All Posts by Diane Pappas

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Diane Pappas was a divorce financial analyst at Insight Financial Strategists. After gaining experience she founded her independent firm.

Oct 24

News for Stafford Student Loans

By Diane Pappas | Financial Planning

Gordon College Students pondering student loansDid you notice that the interest rate on your child’s Stafford student loan changed for the 2013 – 2014 school year? In fact, in the case of the unsubsidized undergraduate and graduate Stafford student loans, the rate actually went down!

On August 9, 2013 President Obama signed the Bipartisan Student Loan Certainty Act of 2013, changing how student loan interest rates are determined. The bill links student loan rates to the Federal 10-year Treasury rate, plus a small margin. The new rates are retroactive, effective for all loans disbursed on or after July 1, 2013. This affects all students who took out Stafford student loans for the 2013-2014 school year.

As the Mom of a sophomore in college, this is good news for me, since I try to pay the accrued interest annually on my daughter’s unsubsidized Stafford student loan in an effort to reduce her student loan balance upon graduation. Just to make sure the interest rate had in fact been applied, I logged onto our Nelnet account to confirm the new rate. As long as the T-bill rates stay low, I should see lower interest payments.

Although the interest rate on the unsubsidized Stafford student loan went down from 6.80% to 3.40%, which is great, it is not without a trade-off. Federal student loan interest rates are fixed for the life of the loan, however, the rates for new loans will fluctuate, based on the current market. The new Stafford student loan interest rates are in effect from 7/01/2013 to 6/30/2014. This means that there is the potential for higher interest rates and payments down the road, which may be devastating for newly employed graduates trying to establish a spending budget. Existing Federal student loan interest rates are still fixed for the life of the loan, so my other daughter, who graduated this year with $27,000 in Stafford student loans, doesn’t need to worry about the possibility of higher payments.

The interest rates for the current 2013-2014 academic year are as follows:

  • 3.86% for undergraduate Stafford loans (both subsidized and unsubsidized)
  • 5.41% for graduate Stafford loans (a decrease from 6.80%)
  • 6.41% on all PLUS loans (a decrease from 7.9%)

The undergraduate subsidized rate actually increased from 3.4% to 3.86%, but the unsubsidized undergraduate and graduate interest rates both decreased from 6.80%.

The good news is the bill immediately lowers rates for most borrowers and it has no expiration date, so students will not have to wait for Congress to act to extend interest rate reductions as in the past. Parents and students who chose to pay the accrued interest on unsubsidized loans while the student is still in school, should take advantage of the lower interest rates to make those interest payments while rates are low.

The bad news is that market-based interest rates are not static. As the economy improves, they will rise and the experts predict that may happen quickly. The bill does cap how high the rates can go – 8.25% and 9.5% for subsidized and unsubsidized Stafford student loans respectively and 10.5% for all PLUS student loans for parents. Those caps are all higher than where the fixed rates stood prior to July, so depending on the level of debt, some students may be very affected by an increase in rates in a couple of years.

I did a quick calculation to see how the new rates and caps may affect my sophomore upon graduation. Assuming I paid all accrued interest and she graduated with a loan balance of $27,000 and the interest rate remained at 3.86%, her monthly payment would be $272. If the interest rate hit the cap of 9.5%, her payment would be $349. Although a difference of $77 does not seem insurmountable, it will have some impact on that student’s net available income.

The new student loan interest rate deal only fixes one thing – interest rates. It does nothing to address the larger issues plaguing higher education, namely ever rising tuition, over-borrowing and the mounting student debt crisis. Let’s hope Congress will address these issues some day soon.  Study hard kids and get that job!

Aug 15

Divorce and Empowerment

By Diane Pappas | Divorce Planning

Divorce and Empowerment

"Pareja" by Daniel Lobo on Flckr, License to Share under Creative CommonsAre you financially empowered? To answer this question, one must first know what it means to be financially empowered. The definition of the word empower is: to enable or to promote the self-actualization or influence of. Becoming knowledgeable about your finances can be an empowering experience, enabling you to realize a more secure financial future. Being financially empowered means making informed and effective decisions about the use and management of your money. Having the knowledge, skills and access to appropriate tools to effectively manage your finances, will help you and your family improve your long-term financial well-being.

