Your Year-End Financial Checklist

As we approach the end of 2010, Santa should not be the only one making a list and checking it twice.  With all of the changes in income and estate taxes poised to take effect on January 1, 2011, it should come as no surprise that reviewing your family’s finances is even more critical this year-end.  Below is a small sample of items to consider.

In General 

• How is that Emergency Fund holding up?  The general rule of thumb is you should have three to six months of living expenses saved in a very liquid, easily accessible account.  Don’t have an emergency fund?  Start devising a savings plan to start building one right away.

• Plan a holiday spending budget to avoid overspending as we enter the holiday season.  Ideally, the spending budget you determine appropriate should be funded with cash rather than relying on credit cards.  The best holidays are those that don’t have statements showing up in your mailbox in January.

• Review your credit report for inaccuracies and accounts that should be closed but which remain open.  Everyone is entitled to one free report from the three major reporting agencies, Experian, Equifax, and TransUnion.   Schedule to pull one every four months, and you’ll provide year-round monitoring for your family.

Investments

• Be cautious about making additional investments in your non-retirement investment accounts, especially when dealing with mutual funds.  Funds are required to distribute capital gains and dividends to shareholders by the end of the year.  If you invest before the distribution date, you will receive your share of capital gains and dividends the fund recognized during all of 2010 – even if you only owned the fund for one day.  And that could wreak havoc on your income taxes.

• Required Minimum Distributions (RMDs) are back for 2010.  Failure to make your RMD results in a 50% penalty on any amount you did not take this year.  Not sure if you’re required to take a RMD?  Contact your tax advisor or MTR Financial Services for guidance.

Income Taxes

• As it stands right now, income tax rates are set to increase to the pre-Bush Tax Cuts rates.  Also increasing are the tax rates for capital gains and dividend income.  As odd as it may sound, it may benefit you to accelerate income in 2010, including selling investments with large gains.  Additionally, deferring certain itemized deductions such as charitable giving and real estate taxes into 2011 could result in a more efficient income tax scenario if the impending tax changes hold true.

• Check to see if you need to update your W-4 filing for 2011.  A change in marital status or a birth of a child in 2010 will normally result in the need to update your W-4.  Also, if you’re consistently getting large refunds with each tax filing, you may want to consider updating your W-4 as well.

Estate Issues

• Unless Congress acts before year-end, the estate tax will re-appear in 2011.  Each individual will have a $1 million exclusion, and the top tax rate on estates will go to 55%.  Those who haven’t had to worry about estate taxes in the past may find themselves subject to larger than anticipated estate taxes due to the decreased exemptions.  Consult with your estate planning attorney or MTR Financial Services for guidance on how to best address your potential need for new wills and estate documents.

• With the impending changes in the estate tax exclusion amounts for 2011, proper beneficiary designation for your retirement accounts and life insurance policies is critical.  Failure to review your current beneficiary designations could create additional tax for your heirs.

Insurance

• If you have a Flexible Spending Account (FSA) you need to be aware of a key change in benefits that will begin January 1, 2011.  Starting on this date, over-the-counter medication will only qualify for reimbursement if prescribed by a doctor.  The only exception is for insulin bought without a prescription.

We’ve all heard that a little planning can go a long ways.  With all the changes facing us in 2011, this adage certainly holds true.  Consider contacting MTR Financial Services for any guidance you may need in your overall financial plan.

Upcoming Tax Increases To Keep In Mind

Regardless of how the elections turn out tonight, and barring any legislation before the end of the year, changes to our personal income taxes will automatically occur.  I’m sure everyone is aware of the increasing marginal tax rates, as well as the increased capital gains tax rates.  

I thought I would summarize some of the key changes that will automatically occur come January 1^st:

• Personal income tax rates will rise.  The top income tax rate will rise from 35% to 39.6%.  The lowest rate will rise from 10% to 15%.  The full list of marginal tax rate hikes is:

o   10% bracket rises to an expanded 15% bracket

o   25% bracket rises to 28%

o   28% bracket rises to 31%

o   33% bracket rises to 36%

o   35% bracket rises to 39.6%

• The “marriage penalty” (reflected in standard deductions and tax brackets for married couples that are less than double the single amounts) will return.  This change will cause many two-earner couples to owe more tax and may discourage couples from marrying.

