student loans

Beat These 5 Financial Challenges

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


A number of signs indicate the U.S. economy is improving. They include soaring consumer confidence, highs for the stock market, and the low unemployment rate (most recently 4.5 percent).

At the same time, financial obstacles remain for many Americans. A new survey from the National Foundation for Credit Counseling underscores some of these ongoing challenges.

Common financial obstacles and how to overcome them

I picked some of the biggest challenges highlighted in the survey and added some advice on how to fight back if you’re going through them.

Rising credit card debt

Thirty-nine percent of respondents carry credit card debt from month to month, compared with 35 percent last year. Some 16 percent of adults say they carry $2,500 or more in credit card debt every month.

What you should do: Pay off as much as you can now. Benchmark interest rates are on the rise, and the Federal Reserve has indicated that rates are likely heading higher this year. So credit card debt is going to get more expensive. Consider getting a balance transfer card to reduce the interest you’re paying.

Student loan strains

Among respondents, 11 percent wouldn’t recommend student loans to finance college education, the same percentage as last year. Those who said their student loan was a good investment rose a bit to 9 percent, compared with just 6 percent over the previous two years.

What you should do: If you’re saddled with student debt, make larger payments if you can afford it. Also, have a percentage of your income automatically directed toward a college repayment fund so you won’t be tempted to use the money on something else. Check out this calculator that shows you how long it will take you to pay off your student loans based on varying factors.



People saving less

Some 54 percent said they are saving the same as last year, down 4 percentage points from last year. The percentage of those saving more is unchanged at 26 percent. Meanwhile, 68 percent say non-retirement saving has decreased slightly over the past year.

What you should do: First, monitor your spending and make a budget. Then, make sure you’re getting the most from your accounts. Compare rates on savings accounts and CDs to make sure you’re getting a competitive return. Also, set up a direct deposit to transfer funds into your savings account.

Not saving for retirement

Among respondents, 27 percent aren’t saving any portion of household income for retirement. That’s little changed from last year. Asked about what areas of their finances worry them most, the top response was retiring without having enough money set aside.

What you should do: If your employer offers a 401(k) and matches a percentage of your contributions, make sure you’re taking advantage of the full match. Look over your current investments to make sure you’re not being charged high fees. Once a year, increase the amount you contribute by 1 or 2 percentage points at a time.

Need professional advice

A whopping 80 percent of U.S. adults say they could benefit from professional advice and answers to everyday financial questions.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Senators seek tax relief for student loan burdens

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Screenshot 2016-07-29 at 9.21.25 AM

College graduates in 2015 owed an average of slightly more than $35,000 on their education loans. Overall, student debt is around $1.3 trillion and growing.

With those kinds of numbers, it’s no surprise that in many cases debt-burdened students look for ways to lessen their loan loads. In rare cases, lenders reduce or completely erase the loan balances.

But what is a surprise to these cash-strapped scholars is the tax bill that comes with that loan forgiveness. Federal tax law says that in most instances, the amount of erased debt is taxable income to the person who used to owe.

A group of Democratic U.S. senators wants to change that tax law.

Student debt dragging down economy

Sens. Bob Menendez of New Jersey and Elizabeth Warren of Massachusetts have introduced S. 3266, the Student Loan Tax Relief Act. Joining as original cosponsors of the bill are their Democratic colleagues Sens. Ron Wyden of Oregon, Debbie Stabenow of Michigan and Cory Booker of New Jersey.

“Students and families are being crushed by student debt, dragging down the economy and holding back an entire generation in its pursuit of the American dream,” said Menendez, who serves on the tax-writing Senate Finance Committee. “If you’re able to get your student loans forgiven and secure a fresh financial start, you shouldn’t then be saddled with an unexpected tax bill.”

Consumer advocate Warren echoed that sentiment, saying the legislation “will give peace of mind to borrowers who have earned the right to have their student loans discharged by ensuring they don’t get stuck with a big tax bill when that happens.”

Streamlining tax-free student loan forgiveness

There are a few cases where student loan debt is forgiven, such as when the borrower suffers total and permanent disability or dies. And only in rare cases the forgiven debt isn’t taxed.

But generally, says Warren, the tax consequences of student loan forgiveness is a mess. “Sometimes the government charges students taxes and other times there are no taxes if the student loans are forgiven,” according to the junior senator from Massachusetts.

