What is happening in May 2025?

Federal student loan payments officially resumed in October 2023, following a pause that began in March 2020. The U.S. Department of Education introduced a one-year on-ramp period, running from October 1, 2023, through September 30, 2024. During this time, missed payments would not be reported to credit bureaus, and borrowers would not be considered delinquent or placed in default. However, this protection ended on October 1, 2024. Since then, missed payments have been reported and borrowers have been at risk of falling into default.

In an April 2025 press release, the Department announced that active collections on defaulted federal loans — including wage garnishment and tax refund seizure — would resume on May 5, 2025. This marks the first time since March 2020 that such collections have been enforced.

What does it mean to be in default?

A federal student loan is considered in default when a borrower has not made a payment for 270 days. This can lead to serious consequences, including damaged credit, wage garnishment, tax refund seizure, and reduced eligibility for additional federal aid. Private student loans may have different default timelines and consequences, but the financial impact can be just as severe.

Borrowers in default often face barriers to accessing credit or qualifying for favorable loan terms. A default status appears on a credit report and can significantly lower a borrower’s credit score, potentially affecting their ability to rent housing, secure employment, or obtain insurance.

Who is most affected?

Although student loan default may be associated with recent graduates, many borrowers in default are older adults. According to Education Data Initiative, the average student loan debt among borrowers aged 35 to 49 is over $43,000, and this group carries one of the highest default rates. Defaulted borrowers are often juggling family expenses, mortgage payments, and other forms of debt.

Many of these borrowers are already under financial strain from inflation, rising interest rates, or job instability. Conditions that have only intensified since repayments resumed. With the protections of the on-ramp period now expired, the risk of involuntary collections steadily increases.

How might collections be enforced?

Defaulted federal loans may now be subject to involuntary collection actions, including:

• Wage garnishment. Up to 15 percent of a borrower’s disposable pay may be withheld.
• Tax refund offset. The federal government can withhold tax refunds to cover defaulted loans.
• Social Security benefit reduction. Up to 15 percent of benefits may be taken to repay federal student debt.

For borrowers who have not taken steps to resolve their default, these actions may resume with little warning.

How can borrowers get out of default?

Avoiding or ending collections is often a top priority for borrowers in default. Depending on the loan and individual circumstances, there may be ways to resolve the default and stop or prevent wage garnishment, tax refund offset, or other consequences. Possible options include:

• Loan rehabilitation. Borrowers may qualify to make nine reduced, on-time monthly payments in a ten-month period. Successful completion removes the default from their credit history, though late payments will remain.
• Loan consolidation. This allows borrowers to combine one or more federal loans into a new loan, immediately removing the loans from default if they agree to an income-driven repayment plan.
• Income-driven repayment (IDR) plans. These may offer lower monthly payments based on income and family size. Enrollment in an IDR plan may help prevent future delinquency or default.

Borrowers should carefully compare these options. Rehabilitation can only be used once, while consolidation may offer faster relief but does not remove the record of default from credit reports.

How might default affect credit scores and access to credit?

When a federal student loan goes into default, the missed payments and any collection activity are typically reported to the major credit bureaus. This can lead to a significant drop in a borrower’s credit score, especially if the default is not resolved quickly. Lower scores can make it more difficult to qualify for new credit, and may result in higher interest rates or less favorable loan terms.

If credit has been affected, monitoring it regularly can help borrowers track any changes, dispute errors, and detect signs of identity theft. Some credit monitoring tools also show how actions like loan rehabilitation or consolidation might influence a credit score over time. Some services may also offer alerts or tools to simulate how actions like rehabilitation or consolidation could affect credit scores.

Where can borrowers find help?

Student loan borrowers in default may benefit from contacting their loan servicer or the U.S. Department of Education to explore available options. Free assistance is also available through:

• Federal Student Aid: Default
• National Consumer Law Center
• Consumer Financial Protection Bureau

Borrowers are wise to avoid debt relief companies that charge upfront fees or make unrealistic promises. Legitimate help is available at no cost through federal resources and nonprofit organizations.