• The capital gains tax will rise from 15% (0% for taxpayers in the current 10% and 15% tax rate brackets) this year to 20% in 2011.  

• The dividends tax will rise from 15% this year to potentially 39.6% in 2011 – dividends will be taxed at ordinary income tax rates.

• Itemized deductions and personal exemptions will again be phased out (no phase out limits for 2010), which has the same mathematical effect as higher marginal tax rates.

• The child tax credit will be cut in half from $1,000 per child to $500 per child.

• The dependent care credit will be calculated on $2,400 of expenditures (rather than $3,000) for one dependent and $4,800 (rather than $6,000) for two or more eligible dependents.

• Stepped up basis on inherited property returns along with a $1MM personal exemption and a top estate tax rate of 55% for estates over the $1MM level.

• The increased alternative minimum tax (AMT) exemption will expire, causing millions more taxpayers to owe AMT.

• The $250,000 immediate expensing of business equipment provision will be reduced to $25,000, and 50% bonus depreciation will expire.

The best plan is a proactive plan, so if any of the changes listed above could adversely affect you it’s best to address the issues now rather than trying to be reactive come January 1.  Any questions at all, just send me a message!

They're Baaaack......

In response to the drastic stock market decline in 2008, Congress (as part of the Worker, Retiree, and Employer Recovery Act of 2008) suspended required minimum distributions (RMDs) from IRAs and defined contribution employer plans for the 2009 calendar year.  As a result, individuals could avoid having to deplete retirement assets while the value of those assets was suddenly depressed.  But RMDs are back as of January 1, 2010.  If you’re out of practice – or making a required distribution from your IRA for the first time – here’s what you need to know:

When Do RMDs Have To Be Taken?

According to IRS regulations, people aged 70 ½ and older must take their distributions by December 31 of each year, or when they separate from the employer sponsoring their retirement plan, whichever is later.  There is one exception – if you turned 70 ½ in 2010 (and you are retired) you can wait until April 1, 2011 to take your first RMD.  It is important to note, though, that the RMD taken is for the 2010 calendar year – you will still have to take the RMD for 2011 by December 31, 2011, thus creating two distributions for 2011.

How Much Do You Have To Take?

Distributions are calculated by IRS rules, so you have to adhere to a very specific formula.  Your 2010 distribution will be based on your retirement account’s value on December 31, 2009 and one of three IRS tables found in Appendix C of IRS Publication 590.  Essentially, you are dividing your IRA balance by what the IRS has determined your life expectancy to be, depending on which table you are using.    If an individual has several IRAs, they can generally add the balances together and take the required distribution from just one account.  This is not true for 401(k) and 403(b) plans.  If an individual has money in several plans from previous employers, distributions must be taken from each plan – a good reason to combine them into a single IRA.  If you are unsure which table applies to your situation please contact your tax professional or MTR Financial Services for guidance.  It is important to remember that these calculations only determine your required distribution – you can always take more than the required distribution if you wish.

Consider The Taxation of Distributions

The money taken from your retirement account is taxed as ordinary income in the year taken because you received a tax deduction when you contributed to it.  With income tax rates widely expected to increase in 2011, the timing and amount of distributions you take need to be closely monitored.  If you did turn 70 ½ in 2010, it may make sense to take your first RMD in 2010 rather than deferring it to April 1 of next year.

Who Else Is Required To Take Distributions?

If you inherit an IRA (either a traditional or Roth) or employer-plan account from someone other than your spouse, you must begin taking RMDs over your life expectancy, starting with the year following the year of the account owner’s death.  (Spousal beneficiaries can simply roll the inherited account into their own IRA, and will not be required to take distributions until age 70 ½.)  Therefore, if you inherit an IRA from a parent, for example, and you are only 50 years old, you will be required to take annual distributions from that account each year for as long as you live.

Still Not Sure?

If you are still not sure if you have to make a required distribution by December 31, 2010 please consult your tax professional or MTR Financial Services for clarification.  The penalties for not taking the required minimum distribution, or any distribution at all, are severe.  You will be taxed 50% of the amount that you should have taken but did not.  That is a pretty stiff penalty that you will want to avoid!

Study on Lottery Players

A recent study conducted by Cornell University reports that lottery players who earn $13k per year spend an average of $1,100 of their income per year on tickets. They contribute 82% of all lottery revenue!  That is a very sad and scary statistic.  The lottery is simply a tax on the poor, in my opinion.

