A Guide to Federal Loans

by Gerri Willis

A free ride to college is a rare thing these days. If you are awaiting financial aid offers, you’re hoping for a grant windfall, but the reality is you will have to beef up your package with loans. Here’s a list of the federal loans, their details and annual award limits.

Federal Perkins loans: These loans are available for undergraduate and graduate students. Eligibility depends on financial need and the availability of funds at the college. The college is the lender and payment is owed to the college that makes the loan. Undergraduates can get up to $5,500, while graduate students can get up to $8,000. Total amounts cannot exceed $27,500 for undergrads and $60,000 for graduate students.

Direct subsidized loans: These loans are for undergraduate students who are enrolled at least halftime and have demonstrated financial need. Interest isn’t charged while the student is in school. The U.S. Department of Education is the lender and payment is owed to DOE. Annual awards are $3,500 to $5,500.

Direct unsubsidized loans: These loans are for undergraduate and graduate students who are enrolled at least halftime. Financial need is not required. The student is responsible for paying interest throughout the life of the loan. Payment is owed to the Department of Education.

Direct PLUS loans: These loans are for parents of dependent undergraduate students and for graduate or professional students. Financial need is not required. Students must be enrolled at least half-time and must be either a dependent undergrad for whom a parent is taking out a Direct PLUS loan or a graduate or professional student who is receiving Direct Plus loans. The borrower cannot have a negative credit history and is responsible for paying interest in all periods. Again, the Department of Education is the lender. The maximum award is the cost of attendance minus any other financial aid the student receives.

Join us tonight 5pm ET on The Willis Report as we help you and your family get the aid you deserve. 

User's Guide to Paying for College

by Gerri Willis

     Over the next six weeks, millions of high school seniors will get word whether the colleges they have applied to are offering them admission for this coming fall.  More than three and a half million applications will be filed, but only about two million will be accepted. Nobody, however, will be watching the mailbox more closely than Mom and Dad. That’s because acceptance letters are followed in short order by financial aid offers.

With the price of college rising 3 to 4 percent faster than inflation each year, anxiety about college aid is no surprise.  Average tuition, fees, room and board for students enrolled at in-state public schools for the 2014-15 school year will total $18,943. All-in costs for students attending public universities out-of-state will be $32,762. Opt for a private school, and you’re looking at a tab of $42,419 – for one year! Prices are so out of control that states as diverse as California and Michigan are offering educational aid to middle class families earning more than six figures. Frankly, the price hikes are nothing new.  Many families have grown accustomed to the fact that the average grad hitting the jobs market will be burdened by a $33,000 college debt load. Strangely, people balk at paying $4 for a gallon of milk, but when it comes to footing a $150,000 tab for four years of university, parents just grin and bear it.

Fortunately, there are ways to reduce this debt burden even after you’ve received the financial aid offer. All next week on The Willis Report, we’ll help you decode these aid letters and negotiate a better deal.  We’ll start by helping you understand the confusing jargon used by admission officers, and show you how to determine the real out-of-pocket costs. Beware of student loans masquerading as gift aid! It’s possible the letter won’t even include the full cost of sending Junior to school. Chances are things like books, transportation, even living expenses may be left out. If you have multiple offers, you’ll want to compare them, and use them as leverage to get more aid.

Don’t stop there. One of the dirty little secrets of applying for the financial aid package is that you can appeal the school’s decision. Thirty to 50 percent of families that ask for additional money get it. All next week, we’ll show you how to squeeze financial aid officers for the best aid package you can get.

Bottom line, keep an open mind. Some of the most expensive schools in the country offer the highest levels of free money, or financial aid. Sticker prices for college, like the ones on a car lot, are just a starting point in the negotiations. And, with enrollment numbers shrinking, many schools are eager to fill classrooms.

Join us starting March 2nd on The Willis Report as we help you and your family get the aid you deserve.

Your Retirement: Where's The Money?

by Gerri Willis

A new study showing that Americans’ average 401(k) balance has risen to $91,300 is being greeted with cheers from some. And, true enough it is the highest balance on record. But the reality is underwhelming. What I found troubling about the study, which is based on mutual fund giant Fidelity’s clients, is that workers and their employers contributed an average $9,670, the most since 2011, but their ending balances rose a measly 2 percent. Think about it, 2014’s market rocketed 11.4 percent, but workers’ 401(k)s barely budged. To be sure, most retirement investors don’t have every nickel and dime in stock mutual funds and ETFs. That would violate every premise of asset allocation. But a 2 percent return in an 11 percent world? No wonder so many of us are frustrated with our retirement nest eggs.