What to consider moving forward

Defaulting on a student loan can have long-lasting financial consequences, but taking informed steps may help borrowers regain stability. It may take time to rebuild credit and reduce debt, but resolution options like rehabilitation and consolidation could offer a starting point.

Understanding how default affects credit and financial opportunities is essential for anyone facing collections in 2025. Staying informed, monitoring credit, and seeking trusted guidance may support long-term recovery.

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The post Student loan default in 2025: what you need to know appeared first on Credit Sesame.

Student loan collections resume in 2025

Federal student loan collections are back. As of May 5, 2025, the U.S. Department of Education is resuming collections on defaulted loans for the first time since the pandemic-era pause began in 2020. For the 5.3 million Americans currently in default, this shift could have significant consequences, particularly for their credit scores.

Although payments officially resumed in October 2023, borrowers were given a 12-month “on-ramp” period, which extended through September 2024. During that time, missed payments were not reported to credit bureaus, and collections were paused. That cushion is ending early for those already in default. As of May 2025, active collections — including wage garnishment and tax refund seizures — are starting again.

This is the formal end of a major COVID-era relief policy that had protected millions of borrowers from aggressive debt collection. The Washington Post reports that this change could impact nearly a quarter of all federal student loan holders.

One tool being reinstated is the Treasury Offset Program, which allows the federal government to collect overdue student loans by seizing tax refunds, garnishing wages, and reducing Social Security payments. Business Insider confirms that garnishments may begin this summer for borrowers who take no action.

According to TIME reporting, the renewed collection effort reflects a policy shift under the Trump administration, which has prioritized fiscal accountability and a return to pre-pandemic enforcement.

Credit scores may take a hit

Once collections resume, many borrowers in default may experience a significant drop in their credit scores. According to the Federal Reserve Bank of New York, millions could experience major declines once missed payments are reported to the credit bureaus.

• Borrowers with excellent credit (above 760) may lose over 170 points.
• Those in the prime range (660–719) could see drops of 140 to 160 points.
• Subprime borrowers may lose an average of 87 points.

A change of that magnitude can have a dramatic impact on your financial standing, making it more difficult or expensive to access credit.

Default status may delay major financial goals

Student loan defaults don’t just affect borrowing. They may also interfere with efforts to:

• Rent an apartment or home.
• Secure a car loan or mortgage.
• Apply for new credit cards.
• Qualify for jobs that require a review of your credit history.

Since credit is used in so many areas of financial and personal life, the effects of default can extend far beyond the loan itself.

What can borrowers do now?

There are ways to resolve defaulted loans and potentially reduce the long-term impact on your credit.

• Loan rehabilitation. This program allows borrowers to make nine voluntary, on-time monthly payments over a period of ten months. Once completed, the default status is removed from your credit report; however, previous late payments may still appear. Business Insider explains that this option may help protect borrowers from garnishment if acted on soon.
• Loan consolidation. Borrowers can combine their defaulted loans into a new Direct Consolidation Loan. This process helps to get you out of default, but does not erase the default mark from your credit report.
• Income-driven repayment (IDR). Borrowers may apply for plans based on income and family size. These plans do not remove a default, but they may help prevent future delinquencies and reduce financial pressure.

Check your loan status and act quickly

If you’re unsure about the status of your loan, begin by logging into StudentAid.gov to check your current status. If your loan is already in default, your servicer can walk you through next steps, including options like rehabilitation or consolidation.

NPR reports that the Department of Education plans to begin sending garnishment notices this summer. Borrowers will have a 30-day window to take action before those collection efforts begin.

Stay alert as collections resume

As collections restart, it’s a good idea to keep an eye on your credit report. Changes to your loan status, new delinquencies, or defaults could begin appearing as soon as servicers resume reporting. Reviewing your credit reports regularly can help you identify issues early and dispute any inaccuracies.

You’re entitled to one free annual report from each of the three major bureaus, Experian, Equifax, and TransUnion, through AnnualCreditReport.com. During periods of financial stress or federal policy changes, free access may be extended, so check the site for updates.

You may also like to try Sesame Grade for a comprehensive overview of your credit score, including the factors behind the numbers and clear actions to reach your goals.