S. 3266 would clarify student loan forgiveness tax situations by amending the Internal Revenue Code to exempt student loans discharged through the federal income-based repayment and income-contingent repayment programs.

In addition to the current disability tax exemption, erased loan amounts would no longer be considered taxable income in cases of the debtor’s death, as well as in cases where fraud was committed by a school.

The fraud provision already is part of a separate bill introduced earlier by Stabenow.

Mostly symbolic pending the election

While the Student Loan Tax Relief Act is good news for struggling students and their families looking for ways to reduce their educational debt, don’t start the loan forgiveness process just yet.

Right now, the bill is largely symbolic.

I’m not questioning the sincerity of the 5 Democrats who support it. But the timing of the measure’s introduction just happens to coincide with Democratic National Convention, underway now in Philadelphia.

And the Party’s 2016 platform includes a section decrying “crushing student debt” that discusses support for loan forgiveness and discharge efforts.

Plus, unless the bill is acted upon soon by the Senate, which is unlikely since that chamber is controlled by the Republican Party, it will die at the end of the current congressional session later this year.

But look for the Student Loan Tax Relief Act to be reintroduced in early 2017 when the 115th Congress convenes. Depending on how the November election turns out, it could then become law.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Bill would make some forgiven student loans tax-free

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!


Owing a debt you can’t repay is bad. Owing federal taxes on that debt amount even after you no longer have to pay it back is even worse.

Federal tax law, however, requires in most cases that when a loan is forgiven, the amount that is written off by the lender is taxable income to the previous debtor.

Sen. Debbie Stabenow, D-Michigan, thinks that’s wrong when the debt was incurred under fraudulent circumstances, specifically to pay for college. Stabenow has introduced the Student Tax Relief Act, a bill that would protect defrauded borrowers from being taxed on their forgiven student loans.

Corinthian College cause

Her bill, S. 3008, was drafted in the wake of the federal investigation into Corinthian Colleges, Inc. and its associated schools.

The Department of Education found that the now-defunct for-profit chain run by Corinthian defrauded students at more than 100 schools in more than 20 states across the country.

Following the fraud finding, the Education Department told students who borrowed money from Uncle Sam to attend Corinthian classes that they would not have to repay those loans. Affected students can apply for loan forgiveness through the department’s Federal Student Aid division.

That’s a welcome step for the bilked students. The Education Department says that as of March 1 it had processed almost 9,000 claims from former Corinthian students nationwide, totaling more than $132 million.

Canceled, but taxable, debt

The forgiven debt provisions of the Internal Revenue Code generally require that such canceled debt is taxable. For example, folks who are able to negotiate down or away debt owed on credit cards face the same tax due on what is called phantom income.

A notable exception is in the case of some residential foreclosures or mortgage renegotiations, where a special, temporary law allows certain home-related canceled debt amounts to be tax free.

The Corinthian students also were provided special tax relief on the amounts cleared by the Department of Education.

Stabenow’s bill, which has 7 Democratic cosponsors in the Senate, would give the same tax relief to students in similar educational fraud cases.

“When students take out loans to attend college, they should get a fair deal and a fair shot,” said Stabenow in announcing the introduction of the Student Tax Relief Act. “No student should be the victim of false advertising from a college that promises skills or job placement. And the last thing they deserve is to be hit with an enormous tax burden on their forgiven loans.”

Time running out

Stabenow’s bill might be able to garner some additional support. The issue of burdensome student debt in general already is under a spotlight, thanks in large part to Vermont Sen. Bernie Sanders’ campaign to be the Democratic nominee for president.

But time is not on the side of Stabenow’s effort. The tax-writing Senate Finance Committee, where the bill is pending, has not scheduled any hearing on S. 3008.

And with the upcoming November elections, the House and Senate aren’t going to be in session much. The chambers’ schedules are reduced so that Representatives and Senators can return home to make their reelection cases.

If, however, enough constituents let lawmakers know of their student debt concerns, both on a wider scale and in connection with cases like Corinthian, there might be some action on Stabenow’s bill this year. That would be a welcome development for former students facing an unexpected tax bill next filing season on their forgiven school loans.

Have you ever faced a tax bill on forgiven debt? Do you agree with Stabenow’s proposal? Do you think the tax code is right, or should all forgiven debt be tax-free?

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.