Are You Too Busy Tomorrow Night For This?

Studies show that kids are looking for answers relating to money - how it works, how it's spent.....why they're getting so little of it!  Take some time tomorrow and participate in National Money Night.  Talk to your kids about your household's financial situation.  Doing so will give them a deeper feeling of inclusion within the family unit.  Who knows......maybe they'll actually make a suggestion that will benefit the family! 

Read more about National Money Night here:  National Money Night

10 Questions To Ask When Picking A Financial Advisor

Great article by Mark Miller I thought I'd share with everyone.....


The financial planning profession is growing explosively as millions of aging baby boomers confront the challenges of planning for retirement security. Readers of this column have been writing to ask if they need a planner-and how to go about hiring one.

Retirement planning poses complex challenges-and investing wisely is just one part of the picture; you also need to understand the roles of Social Security, taxes, mortgages, insurance, debt, health care and longevity. You should learn all you can about these topics, but professional assistance with decision making and timing can make all the difference in helping you to get ahead for the long run. More often than not, a financial planner is worth the expense.

But how do you go about finding a knowledgeable, trustworthy advisor? Financial planners aren’t regulated by state or federal government, so anyone can hang out a shingle and start peddling services.

It’s critically important that you shop rigorously and ask the right questions. Here, then, are the top 10 questions to take along when you interview a financial planner:

1. What are your credentials? Planners can earn a wide range of professional designations from various private professional associations. I’m able to identify at least nine of them, each with a different meaning. Among the most common designations is Certified Financial Planner (CFP)-someone who has passed an exam and is earning a certain amount of continuing education credit on a regular basis. Some designations indicate a specialty in a particular area of investment, such as Chartered Mutual Fund Counselor (CMFC).

The key thing to know is that these designations are earned voluntarily; an advisor isn’t required to have any of them in order to practice. When you interview planners, ask about their professional designations and don’t be afraid to ask them to explain what they mean.

2. How much experience do you have? Always ask how many years a planner has been practicing. Find someone with at least five years’ experience; if it’s less than 10, ask about other experience that may be relevant to their planning expertise.

3. How many other clients do you have? A large number isn’t necessarily better! If a planner works with too many clients, you may not have access when you need it. Find out whether you be working directly with the planner or with an assistant.

4. How do you get paid? Many financial planners charge an hourly or flat fee. Others charge a fee plus commission on the products they sell, and some earn product commission only. In addition, some planners charge an annual asset management fee ranging from 1 to 3 percent of your assets.

There’s no consensus on which approach is best, although many experts dislike commission-based selling, arguing that planners who earn their living solely from commissions on the investment products they sell have a built-in potential conflict of interest.

“Find an experienced certified financial planner (CFP) who will do the planning on an hourly or project basis, with no requirement that the client have their investment assets with the planner,” says Joel Larsen of Navigator Financial Advisers.

If you go the fee-only route, expect to pay an hourly rate of $100 to $250 per hour, or a flat fee. You’ll go elsewhere to implement your planner’s recommendations.

5. Who do you really work for? If you’re interviewing commission-compensated advisors, determine whether they work for a single company or represent a larger, balanced range of products. You need to make sure the advisor has your best interests at heart, not an employer’s.

6. Have you ever been in trouble? You want a planner with a spotless record. Ask planners if they have ever faced public discipline for any illegal or unethical professional actions. You can verify this yourself for free at Web sites such as the Financial Industry Regulatory Authority (FINRA), the National Association of Insurance Commissioners or the U.S. Securities & Exchange Commission. I’ve posted links to these watchdog pages below.

7. What’s your investment philosophy? How does the planner approach investment risk and how will your portfolio will be adjusted as you age? Will you receive a written statement about the investment policies that will be used in managing your money? Will you be granting the planner authority to make investment decisions without your prior approval?

8. What should I bring to our first meeting? Look for a planner who asks you to bring all of your financial information to the first meeting. Time is a valuable commodity. It’s imperative that both you and the planner make the most of what time you have together. If you decide to work together, you’ll be able to get started immediately.

9. Can I trust you? Do you feel comfortable with the person you’re considering? Says Cynthia Meyers of Foothill Securities: “Does the planner keep his or her promises to you? Is this person consistently on time for your meetings? Does the planner meet your standards for a trustworthy person?”