What student loan collections may mean for you

Student loan collections are resuming, and for millions of borrowers, this could result in a significant decline in credit score and reduced access to financial opportunities. Defaults may affect not just loans and credit cards, but also housing, employment, and insurance options.

If your loan is in default, there may still be time to act before collections begin. Check your status, explore repayment or rehabilitation options, and stay alert for any notices from your loan servicer. Taking early steps could help limit long-term financial consequences.

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1. Job growth slows
2. Supreme Court disallows student loan forgiveness
3. Mastercard launches subscription management service
4. Oil prices continue to slump
5. Key inflation indicator muted in May
6. Stress test shows bank resiliency
7. Manufacturing weakness continues
8. Yield curve signals likely recession
9. Mortgage rates hit 2023 high

1. Job growth slows

The US economy added 209,000 jobs in June. That marked a slower pace of employment growth than May’s 306,000. Along with weaker job growth, there were other signs of a weakening job market. Initial job growth estimates for April and May were revised downward by 110,000. Also, the number of people working part-time rather than full-time for economic reasons increased by 452,000. That marks a 12% increase in just one month of people who would prefer to work full-time but had to settle for part-time employment. See report at BLS.gov.

2. Supreme Court disallows student loan forgiveness

Following a Supreme Court ruling that canceled their student loan forgiveness plan, the Biden Administration seeks an alternative. The President is now proposing a plan that involves a grace period of 12 months once loan payments resume in October. It also would drastically modify current income-driven repayment programs. The new proposal would eliminate payments for anyone making less than 225% of the federal poverty level. It would limit payments to 5% of discretionary income. Finally, for loans of $12,000 or less, it would eliminate remaining loan balances after ten years. This proposal seems likely to lead to a new round of court challenges. See article at Yahoo.com.

3. Mastercard launches subscription management service

Amid criticisms that streaming and other subscription services have become overly expensive and hard to handle, Mastercard has teamed with Subaio to offer a new subscription management service. This service allows consumers to manage their subscription services through a single source rather than dealing with each provider separately. Subscription management has become a hot new area in fintech. Mastercard’s research found that the average consumer has 12 different media and entertainment subscriptions, with millennials juggling an average of 17 such subscriptions. See release at Mastercard.com.

4. Oil prices continue to slump

Brent oil prices, which act as a global benchmark for oil, declined for the fourth consecutive quarter in the second quarter of 2023. Prices have remained weak despite efforts by oil producers to limit supply. Falling energy prices have been a moderating influence on inflation over the past year. See article at Yahoo.com.

5. Key inflation indicator muted in May

The Personal Consumption Expenditure (PCE) price index rose by just 0.1% in May 2023. The PCE price index is the primary inflation indicator used by the Federal Reserve. The 0.1% increase represents slowing inflation after the PCE price index rose by 0.4% in April. May’s increase brings the inflation rate for the past year to 3.8%. However, core inflation remains more elevated at 4.6%. See details at BEA.gov.

6. Stress test shows bank resiliency

Key US banks passed a Federal Reserve stress test with flying colors. Twenty-three major banks, including industry leaders JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, participated in the test. The test measured whether the banks’ financials could continue to meet the Fed’s reserve requirements in the event of a severe global recession. The test measured how the banks would react when unemployment reached 10% and the stock market lost 45%. See details at Yahoo.com.

7. Manufacturing weakness continues

A widely-followed measure of US manufacturing activity fell for an eighth straight month in June. The Institute for Supply Management (ISM) manufacturing index fell to 46, down from 46.9 in May. Any reading below 50 indicates declining manufacturing activity. The index has been below 50 for the longest time since the 2008-2009 recession. The current reading is the lowest since May 2020. See article at Yahoo.com.

8. Yield curve signals likely recession

The spread between 2-year and 10-year Treasuries is now the most inverted in 42 years. An inverted yield curve is when short-term yields exceed long-term yields. The spread recently reached 109.5 basis points. High short-term yields are partly due to the Fed’s string of rate increases. While lower long-term yields could be taken as a sign that the Fed’s inflation-fighting efforts will succeed, they also suggest that a recession might be necessary to smother inflation thoroughly. See article at Reuters.com.