But, if you are currently going through a divorce, your ability to make informed decisions about your financial future may be compromised, especially if you do not have a clear understanding of your finances.

One way towards empowerment during the divorce process is to seek the help of a divorce financial professional. A Certified Divorce Financial Analyst™ (CDFA), can become a valuable member of the divorce team, working closely with you and your attorney or mediator, to ensure that the proposed settlement works best for you and your family based on your particular financial situation. A CDFA™ can provide you with peace of mind knowing that all the different options were analyzed with respect to maximizing the available assets and minimizing any negative financial impact.

Many couples facing divorce are filled with fear of the unknown. Most of that fear lies in not knowing what their financial life will look like after divorce. Will I end up a bag lady? Will I be living paycheck to paycheck unable to ever enjoy life again? The best way to alleviate that fear is to know ahead of time what your financial life might look like. Using sophisticated tools, a divorce financial analyst can provide you with a projection of your future financial life. Knowing what your life might be like 5, 10 or even 20 years from now, will help to bring about the clarity and insight necessary to make those important financial decisions.

Clarity can only be achieved when each spouse fully understands what their needs are, what financial resources are available to them and what their options are with respect to different settlements and future impacts. From understanding what your new monthly expenses are going to be, to seeing the impact of the proposed asset split on long-term retirement projections, to understanding your options with regards to keeping or selling the marital home, being empowered with this important information will put you in control of the decision making.

Taking control of your finances will empower you through the divorce process, making it easier to transition into post-divorce life. While the emotional issues will still be present, knowing that you did the best you could with the resources available to you, should allow for the healing to take place. No one wants to worry about money, and when children are involved, it only creates more stress and heartache. Let a divorce financial professional help you achieve financial empowerment from the beginning so that your financial needs and concerns remain the centerpiece of your divorce settlement.

Apr 04

I Just Made the Last College Tuition Payment! Yea!

By Diane Pappas | Financial Planning

How To Pay for College - Real-Life Edition

Anyone who pays for college tuition can understand the joy and need for celebration when you finally make that last tuition payment.  It means two wonderful things – (1) your child is graduating from college next month and (hopefully) moving out into the real world and (2) you now have more available money with which to spend somewhere else – unless of course, child #2 is bringing up the rear.

Regardless, paying for a child’s college education is a big accomplishment and making that last payment is a milestone worth celebrating.  But if you still have a child in college and more on the way, the thought of celebrating doesn’t even cross your mind.  With college tuition payments resembling monthly mortgage payments these days, the real question becomes, how are you going to afford it?

There is plenty of information on the internet addressing this very question, but we wondered, how many of them are written by people who have actually gone through the process?  In this series, ‘How to Pay for College – Real Life Edition’, we will share some of the things that have been done in real life, that have helped made paying for college a little more affordable and easier on the pocketbook.

 

Tip # 1 – Use a Monthly Payment Plan or MPP

If your child is currently in high school, there are obviously more important things you should be doing right now than worrying about an MPP, but at least you will now be informed.  Looking back over the last four years, the MPP stands out as the one thing that made my life a lot easier.

Typically, you are sent a bill for the fall semester in the beginning of August and asked to pay an outrageously large sum of money within 30 days.  Gulp.  However, if you have already arranged a 10 or 12 month MPP or Monthly Payment Plan, then you don’t need to ‘gulp’ as deeply as someone who did not.

Most colleges and universities participate in this type of program and will designate an outside company as the administrator of their MPP.  It is essentially an extension of credit by the school to the tuition payer, typically with no interest charges and only a small annual fee of around $65.  To me, it’s a no brainer.  You can even have the monthly payments automatically withdrawn from your checking or savings account.

An MPP accomplishes two things.  First, this once, ambiguous and unknown amount is now a fixed expense, and second, spreading that payment out over 10 or 12 months helps in budgeting your money. You no longer need to fear that looming tuition bill in August and January, because, even though the amount hasn’t changed, paying for it (even if just psychologically) has become easier.

Be sure to inquire with the Financial Aid or Admissions Office to see if they offer an MPP.  In order to use the 12-month payment plan, the first payment is typically due in April for enrollment in the fall semester.  You may have to play catch-up freshman year, but by sophomore year, you will be a pro!