10. Do you understand me? Look for a planner who wants to understand what’s important to you. Says Laura Leavitt, a certified financial planner: “If the planner doesn’t care to know about what’s important to you, how can he or she give you advice that meets your goals?”

April Is National Financial Literacy Month: Week # 1 Topic - The Dreaded 'B' Word....Budget

The basic cornerstone to any family's financial success is having, and adhering to, a working monthly budget.  A budget is a plan, an outline of your future income and expenditures that you can use as a guideline for spending and saving.

Only 40 percent of Americans use a budget to plan their spending. But 60 percent of Americans routinely spend more than they can afford. A budget can help you pay your bills on time, cover unexpected emergencies, and reach your financial goals—now and in the future. Most of the information you need is already at your fingertips.

Start by following the simple steps outlined below to get a clear picture of your monthly finances.

1. Add Up Your Income
To set a monthly budget, you need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension, and any other income sources, including a spouse’s income if you’re married. Using the worksheet below, write a dollar figure next to each relevant income source. Make sure that the figure you write down is the amount you receive from each income source on a monthly basis.

If you get a salary, be sure to use your take-home pay, not your gross pay. Taxes are usually taken out automatically, but if they’re not, remember to include them as another expense. If you receive money from somewhere not listed, enter the source of that money along with the amount under "other income."

2. Estimate Expenses
The best way to do this is to keep track of how much you spend each month. The worksheet should divide spending into two categories:

• Non-Discretionary - includes all mandatory expenses for the month (e.g. mortgage, food, utilities) 
• Discretionary - includes all non-mandatory expenses for the month (e.g. dining out, gym memberships)

If some of your expenses for one or more category change significantly each month, take a three-month average for your total.

3. Figure Out The Difference
Once you’ve totaled up your monthly income and your monthly expenses (both discretionary and non-), subtract the expense total from the income total to get the difference. A positive number indicates that you’re spending less than you earn – well done! A negative number indicates that your expenses are greater than your income and gives you an idea of where you need to trim expenses and by how much. 

It is during this exercise that you need to clearly define and understand the concept of  'wants' vs. 'needs'.  If you're running into negative net cash flow each month, look at your expenses and see if some of your expenses are merely wants disguised as needs.  If you are getting every cable channel under the sun, try going to just basic cable for a few months.  If you have unlimited texting with your cell phones each month, look at reducing the number of texts allowed each month to free up some money (much to the chagrin of your teenager, I'm sure!).  After going a few months without some of the luxury 'needs', you may just surprise yourself and realized that life isn't so bad without them!

Well done - you’ve created a budget. The next step is to track your budget over time and make sure you are still on target to achieving your financial goals.

April is National Financial Literacy Month: Time to Improve Your Finances and Your Life

I've been making a big push to get financial literacy into the spotlight not only for today's youth, but for their parents and grandparents as well.

Some of my efforts have been in the form of my book, establishing financial literacy courses this summer at Discovery College, getting articles out in the local papers, and continued facilitation of the Dave Ramsey Financial Peace course at my church.

Here are some sobering statistics illustrating why improving one's financial literacy is so critical:

For adults:
* 43% of working Americans have less than $10,000 saved for retirement. 27% have less than $1,000 saved.
* Out of 100 Americans aged 65 and older, 97 cannot write a check for $600 on any given day of the month (a sign of living paycheck to paycheck)
* 7 out of 10 households are currently living paycheck to paycheck

For students:
* 60% of college freshman with credit cards will max them out before the end of their first year of college.
* The average monthly credit card balance for college students is $4,776
* One in every three college students graduate with at least $10,000 of credit card debt alone (not even counting any student loan debt)
* More students are dropping out of college due to finances than academics
* Overbearing debt/financial issues is the leading cause of suicide among college students.

I will be dedicating even more time during this month to get as much information, tips, and suggestions out in front of everyone. I will also be blogging throughout the month, so please don't hesitate signing up and following my blog so you can be notified when new posts are made

I will try to get the first tip/lesson out tomorrow. If there are any topics you would like to see discussed or explained please let me know. The more information I can get out in front of others the better!

I hope everyone has a safe and enjoyable Easter weekend! 

A Little Hard Work Starting To Pay Off!