9. Mortgage rates hit 2023 high

30-year mortgage rates rose for a second week to reach 6.81%. That marks their highest in 2023, though it’s still short of last year’s peak of 7.08%. 15-year rates also reached their highest point in 2023, reaching 6.24%. See details at FreddieMac.com.

Weekly News Headlines from Credit Sesame

• Last week’s news roundup June 24, 2023
• Next week’s news roundup July 15, 2023

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The three Rs in education are Reading, wRiting and aRithmetic. Most people agree that those basic skills are necessary for life. What about money management? Knowing how to spend, borrow, save and invest wisely. It could be argued that financial knowledge is as important as the three Rs. Since April 2023 is Financial Literacy Month, it’s a good time to discuss why financial literacy should be taught in schools.

Why financial literacy as a 4th basic skill?

Why do we need to improve our financial literacy? Because in the US, financial ignorance is taking a terrible toll, and financial problems tend to spill into other parts of life. Researchers reported in the Journal of Marriage and Family that money stress often leads to health problems, emotional issues and poor marital relationships.

Poor credit ratings

Being uneducated about money is linked to lower credit scores, and failure to build credit can deny families home-buying opportunities. Harvard University’s Joint Center for Housing Studies claims that homeownership is the most reliable way to build wealth and that the average homeowner’s wealth is 40 times that of the average renter.

In addition, consumers without good credit pay much more for everything they finance, including autos, homes, credit card balances, and education. Credit card rates for people with excellent credit run about 10% lower than those with fair or poor credit (just under 19% vs nearly 29% as of March 2023). When families spend more on financing costs, less money is available for savings or other purchases.

Student loan balances

Researchers at Old Dominion University surveyed over 1,000 grads and most said they were unprepared for the impact of their loans and wished that they had received “more financial literacy” during the college decision process and at college orientations. “I had no idea what I was getting myself into at the age of 18 signing all those forms for financial aid,” one grad said ruefully.

Today, it takes students who finance college education an average of 21 years to repay their student loan balances. The difficulty in repaying their loans completely blindsides many grads because they don’t know how much the accruing interest will increase their balances. In addition, students often choose degrees without considering their earning potential or even if they can successfully complete the program. It is clear why financial literacy may be useful before enrolling at college and taking out a loan.

Financial insecurity

According to a recent LendingClub survey, two-thirds of Americans lived paycheck to paycheck in 2022. And nearly three-fourths of those consumers experienced difficulty just covering their bills. Living paycheck to paycheck means nothing is left over after paying your living expenses. In addition, half of Americans have under $500 in an emergency fund. This is far less than the three months of living expenses recommended by experts.

Spending without a budget or emergency savings leaves households vulnerable to unexpected costs or hiccups in their income. In the NPR article Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills, exasperated consumer Rhonda Alvarez said, “I make decent money now, and I shouldn’t have to live paycheck to paycheck.” Rhonda also said that she wished schools would teach children money management. “It’s way more important sometimes than algebra or geometry.”

Excess debt

People without much financial knowledge are more likely to experience excessive debt loads, credit problems and bankruptcy. Getting a grasp as to why financial literacy is important may help to avoid these basic financial mistakes.

On the other hand, studies have shown that financially literate consumers are less likely to have credit card debt and more likely to pay off their balances each month. They also refinance their mortgages when it makes sense to do so to minimize interest expense. In addition, financially savvy adults avoid borrowing against their 401(k) plans and are less likely to resort to expensive loans from payday lenders, pawn shops and auto title lenders.

Unprepared for retirement

A recent McKinsey study found that 80% of Americans are financially unprepared for retirement. That’s a serious problem because those who fail to save for retirement may depend on Social Security payments to survive, and the average Social Security check in 2022 was $1,656.30.

Why would so many be setting themselves up for poverty once they stop working?

Theresa Ghilarducci, professor of economic policy analysis at The New School for Social Research in New York, claims few of us have the financial literacy needed to retire successfully under our current system. “The U.S. is the only industrial country that depends on untrained individuals supplementing their own basic Social Security and long-term savings with a system of voluntary contributions and retail investment products,: she said. “It’s like requiring everyone to do their own home electrical wiring and dental work.”

