay your loan. This is granted to those who provide teaching services in designated areas (i.e. low income, critical shortage areas), and for certain U.S. military and government services. Please contact your lender and/or your state’s Department of Education for details concerning their loan forgiveness program.
Avoiding Defaulted Loans
Default occurs when you fail to meet the terms of the promissory note. By failing to make payments on your student loans (being late for 270 days), the lender or servicer can request immediate payment in full. There are several consequences that can occur due to being in default:
- The lender or holder of your loan may declare the entire unpaid balance, including interest, immediately due and payable.
- The lender or holder of your loan may assign the promissory note to a guaranty agency, at which time all amounts due will be payable to the guaranty agency.
- You could be required to pay all charges and other costs (including reasonable attorney's fees) permitted by law for the collection of your loan.
- The lender, holder, or guaranty agency may report the default to one or all three national, authorized credit-reporting agencies.
- Wages may be subject to garnishment.
- State and federal income tax refunds may be withheld.
- The lender and/or government may take legal action against you.
- The lender, holder, or guaranty agency may report default to your school.
- You may be unable to receive assistance from federal student aid programs.
If you're late making a loan payment, your delinquency might be reported to the national credit bureaus. Instances of delinquency and default that are reported to national credit bureaus will remain on your credit report for a minimum of seven years. This may make it difficult for you to borrow money for a car or a home in the future.
In order to avoid going into default, here are some tips:
- Make payments on time!
- Do NOT ignore mail from your lender or servicer.
- Report changes immediately - name (marriage and divorce), address, telephone number, and enrollment status.
- Request deferments, forbearance, or other repayment options as needed.
If you have difficulty in making your loan payments before you become delinquent, contact your lender or loan servicer.
Loan Consolidation
One other type of loan for you to may consider is a Federal Consolidation loan. By consolidating your student loan debt into one loan, you may avoid having to make multiple monthly payments to various lenders. You may consolidate the following undergraduate and graduate loans: Federal Perkins Loan, Federal Unsubsidized and Subsidized Stafford Loans, Federal Direct Loans, Health Professions Loans and/or Federal Nursing Student Loans.
A consolidation loan may:
- Extend repayment up to 30 years
- Lower your monthly payments
- Have higher interest costs using a weighted average of your loans
- Not qualify for certain deferments
- Not include private loans and other consumer debts
Other Sources to Pay for College
Student loans are not the only source of funding to pay for your education. There are other options that include student employment, grants, and scholarships. Students interested in federal aid must complete the Free Application for Federal Student Aid (FAFSA), and should apply online at www.fafsa.ed.gov. In addition to the FAFSA, students must meet federal eligibility criteria, and complete other forms, if required. Listed below are some of the options other than loans:
- Student Employment – “Earn
while you learn”. At NSU, there are three
student employment programs: the Federal Work-Study program,
which includes America Reads and America Counts; the NSU
Employment program; and the Job Location and Development
program. For more information on Student Employment, check
the NSU financial aid Web site at www.nova.edu/cwis/finaid.
- Grants and Scholarships – Grants and
scholarships are considered “gift aid”, as they
do not have to be repaid. Undergraduate students who have not
received their first bachelor’s degree may be eligible
for federal and state grants. There are also numerous scholarship
opportunities from both the University and outside organizations.
Interested students can visit one of the following web sites
for additional information:
Educational Tax Benefits
Saving money should be a primary goal of students and parents. One way to save money on your taxes is utilizing the educational tax benefits. The Taxpayer Relief Act of 1997 and the subsequent Economic Growth and Tax Relief Reconciliation Act of 2001 have created a number of incentives to help you save for higher education expenses.
Listed below are some of the educational tax benefits:Hope and Lifetime Learning Tax Credits
The Hope and Lifetime Learning Tax credits were created by the Taxpayer Relief Act of 1997. These programs reduce the amount of your federal taxes based on qualifying "out-of-pocket" educational expenses paid for yourself, your spouse or your dependent child. Qualifying "out-of-pocket" expenses include tuition and fees less any grants and scholarships received. It does not include room, board, books, and transportation. Only one taxpayer (either the student or the parent) may claim this tax credit. Also, only one of these tax credits may be claimed per tax year.
Hope Tax Credit:
- You can claim a tax credit of up to $1,500 for each qualifying family member who is attending an eligible school.
- You can claim 100% of the first $1,000 of your out-of-pocket educational expenses for each student, plus 50% of the next $1,000.
- The student must be in the first or second year of a degree or certificate-granting program and must be attending at least half time.
Lifetime Learning:
Beginning in tax year 2003, you can claim a maximum credit of up to $2,000 (20% of the first 10,000). This credit is calculated per family, not per student.
The maximum credit is the same, no matter how many family members are in school. You can claim this credit at any time during a student's education at an eligible school. The student needs only to be enrolled in one course.
Coverdell Education Savings Account (formerly the "Education IRA")
The Coverdell Education Savings Account, introduced by the Taxpayer Relief Act of 1997 as the Education IRA, allows you to save money for future educational expenses. A Coverdell Account can be established for anyone less than 18 years of age. Contributions are not tax deductible, but the funds grow tax-free. Distributions used for qualified educational expenses are not subject to tax and are excluded from income as long as they are not greater than educational expenses in a given year.
As a result of the Economic Growth and Tax Relief Reconciliation Act, there have been several changes in 2002 to the Coverdell Education Savings Account.
- The annual contribution limit increases to $2,000 per designated beneficiary.
- Definition of qualifying educational expenses expands to include elementary and secondary school costs as well as some room and board, uniform, computer, and extended day program expenses.
- Annual income limits on those who can fund a Coverdell Account increase (e.g., from $150,000 - $160,000 to $190,000 - $220,000 for joint filers).
529 Plans
Section 529 Plans are state-sponsored investment programs that permit taxpayers to make contributions on behalf of a beneficiary. The account earnings are untaxed until withdrawn for the beneficiary's qualified college education expenses at which time they are taxable to the beneficiary.
The Economic Growth and Tax Relief Reconciliation Act of 2001 expanded the scope of these plans. Educational institutions can now sponsor these tuition programs. State-sponsored programs can now allow distributions to be tax free when used for qualified post-secondary education expenses (educational institution distributions will be tax free beginning in 2004).
Student Loan Interest Deduction 2003
- You can deduct up to $2,500 in interest payments on one or more qualifying education loans.
- Interest paid while a loan is not in repayment (such as forbearance or deferment) is also deductible.
- The deduction is an adjustment to income; you can claim it even if you don't itemize tax deductions.
- You can't claim the deduction if your parents claim you as a dependent on their taxes.
- Eligibility is phased out for unmarried taxpayers with annual gross income of $50,000 to $65,000 (and $100,000 to $130,000 for joint filers).
For more information regarding the educational tax credits under the Taxpayer Relief Act of 1997 or the Economic Growth and Tax Relief Reconciliation Act of 2001 you can check the following Web sites:
- Internal Revenue Service
www.irs.ustreas.gov
1-(800)-829-1040
- Department of Education
http://studentaid.ed.gov/PORTALSWebApp/students/english/funding.jsp?tab=funding
Record Keeping
It is important to always keep records of your financial aid. Some of the information to keep includes
- Financial aid award notices
- Loan documents
- Correspondence
You never know when you will require information for the future.