What’s more $91,300 is only a start. Consider if you retired today with that amount as your balance. If you followed the usual retirement practice of taking 4 percent out of your nest egg each year, you’d net $3,652 a year or $304 a month. Add in average monthly Social Security of $1,294 and your monthly budget is just $1,598. That’s hardly enough to relax on a beach with a drink in your hand.

Truth is, the way we plan and save for retirement cries out for reform. Savers take it on the chin for not setting aside enough dough, and that is true enough. But we also pay far too much in fees for the privilege of saving in a 401(k) and our choices are too often too narrow.

However, there is good news. Fidelity says that savers often have more than one account. IRA balances for 2014 were $92,200.  

Budgeting Made Simple

by Gerri Willis

It seems to me nothing is harder than following a monthly budget. Costs vary month to month and sticking to a rigid plan for spending and saving can be impossible. Apologies to you Quicken and Mint budgeting pros! I admire you, but can’t muster the discipline to do what you do!

And, I’m not alone.  Long-time personal finance guru and Edelman Financial Services Vice Chairman David Bach, author of “The Millionaire Next Door,” says budgets don’t work. “People rarely really build them, and it’s even harder to stick to them.” 

Fortunately, there is a way to get the benefits of the budget without spending your weekends slaving over an Excel spreadsheet. The real advantage of a budget is that it gives you parameters on what to spend on individual categories. Think of it as a pie. According to Bach, you’re best off spending just 35 percent of your monthly income on housing costs. That means mortgage or rent, repairs, taxes, utilities and insurance. Truth is, housing costs have been increasing handily. To find out whether it is cheaper to rent or buy, go to Trulia.com.

Another tough category is debt. Bach recommends that just 15 percent of income should be snagged by student loan payments, credit cards and personal loan payments. Transportation, car payments, insurance and gas, should comprise just 15 percent of your budget while other living expenses like eating out and vacationing should be 25 percent.

The big nut to crack is savings. Bach says saving 10 percent of your income is a good rule of thumb, but you may want to spend more if you are behind on retirement goals.

The bottom line is this: By understanding the proportion of your income that should go to each category of spending, you put yourself in a better position to budget without a real budget.  Hitting your goals can be as simple as paying yourself first. By automating your savings dollars and locking in low housing costs, you’ll go a long way towards making your budget (or unbudget) work!

Year-End Moves to Manage Your Health Care

by Gerri Willis

With more and more of the costs of health care falling on American families’ shoulders, it’s really up to you to find ways to manage those costs. And, now is an important time to consider some essential moves that can save you money next year.

  • Step No. 1 is to open a Health Savings Account at work, if your employer gives you the option. Dr. Archelle Georgiou says it is a great way to use pretax dollars to pay healthcare costs. Plus, many employers will make contributions to a health savings account and the money can roll over year after year. You can even keep that money if you change jobs. HSAs have a triple tax advantage. You make tax-free contributions that generate tax free interest that can accumulate until retirement and use that money tax-free for medical expenses. Think of it as a 401(K) for your health. Contributions limits are $3,350 for individuals and $6,650 for families.
  • Step. No. 2  If an HSA isn’t an option, consider a Flexible Spending Plan. It works similarly to an HSA, but the contribution limits are lower at $2,550. The downside is that if you leave money in your FSA account at the end of the year, you may lose anything over $500.
  • Step No. 3 Watch out for the Obamacare tax, a fine for people who aren’t covered by health insurance. In 2014, you’ll pay $95 per person or 1 percent of your household income, whichever is higher. These numbers go up each year. So make a plan to get coverage, if you don’t have it already.
  • Step No. 4 If you are already on Obamacare, watch out. Insurers have made big changes in their offerings and especially their pricing. Be sure to check out your plan on the Obamacare website, because the administration has said they are defaulting enrollees into the cheapest plan available. That may mean you have been moved to a plan that does not include your doctor or the hospital you want to use.      