American retirement is unlikely to change in the near term, so future generations need a better understanding of how savings, investing, and compounding interest work. The sooner, the better, since the earlier you start, the easier it is to save enough for a secure retirement.

Understanding why financial literacy is important

Financial literacy means acquiring these important basic financial skills, which may be considered life skills.

• Establish a savings habit.
• Avoid unnecessary debt.
• Create and stick to a budget.
• Borrow wisely when necessary.
• Establish and protect a good credit rating.
• Plan for retirement.
• Invest correctly for different life stages.
• Insure against catastrophic losses.

Studies have shown that students with higher financial literacy are less likely to incur late fees, use payday loans or make only the minimum payments on their credit cards. And states that have deployed financial literacy programs are getting good results. For instance, within three years, Georgia, Idaho and Texas saw credit scores rise and delinquency rates fall. These are good reasons why financial literacy should be part of a high school, or even younger, curriculum.

Financial literacy coursework

What should be taught in a high school financial literacy class? The Federal Reserve Bank has developed this standard personal finance curriculum for older students. Our kids should know these things, and so should we.

Unit 1: Decision making

• Lesson 1.1: The Art of Decision making
• Lesson 1.2: Opportunity Cost
• Lesson 1.3: Making Choices and Identifying Costs

Unit 2: Earning Income

• Lesson 2.1: It’s Your Paycheck: Invest in Yourself
• Lesson 2.2: Investing in Yourself
• Lesson 2.3: Teaching Human Capital and the Importance of Postsecondary Education
• Lesson 2.4: What Are Taxes For?
• Lesson 2.5: Understanding Taxes
• Lesson 2.6: It’s Your Paycheck: “W” Is for Wages, W-4, and W-2
• Lesson 2.7: Individual Income Tax: The Basics and New Changes

Unit 3: Buying Goods and Services

• Lesson 3.1: Making a Budget—It’s All Spending
• Lesson 3.2: Budget Trade-Offs—A Penny Here and a Penny There
• Lesson 3.3: Big Spenders
• Lesson 3.4: Smart Phones and Budget Changes
• Lesson 3.5: Advertising: Dollars and Decisions

Unit 4: Saving

• Lesson 4.1: Time Preference—Why It Is Hard to Save
• Lesson 4.2: Simple and Compound Interest—Why It Is Great to Save
• Lesson 4.3: Time Value of Money
• Lesson 4.4: No-Frills Money Skills: Growing Money

Unit 5: Using Credit

• Lesson 5.1: The Three Cs of Credit
• Lesson 5.2: Evaluating the Benefits and Costs of Credit
• Lesson 5.3: Credit Bureaus: The Record Keepers
• Lesson 5.4: Cards, Cars, and Currency: The Car Deal Package
• Lesson 5.5: Bankruptcy: When All Else Fails
• Lesson 5.6: On the Move: Renting Basics
• Lesson 5.7: Fast Cash and Payday Loans

Unit 6: Financial Investing

• Lesson 6.1: Meeting Financial Goals—Rate of Return
• Lesson 6.2: Managing Risk—Time and Diversification
• Lesson 6.3: Evaluating Investment Options
• Lesson 6.4: No-Frills Money Skills: Get Into Stocks
• Lesson 6.5: Diversification and Risk
• Lesson 6.6: No-Frills Money Skills: Understanding Bonds

Unit 7: Protecting and Insuring

• Lesson 7.1: Insurance: Coverage and Cost Basics
• Lesson 7.2: Is Insurance Worth Buying?
• Lesson 7.3: The Three Ds of Identity Theft

Parents can take control now

While only about one-third of students have access to financial literacy content at school, parents don’t have to wait to help their kids. The FDIC has created financial literacy coursework that you can download for every grade from K through 12.

Here’s an example of a budgeting activity a parent can do with kids in the third through fifth grade:

“Ask your child to save your grocery store receipts for a week. At the end of the week, to help with the family budget, have your child add up how much money was spent on food.

Discuss ideas to save money on future food shopping trips to meet budget goals. You can also
invite your child to collect the receipts for a longer period of time (several weeks or months) to keep
track of progress toward goals. Check in regularly to discuss as a family.”

That exercise seems like it would be good for most adults as well.