Almost a year and a half ago, I made the best career decision to date - making the jump from the corporate world of financial planning to starting my own financial planning and investment management firm.  The transition from being able to count on a steady salary to being completely reliant on building my own client base has not been an easy one.  I have to constantly remind myself of the old adage "slow and steady wins the race every time".  I knew going into this leap of faith that things would be different for a while, and they most certainly have!

Well, some of the hard work started to pay off recently when I had lunch with a reporter for one of the local newspapers.  We talked about my new venture and all I have been doing to promote myself and my business.  I didn't realize it would be made into a large article in this week's edition! 

Here is the link to the article on the paper's website: Local Financial Planner Offers Classes, Releases Book

I would welcome any feedback, comments, questions, etc.!

It's been a while since I last blogged......rest assured, the month of April will be another active month here on my blog.  Please check back later this week for more details!

Potential Estate Planning Blunder For 2010

I was assisting a client with reviewing their estate planning today, and I came across a potentially devastating clause in each of their wills.  This clause is, for the most part, boiler-plate verbiage in all wills so I thought I’d bring it to everyone’s attention.  It may or may not apply to you, but I wanted to put the word out regardless.   What’s at issue:  with the new estate planning laws that went into effect this year, the surviving spouse could end up with none of the deceased spouse’s half of the estate.

The clause in the spotlight is a clause that is normally very effective in transferring wealth to surviving spouses and children/charities.  But, as I mentioned above, with the new estate tax laws that went into effect on January 1, 2010 the clause can actually do more harm than good.

Basically, what the clause says is something like this: “When I die, I direct that my surviving spouse is to receive my entire half of the estate, up to the annual exclusion amount.  Everything over and above the exclusion amount should go to my children” (or other siblings, charities, etc.).  For 2008 and 2009, the annual exclusion amount was $3.5 million.  Therefore, in previous years this clause would take the first $3.5 million from the deceased spouse’s half of the estate, give it to the surviving spouse in trust, and everything else goes to the children/relatives/charities, etc.  By doing this, couples can theoretically shelter $7 million of their estate ($3.5MM for each spouse) from estate taxes.

HOWEVER, in 2010 the ‘death tax’ (the estate taxes paid upon someone’s death) is repealed meaning there is no estate tax due on someone’s death regardless of how much money they have.  Therefore, if Bill Gates or Warren Buffett died tomorrow, they would not have to pay a single dime in estate tax.

Here is where the problem could arise:  since there is no estate tax due on a person’s death, there’s no need to have an annual exclusion amount peeled off the top to shelter it from estate taxes.  In other words, the annual exclusion just went from $3.5 million to $0 for 2010.  With the way the clause is written, the spouse will get $0 and everything else goes to the children.  Not good!!

Now, it is highly unlikely that the government will allow this death tax repeal to exist for the rest of the year.  From what I’ve read and heard, they will re-instate the $3.5 million exemption and 45% top tax rate later this year and make it retroactive to January 1, 2010.  But that still should not preclude you from at least reviewing your estate plan to make sure it is set up to do what you want it to do.

If you have a will and have not reviewed it in the past four or five years, please do yourself a favor and read through it again.  If you are not sure what everything means please do not hesitate in contacting me.  I will be more than happy to read over it and explain what it is set up to do and make recommendations if I see any shortfalls in your estate plans.

If you don’t have a will…..you need to get one as soon as possible.  I’ll be happy to discuss with you how to go about getting this done.  I’ve heard of a lot of people who swear by online vendors (e.g. Legal Zoom), but I should stress that not everyone’s situation calls for online forms.  More times than not, meeting with an attorney is well worth the added cost.

I’ll be happy to answer anyone’s questions……I simply wanted to make everyone aware of the potential loophole I’m seeing in other people’s estate documents.

Tips on Increasing Financial Aid Eligibility

Even if you are still a few years away from the first college tuition bill, there are a few steps you can take, some seemingly counter-intuitive, to increase the chances of receiving some sort of financial aid.

