Debt Deal Will Hit Home for Many Americans

By Gerri Willis
Published August 04, 2011

The debt deal may have been signed, sealed and delivered earlier this week - but the impact of that bitterly-debated piece of legislation is just beginning to be felt.

It's not just about the debt ceiling... the changes being implemented by this law affect all different groups of people.

And I'm betting you at home fall into at least one of these categories -- so here are the details. First - are you retired? Or ever planning on retiring? That's probably the biggest number of folks.
The debt deal does ends the payroll tax cut put into place by President Obama last year. So for most of you, you're going to lose 2% of your pay due to this change.

And when there's an income shortfall - investment firms see an increase in 401 (k) loans. Many also start contributing less to their retirement accounts.

My advice: don't. Seriously, avoid at all costs dipping into your savings. That money will be vital to you down the road.

For retirees, SmartMoney points out many of them rely on muni bonds for income. These are normally safe bets, but with increased cuts in federal spending, funds going to states and local governments are getting cut too.

So some advice: diversify, diversify, diversify! Spread your investments across a host of different bonds, that way if one issuer of bonds -- one city or state -- has problems, you won't lose all your money invested in this asset class.

Now - students - for this group, it's a bit of a mixed bag. Let's get the bad news out of the way first. Starting in July, grad students will no longer have access to federalized student loans. These loans don't force recipients to pay any interest on the principal of the loans until six months after graduation.

Again this change is just for grad students. Undergrads will still have access. So to do the math - a graduate student who borrows the maximum amount - just over $65,000 would owe about $200 a month.

But now the government won't be picking up the tab, the student will. That saves taxpayers nearly $22 billion over the next ten years.

But only $5 billion or so of that is going to the deficit, and here's where the good news for students comes in. The other $17 billion will go to fund Pell grants - which go to lower-income students. Now that program is only short about $1.5 billion!

Now let's look at homeowners. Mortgage rates will likely remain low - thanks to default and downgrades being avoided.

But those tax incentives - including the mortgage tax deduction - may be some of the first things cut by that so-called "Super Congress"... In other words, buy that house sooner, rather than later.
Also, Medicare will likely also be a major point of contention in the near future. If the "Super Congress" cannot come up with a plan, provider payments will automatically be cut 2%.

As with most things in Washington there's pros and cons to this deal. When cuts are being made, not everybody is going to be happy.

But with this new group of lawmakers, anything is still possible - including tax hikes. So stay tuned.

Be sure to catch the Willis Report on the FOX Business Network every weekday from 5-6pm ET.