The good news is that with the right personal finance skills, most people can build a decent credit score, learn to budget, avoid excess debt and save for retirement. With the right tools, you can live better today and enjoy more security tomorrow.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Beyond the 3 Rs: Why financial literacy should be a 4th basic skill appeared first on Credit Sesame.

Tax deductions and credits can help make filing your taxes in 2023 easier and cheaper, two descriptions not normally associated with income taxes.

You have to know which programs apply to you and must itemize your deductions instead of taking the standard deduction. For most people, itemizing deductions only makes sense if they have enough deductible expenses that add up to more than the savings of a standard deduction.

Tax deductions vs tax credits

First, it helps to know the differences between tax deductions and credits.

Tax deductions

Tax deductions allow a certain amount to be deducted from your taxable income, and can reduce the amount of your income before you calculate the tax you owe. The amount of the tax deduction is subtracted from your income, which lowers your taxable income, and thus your tax bill is lower.

Deductions lower your taxable income by the percentage of your highest federal income tax bracket. If you fall into the 22% tax bracket, a $1,000 deduction saves you $220.

Tax credits

Tax credits reduce the amount of tax you owe on a dollar-for-dollar basis, and can reduce the amount of tax you owe or increase your tax refund. Some credits may give you a refund even if you don’t owe any tax.

A $1,000 tax credit lowers your tax bill by $1,000. Tax credits are usually bigger than tax deductions, and can lower your tax bill by a lot more.

Some credits are refundable, meaning you get a check for the amount, depending on how much you owe in taxes. If you qualify for a $1,000 credit but owe $250 in taxes, you’ll get a refund for the difference of $750. Many credits, however, aren’t refundable.

Popular deductions and credits

The Internal Revenue Service lists many tax deductions and credits that can save taxpayers money. Here are some of the most popular ones:

Child tax credit

The child tax credit provides up to $2,000 per child, with $1,500 potentially refundable. The IRS has an online tool to determine if a persona qualifies for the credit.

Child and dependent care credit

This credit generally covers up to 35% of day care and related costs for a child under 13, a spouse or parent unable to care for themselves, or another dependent so you can work. Expenses are limited to $3,000 for one dependent or $6,000 for two or more.

Earned income tax credit

Called the EITC for short, this tax credit is meant for low-to-moderate-income workers and families. For filers with an adjusted gross income of around $59,000 or less, the EITC provides a tax credit between $560 and $6,935.

Adoption credit

Up to $14,890 in adoption costs per child can be used as a tax credit. An income limit is imposed, up to $263,410 of your modified adjusted gross income for tax year 2022.

American opportunity tax credit

The AOC is an education credit on the first $2,000 spent on tuition, books, equipment and school fees, plus 25% of the next $2,000, for a total of $2,500. Living expenses and transportation costs can’t be claimed.

Lifetime learning credit

This is among the many education tax benefits allowed by the IRS. It allows up to $2,000 paid for tuition and school fees to be used as a tax credit.

Student loan interest deduction

Up to $2,500 can be deducted from taxes on interest paid on student loans.

Charitable donations deduction

Donations you make to charities can be deducted if you itemize. These include cash or property, such as clothes, a car and furniture. You can generally deduct up to 60% of your adjusted gross income. 

Mortgage interest deduction

The mortgage interest tax deduction can be a big savings for homeowners. The mortgage interest they pay is deducted from their taxable income, which lowers their federal income tax.

Saver’s credit

From 10%-50% of up to $2,000, or $4,000 if filing jointly, in contributions to an IRA, 401(k), 403(b) or certain other retirement plans can be taken as a tax credit. The amount of credit you receive is based on the contributions and your adjusted gross income. The lower your income, the higher saver’s credit rate you’ll get.

401(k) contributions deduction

Money moved from your paycheck into a 401(k) retirement plan is not taxed by the IRS. The contribution limit for the 2022 tax year was $20,500, or $27,000 if you were 50 or older.

Electric vehicle tax credit

The electric vehicle tax credit is not refundable, but it can mean deducting from $2,500 to $7,000 from the taxes you owe when buying an electric car. For tax year 2023, the credit expands to used electric vehicles, so consider it when filing your 2023 taxes in 2024.