 

I’m amazed at how quickly the last four years have flown by.  One minute you’re packing your kid up and sending them off to live in small cinderblock room with a complete stranger and the next minute, they are graduating with a whole new set of lifelong best friends and an educational experience that will get them started on the path towards a fulfilling life.

Don’t let the stress of paying for college over shadow the wonderful opportunity you are providing your children.  With the proper planning and a realistic approach as to what your family can afford, paying for college does not have to be such a scary thing.

 

Be sure to check back here for the next ‘How to Pay for College – Real life Edition’.

 

 

 

 

 

 

 

 

 

 

 

Mar 25

Time for Some Spring Financial Cleaning – Getting Rid of Financial Clutter

By Diane Pappas | Financial Planning

Time for Some Spring Financial Cleaning - Getting Rid of Financial Clutter

If you are like most people this time of year, you are probably searching through piles of papers, documents and receipts trying to find the right ones to give to your accountant.  So much financial clutter.  You may be wondering – Do I really need to keep all this stuff?

One of the keys to financial success is being organized.  It is an empowering experience knowing where all your paperwork is and easily locating an important document within minutes.   To help you get started, we’ve provided you with a list of what you need to keep and what you can get rid of.

This is a great time for some spring financial cleaning to put you on the path towards financial success.

What to Keep for 1 Year

  • Paycheck stubs – you can get rid of once you have compared to your W2 & your Social Security earnings statement
  • Utility Bills – throw out after one year, unless using them as a deduction for a home office – then you need to keep them for 3 years after you’ve filed your tax returns.
  • Cancelled Checks – unless needed for tax purposes
  • Bank Statements – unless needed for tax purposes
  • Quarterly Investment Statements – hold onto until you get your annual statement

What to Keep for 3 Years

  • Income Tax Returns – keep in mind that you can be audited by the IRS for no reason up to three years after you filed a tax return.  If you omit 25% of your gross income, that goes up to 6 years and if you don’t file a tax return at all, there is no statute of limitations
  • Medical Bills and Cancelled Insurance Policies
  • Records of Selling a House – needed for documentation for Capital Gains Tax
  • Records of Selling a Stock – needed for documentation for Capital Gains Tax
  • Receipts, Cancelled Checks and other Documentation that Support Income or a Deduction on your Tax Return – keep for 3 years from the date the return was filed
  • Annual Investment Statement – keep for 3 years after you sell your investment

What to Keep for 7 Years

  • Records of Satisfied Loans

What to Hold While Active

  • Contracts
  • Insurance Documents – Homeowner’s Insurance and Auto Insurance Policies until new renewal arrives, then throw out
  • Stock Certificates
  • Property Records – including original Settlement Statement from when you purchased the home, as it shows closing costs and settlement fees paid.  These maybe added to the cost basis calculation when you go to sell your home.
  • Stock Records
  • Records of Pensions and Retirement Plans
  • Property Tax Records Disputed Bills – keep until the dispute is resolved
  • Home Improvement Records – hold for at least 3 years after the due date for the tax return that includes the income or loss on the asset when it’s sold

Keep Forever

  • Tax Returns – You may want to keep your tax returns indefinitely.  The IRS destroys original 1040s after 3 years, but you and your heirs may need information from the returns at some point in the future.
  • Marriage Licenses
  • Divorce or Separation Agreements
  • Birth Certificates
  • Death Certificates
  • Social Security Cards
  • Wills
  • Living Wills and Advanced Medical Directives
  • Trusts
  • Estate Documents
  • Powers of Attorney
  • Deeds
  • Records of Paid Mortgages

A Word About Home Improvement Records and Cost Basis

If you plan to sell your current home at any time in the future and you have made home improvements that add to the value of your home, you should keep all your sales receipts for items purchased for the improvement, (like a sink and the hardware to install the sink), credit card statements showing purchases if no receipt, and checks to contractors.  When you go to sell your home, you will need to establish a cost basis, which is the original cost of the property, plus any improvements made by you, the owner.  You will want to keep these records for at least 3 years after the due date for the tax return year that you sold your home in.

Improvements can be items such as:

  • Remodeling the interior of the home
  • New roof or deck
  • Installing utilities on a building lot (new well or septic)
  • Numerous other improvements performed by the owner, see IRS.gov for more details