Planning ahead is everything these days in health care. Take advantage of whatever opportunities you can to save money and keep your family healthy.

Your Year-End Portfolio To-Do List

by Gerri Willis

The holidays are a good time to take a long, hard look at your retirement portfolio and make sure you are on track for a successful retirement. “The key question to ask yourself is, ‘In relation to my personal financial goals, is my portfolio helping me achieve them?’ Most investors say they want the most money they can (get). But, ultimately, what matters is if your money helps you get what you want and lets you sleep at night,” says Derrick Kinney, president, Derrick Kinney and Associates. 

  • Step No. 1, says Chris Cordaro, a certified financial planner, is to rebalance your portfolio to make sure that the run in stocks hasn’t inadvertently left you with a higher stock allocation than you planned. He advises rebalancing anytime your balances are 20 percent from your target allocation. He says emerging markets offer the most opportunity as the most undervalued asset class currently.
  •  As you evaluate actively managed mutual funds, watch for managers that “window dress” their portfolios, or change holdings to improve the appearance of the portfolio by selling losers and buying winners. Problem is, says Cordaro, window dressing hurts returns and tax efficiency.
  • Now is also a great time to make sure you’ve contributed the max to your 401(K). Limits for 2014 are $17,500 and $18,000 for 2015. If you are 50 or over, you can add catch up contributions of $5,500. If you are aged 70 and ½ or older, you are required to take minimum distributions from your IRA. Financial advisors say one of the most common mistakes retirees make is forgetting to take distributions or taking too little. If you just hit this milestone, you can delay taking the payment until April 1 of the following year. The end of the year is also a good time to review the beneficiary designations of your retirement plans and make sure everything is as you want it.

 Taking some time and reviewing your retirement accounts isn’t just good planning, it’s also peace of mind. 

Getting The Most From Your Charitable Giving

by Gerri Willis

If you’re like me, most of your charitable contributions are made online moments before the ball drops on New Year’s Eve. And, to be sure, giving before year-end pays benefits come April 15 because donations to qualified organizations are deductible from your taxable income.

Having said that, making contributions that qualify may be more difficult than it appears at first. For example, you can’t deduct contributions to individuals or non-qualified organizations, like country clubs or chambers of commerce. Likewise, appraisal fees are not deductible.

However, there are plenty of donations you can deduct to reduce your tax bill next year, says Clare Levison, a CPA and the author of, “Frugal Isn’t Cheap: Spend Less, Save More and Live Better.” Even plain old cash can be tricky unless you keep a copy of your bank record or get a receipt from the charity. You’re best off contributing money by cash, check, electronic funds transfer, debit card, credit card or even payroll deduction.

You can also give household goods like clothing. Just be sure the clothes are in decent condition. Cars, boats and airplanes can be deducted for the smaller of the gross proceeds from their sale by the organization or their fair market value when they are contributed. Follow the letter of the law, though, because the IRS sees auto contributions as a red flag.

Stocks, bonds, jewelry and coin or stamp collections can also be contributed. Typically for tax purposes, you deduct the fair market value of the property. Giving stock or real estate can be tricky. Consult a tax pro to make sure you get it right.

About 70 percent of Americans will contribute this year, and most of them will be doing it this month. Stretch your charitable dollars by giving to philanthropies that have good management. Check out www.charitynavigator.org to find the best run charitable organizations. 

Five Smart Year-End Tax Moves

by Gerri Willis

Right now is the best time to lower your tax bill for your 2014 filing next April. In fact, after today, you only have 17 days to reduce your tax liability.

"Once you pop the champagne bottle, scream happy new year and give your significant other a kiss at midnight, almost all of your tax planning strategies are lost, if you haven't already implemented them," says John Vento, president of Comprehensive Wealth Management and author of "Financial Independence, Getting to Point X."

The best way to plan is to consider ways to reduce your 2014 taxable income. Here are five ideas for doing just that:

1.)    Sell your losers. If you invest in individual stocks outside a retirement plan and have enjoyed widespread gains, analyze your portfolio to identify any losers you have. If you sell those losers you can use the capital losses to offset your capital gains, plus you can take an additional $3,000 in losses against your other income. You can buy back those losers next year if you plan to hold them for the long term. Avoid tripping IRS wash sales rules by buying the same securities 30 days after when you sold them.