Solar tax credit

Also called the residential clean energy credit, the solar tax credit gives up to 30% of the installation cost of solar energy systems such as solar water heaters and solar panels.

Health Savings Account contributions deduction

HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

Medical expenses deduction

Qualified, unreimbursed medical and dental expenses that are up to 7.5% of your adjusted gross income can be deducted from your taxes.

Gambling loss deduction

Gambling losses and expenses are tax deductions up to the amount you’ve won gambling. Spend $100 on lottery tickets or bet that much at a casino, then you can report a $100 deduction if you win at least $100. You can’t deduct more than you win.

How much is the standard deduction?

Tax deductions are either itemized or a standard deduction, not both. Itemizing takes some extra work, but is worth it if it’s higher than the standard deduction. 

How much your standard deduction is depends on your filing status. Here are some of the standard deduction amounts for 2022:

• Married for jointly or qualifying widow(er): $25,900
• Head of household: $19,400
• Single or married filing separately: $12,950

Taxpayers who are 65 and older or blind also get an increase in their standard deduction. It’s $1,750 more for single or head of household, and $1,400 more for married or qualifying widow(er).

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Disclaimer: This guide to buying a house and getting a mortgage is for informational purposes only and is not intended as a substitute for professional advice.

The post Tax deductions 101: Common deductions and credits that can save you money appeared first on Credit Sesame.

Pursuing higher education can be immensely rewarding and position you to grow your earning potential for years to come. To get a degree, there’s a good chance of needing to take out at least one student loan. According to the Education Data Initiative, more than 42.8 million Americans have student loan debt adding up to $1.745 trillion.

Most students know it is important to stay on top of their studies, submit assignments on time and prep for tests. Maintaining good credit while completing your degree is also a good idea. After graduation, you may need to rent a home. Landlords can pull your credit report and verify you can make monthly payments. Or you may want to purchase a home rather than rent. Good credit can mean the difference between a great interest rate on a mortgage or an average one. Although employers cannot pull your credit score, businesses can request your credit report. A good credit report indicates that you are responsible with money, a trait employers may like to see.

Student loans affect your credit scores and appear on your credit report like any other debt. Managed right, student loans can be positive for your credit scores.

Student loans add to your credit mix

People with higher credit scores tend to have a mix of credit types. Regular repayments on a variety of credit types, for example, a credit card, a car loan and a student loan, show lenders you’re capable of managing your money. Student loans add diversity that credit reporting companies and prospective lenders like.

Student loans payment history can impact credit scores

The most important thing you can do to maintain your creditworthiness is to make timely payments. Pay your monthly balance in full, rather than falling behind. You can even implement strategies to get out of student loan debt faster by paying extra on your monthly installment.

Some people who have high student loans and other debt might consider bankruptcy. This is something better avoided if possible. Bankruptcies stay on your credit report for years, which can lower your credit score and signal to banks it’s too risky to lend to you.

Student loan deferral can impact credit score indirectly

A student loan deferral does not impact credit scores directly because it is done with permission from the lender. Many people defer student loan payments while in school or even after graduation for various reasons. Typically, a student loan deferral allows you to postpone making payments on the principal, interest or both for a period of time. However, a deferral may increase the size and age of unpaid debt, which can harm credit scores. Also, waiting to defer until the loan is delinquent may also hurt credit score.

Cosigned student loans have pros and cons

Many students don’t have sufficient credit to take out a big loan for school. In those cases, some cosign a loan with a parent or other trusted adult. This can have pluses and minuses for your credit.

On the plus side, cosigning can give you eligibility for a student loan that diversifies your debt types. Your name goes on the account, along with the cosigner. This can positively affect your credit score by adding a new debt type. When you make payments, you can demonstrate your ability to manage money, further strengthening your credit. Associating your name with a parent whose credit is better than yours also gives lenders added confidence the debt will be paid.

On the minus side, cosigning comes with risks. If you cannot make payments on a cosigned loan, and your cosigner is in the same situation, you could quickly fall behind. This could hurt your credit and lower your score – and that of your cosigner. Cosigning brings an added level of responsibility for both parties to make good on their commitment to the lender.