About two years before your child is expected to attend college consider how you might reposition your assets so they are more favorably viewed on the applications for financial assistance.  Why start so soon?  The amount of aid you’re eligible for in a given year is based on the previous year’s income.  Controlling your assets and the receipt of income will have a significant impact on your aid eligibility.  For example, capital gains count both as an asset and income and could have a devastating impact on your eligibility.  If you are able to defer income at work, consider doing so for the years your child is in college.  Another option is to reduce your reportable assets.  It may not make sense to pay off that car loan or credit card balance when tuition bills are on the horizon, but it may actually be a wise decision.  Why?  By paying off that car or credit card you simultaneously lower your reportable assets, such as stocks and cash holdings, and increase your financial need.  Parents with $20,000 in the bank and a $10,000 credit card debt will appear to have more resources than parents with $10,000 in the bank and no credit card debt.  In the end, the parents have the same amount of money, but to the financial aid people they have less.

Another strategy to increasing your aid eligibility is to pay attention to who owns what assets.  Asset ownership is critical in determining how much financial aid a student receives.  College-aid officials assess up to 35% of a student’s assets versus only 5.6% of a parent’s holdings.  Therefore, make sure your 529 Plans, Coverdell plans, etc. are in the parent’s names.  Prior to 2006, prepaid tuition plans, including the Independent 529 Plan, were considered an available resource to students and therefore had a more negative impact on financial aid eligibility than a 529 Savings Plan.  However, recent laws passed by Congress treat all 529 plans as parental assets.  Now, no more than 5.6% of your 529 college savings will be used to assess need if you apply for financial aid under federal guidelines.

It always pays to save, but just be careful how you do it.

The Costs & Rewards of a College Education

Part 9 - The Basics of Financial Aid: Loans
Unlike grants, financial aid in the form of loans is required to be repaid.  However, students can take anywhere from 10 to 30 years to repay the loan depending on which loan is involved.

Federal Perkins Loan

Perkins Loans are another first-come, first-served option. The federal government only guarantees each school a certain amount of Perkins Loan money each year. This program is yet another reason for students to fill out FAFSAs as early as possible.

A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school's financial aid office. Your school is your lender, and the loan is made with government funds. You must repay this loan to your school.  Your school will either pay you directly (usually by check) or apply your loan to your school charges. You'll receive the loan in at least two payments during the academic year.

You can borrow up to $5,500 for each year of undergraduate study (the total you can borrow as an undergraduate is $27,500). For graduate studies, you can borrow up to $8,000 per year (the total you can borrow as a graduate is $60,000 which includes amounts borrowed as an undergraduate). The amount you receive depends on when you apply, your financial need, and the funding level at the school.

If you are attending school at least half time, you have nine months after you graduate, leave school, or drop below half time status before you must begin repayment.  This period of time is known as a grace period.  At the end of your grace period, you must begin repaying your loan.  You may be allowed up to 10 years to repay.

Perkins Loans also can be discharged or cancelled in full or in part for various reasons, including for graduates who are employed in specific teaching positions, certain public or non-profit family services jobs, and law enforcement or in military service in certain hostile areas.

Federal Stafford Loan

In addition to Perkins Loans, the U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as Stafford Loans (for students) and PLUS Loans for parents and graduate and professional degree students; PLUS Loans will be explained later.

Schools generally participate in either the FFEL or Direct Loan program but sometimes participate in both. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.

Federal Stafford Loans are the backbone of the Department of Education's self-help aid program for students. The advantage of Stafford Loans is that their interest rate is lower than what students or parents could get through a private lender. However, it's usually higher than the rate for a Perkins Loan. Stafford Loans are available to students enrolled in an eligible program at least half time and carry variable interest rates that are adjusted each July 1 for the following 12 months.

A Stafford Loan may either be subsidized or unsubsidized. Subsidized loans are based on financial need, and the federal government pays interest on the loans while the student is in school. Students pick up the payments on loan interest and principal six months after they graduate.

Students who do not show financial need, according to the Department of Education's guidelines, but still need more money for school, may qualify for an unsubsidized Stafford Loan. This type of loan does not offer the interest grace period. The borrower is responsible for interest charges beginning the date the loan is disbursed.

Students may take from 10 to 30 years to pay off their Stafford Loans, depending on the amount they owe and the type of repayment plan they choose. Under certain conditions you can receive a deferment or discharge of the loan.

Stafford Loan Interest Rates:

Academic Year    Subsidized Rates    Unsubsidized/Graduate Rates
2009 – 2010            5.60%                             6.80%
2010 – 2011            4.50%                             6.80%
2011 – 2012            3.40%                             6.80%
2012 – 2013            6.80%                             6.80%


New interest rate cap for Military Members

Interest rate on a borrower’s loan may be changed to six percent during the borrower’s active duty military service. This applies to both FFEL and Direct loans. Additionally, this law applies to borrowers in military service as of August 14, 2008.