2.)    Delay taking your bonus. One easy way to reduce your 2014 income is to get your boss to delay giving you your bonus until 2015. That way your bonus won't show up as 2014 income. If you are self-employed, don't send out invoices until after the first of the year.

3.)    Set aside more for retirement. Most people don't contribute the maximum they are eligible for to their workplace retirement fund. According to the IRS, contribution limits are $17,500 for 2014 and $18,000 for 2015. Catch up limits for workers 50 and older are $5,500 for 2014 and $6,000 for 2015. Check the rules for contributing to your 401(k) to make sure you can modify contributions at any time. Remember, money to your 401(k) or an IRA comes out before you pay taxes (as long as you are within contribution limits). Why not pay yourself before paying Uncle Sam?

4.)    Give to charity. If you are already planning to give money to your favorite charity, now is the time to do it. In addition to cash, you can also give household goods, clothing, even a car. But before you send that old junker off, talk to a tax professional to  make sure you are doing it the right way. Vehicle contributions are often scrutinized by the IRS.

5.)    Pay your tuition bill early. If you've got a child in college, your spring semester bill isn't likely due until January, but it may be worthwhile to pay it now. Early payers can claim the American Tax Credit on their 2014 return. The credit is worth up to $2,500 and up to 40 percent of it is refundable, which means you could get back as much as $1,000 as a tax refund if you don't owe taxes. You can claim tuition, fees and course materials.

6.)    Finally, don't leave any money on the table. Be sure to use any money you've set aside in your flexible spending account at work. Like a 401(K), FSA money goes into the account before taxes, but if you fail to use the money in the same year as it is contributed, you could lose it. Plan ahead and make April 15 the best it can be!

Middle Class Crushed By Low Wages, Rising Costs

by Gerri Willis

The missing link in this economic recovery – now nearly five years old – is consumer spending. As much as retailers try to lure us to the malls, it’s clear that consumers are still tightening their purse strings. Heavy retail discounting netted retailers 11 percent lower sales than last year.  

And, it’s no secret why consumers are minding their dollars and cents. Despite obamacare, healthcare spending is up 24 percent since 2007. Bending the cost curve? A dem dream, but certainly not a reality. Want to send Junior to college? You’ll pay more for that. Washington has jawboned about the sky-high costs of college, but education costs are still up 24 percent since ’07. The natural response to curb household spending is no cinch either grocery prices are 12 percent higher and rent is 26 percent higher.

The middle class is squeezed. Incomes are flat and costs are higher, and our do-nothing economy isn’t doing much to help. I wrote the missing link in the recovery is the consumer – but what’s really missing is sustained, strong economic growth. And by that, I mean the kind of economic growth that can fuel high-paying jobs and return consumer confidence. American families need incomes that grow.

This administration can’t count on the consumer to bail out the economy until middle-class Americans stop feeling like they are the targets of Washington policy making and not its backbone.                


Black Friday Gives Way to Gray Thursday

by Gerri Willis

Black Friday ain’t what it used to be. Promotions and discounts have already gotten underway for holiday shoppers at national retailers across the country. And now, more than ever, the big names, like Macy’s, Walmart and Best Buy are opening on Thanksgiving Day, much to the consternation of many employees.

But the real action is already starting. According to the website, BGR, Walmart has 115 deals listed in its pre-Black Friday Sale, which is already underway. Notable deals include discounts on 58-inch Samsung LED HDTVs and 40-inch Samsung HDTVs.  Meanwhile, Aeropostale  is promoting a 50 percent off promotion and Home Depot has 12 pages worth of deals. That’s a small sample of the deals out there. But you get the picture, retailers who’ve had two years of punk holiday sales are desperately trying to prime the pump and get consumers’ attention with early markdowns. The National Retail Federation has predicted the season will yield good, but not spectacular, results for retailers with a gain of 4 percent in sales through year end.

This trend is definitely in consumers’ favor, but you’d be well advised to compare prices no matter where you shop. Online, retailers engage in dynamic prices, which means they change prices constantly to try to find the best possible price point for them. Andrea Woroch, consumer analyst with Kinoli, suggests using price comparison apps, such as PriceGrabber and Google Shopping, to make sure you score the best price.

Whether you shop on Black Friday or not, my advice is to keep an eagle eye out on what you’re paying. 


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