Borrower must contact the creditor (loan holder) in writing to request the interest rate adjustment and provide a copy of the borrower’s military orders.


Stafford Loan Limits:

Dependent Students                         Annual Loan Limits
First Year                              $5,500 ($3,500 subsidized / $2,000 unsubsidized)
Second Year                         $6,500 ($4,500 subsidized / $2,000 unsubsidized)
Third Year and Beyond          $7,500 ($5,500 subsidized / $2,000 unsubsidized)

Independent Students                      Annual Loan Limits
First Year                               $9,500 ($3,500 subsidized / $6,000 unsubsidized)
Second Year                          $10,500 ($4,500 subsidized / $6,000 unsubsidized)
Third Year and Beyond          $12,500 ($5,500 subsidized / $7,000 unsubsidized)
Graduate or Professional        $20,500 ($8,500 subsidized / $12,000 unsubsidized)


Lifetime Limits
Undergraduate Dependent      $31,000 (Up to $23,000 may be subsidized)
Undergraduate Independent    $57,500
Graduate or Professional         $138,500 (Up to $65,000 may be subsidized) or $224,000 (for Health             Professionals)


PLUS Loans

The Federal PLUS Loan is a loan borrowed by a parent on behalf of a child to help pay for tuition and school related expenses at an eligible college or university, or by a graduate student for graduate school. The student must be enrolled at least half time, and the parent or graduate student must pass a credit check in order to receive this loan.

PLUS Loans are non-need based, which means you do not have to demonstrate financial need to qualify. Eligibility for the PLUS Loan depends on a modest credit check that determines whether the parent has adverse credit. An adverse credit history is defined as being more than 90 days late on any debt or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.

The primary benefit of the PLUS Loan is that a parent can borrow a federally guaranteed low interest loan to help pay for their child's education.  A Federal PLUS Loan allows a parent to borrow the total cost of undergraduate education including tuition, room and board, and any other eligible school expenses, minus any aid the child is receiving in their name.

PLUS Loan interest rates are fixed for all new PLUS Loans at a rate of 8.5%. These loans will not have variable interest rates.  You may receive a 0.25% repayment interest rate credit when payments are set up for automatic debit from a bank account.  Interest may be tax deductible under the Hope Education Tax Credit.  Repayment on a PLUS loan is 10 years; there is no penalty for early repayment, and consolidating your loans after each academic year is easy. It also lowers your monthly payment.

The yearly limit on a PLUS Loan is equal to your cost of attendance minus any other financial aid you receive.  For example, if your cost of attendance is $10,000 and you receive $8,000 in other financial aid, parents could borrow up to, but not more than, $2,000.

The Grad PLUS Loan is a low interest, federally backed student loan guaranteed by the U.S. Government, specifically for students enrolled in a degree seeking graduate program. Like the Parent PLUS Loan, the Graduate PLUS Loan can be used to pay for the total cost of education less any aid already awarded. Also, like the Parent PLUS Loan, eligibility for the Graduate PLUS Loan is largely dependent on the borrower's credit rating and history, as opposed to the purely financial need-based Graduate Stafford Loan.

Although many families prefer not to borrow money at all, it's important to remember that federal loans tend to have lower interest rates and more flexible repayment policies than other types of loans. Families who need to borrow money for college should be sure to exhaust all federal loan options before turning to private lenders.

Federal Work-Study

Federal Work-Study (FWS) provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses. The program encourages community service work and work related to the recipient's course of study.

Participants are paid by the hour if an undergraduate. No FWS student may be paid by commission or fee. The school must pay you directly (unless you direct otherwise) and at least monthly. Wages for the program must equal at least the current federal minimum wage but might be higher, depending on the type of work done and the skills required. The amount earned cannot exceed the total FWS award. When assigning work hours, the employer or financial aid administrator will consider the award amount, the student’s class schedule, and their academic progress.

The school might have agreements with private for-profit employers for Federal Work-Study jobs. This type of job must be relevant to the student’s course of study (to the maximum extent possible). If the student is attending a career school, there might be further restrictions on the jobs you can be assigned.