What else should I know about student loans and credit?

Student loans bring a legal responsibility to repay the debt. Before taking out a loan, plan for how the funds will be used, know the interest-rate terms and understand the repayment timeframe. If it does not make sense for your financial situation, do not do it. There may be other ways to pay for your education, such as taking on a side hustle to earn extra money or taking a few classes each semester and cash-flowing your schooling.

If you decide to get a student loan, you might like to download the free Credit Sesame app to see how your credit report and credit score are doing as you go through school. Continue practicing good financial management with your credit cards and other debt so you are in good shape to cover education expenses when payments begin. Keep track of monthly statements and pay on time, every time

If you found Do student loans affect credit scores? useful, you may be interested in:

• Best Ways To Pay Student Loan Debt
• Fighting & Winning the Student Loan Debt Battle: How My Wife and I Paid Off $100,000
• Student Loan Forgiveness Blocked: What Now?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Do student loans affect credit scores? appeared first on Credit Sesame.

A helping hand at the right time can make all the difference. Many Americans have money troubles at some point in their lives, but the good news is that there is help available. The key is to use that help so that financial problems do not become permanent. February is Financial Aid Awareness Month and a good time to figure out what help you may be able to get.

Financial Aid Awareness Month

The National Association of Student Aid Administrations (NASFAA) encourages students to “celebrate and learn” during Financial Aid Awareness Month. The intention is to raise awareness about the types of financial aid available to help pay for higher education and to provide information on eligibility and the application process. The main focus is on students, but the information and resources available during the month may be useful to student families, adult learners, graduate students, and others pursuing higher education. The overarching goal is to make financial aid information easy to access and understand for anyone in need of support to pursue their education.

Financial aid awareness for students

According to The College Board, the average published cost of attendance at a four-year public US college is $27,330 per year. At private colleges, it is even more, at $55,800 per year. These price tags are beyond the reach of most students, but there are programs that make a college education a little more affordable.

Making college more affordable

There are a variety of ways to make college more affordable. To use these forms of assistance in the most cost-effective way, it is advisable to prioritize in the order listed below:

1. Choose a public rather than a private college to cut the published cost of attendance by slightly more than half.
2. Grant and scholarship money goes towards your college bills and does not have to be paid back. Grants are generally provided based on financial need, while scholarships are awarded based on merit. Together, they can reduce the average public college attendee’s annual cost by $8,100, and the average private college attendee’s annual cost by $23,080.
3. Government guarantees keep interest rates reasonable on Federal student loans, which are easy to get but have to be paid back. They also have flexible repayment terms and relief programs.
4. Private student loans are more expensive than federal loans, typically, and have less flexible repayment terms. However, federal loans are subject to borrowing limits, so it may be necessary to fill some gaps in paying for college with a private loan.

The best place to get information on student financial aid is to fill out the Free Application for Federal Student Aid form on the StudentAid.gov website. It’s also a good idea to have an in-depth conversation with the financial aid office at any college you think of attending before you make a final decision.

Relief for student loan debt

Over 45 million Americans owe student loan debt, with an average balance of $35,100. Not surprisingly, a lot of people need help with that debt burden. At the time of writing, the Biden Administration’s proposal for widespread student loan debt forgiveness is blocked by the courts. However, there were already several options for making federal student loans easier to repay:

• Graduated repayment plans. These are designed to start with smaller monthly payments and gradually increase that amount over the repayment period. Repaying a loan more slowly at first makes it more expensive in the long run, but may be the best way of making payments affordable to a recent grad.
• Extended repayment plans. These stretch repayment out over a longer time. This increases the total cost of the loan, but lowers the monthly payments.
• Income-based repayment plans. These limit your repayment amounts to a reasonable percentage of your monthly income. This can increase the loan cost in the long run if it takes you more time to pay it off, but it helps make your monthly payments more affordable.

Contact your student loan servicer to find out about your eligibility for these programs. Note that with income-based plans you have to reapply each year.

Help with paying household bills

A recent bout of inflation has made it especially hard to make ends meet. There are several types of assistance available for your regular household bills:

• Food assistance. What used to be known as “food stamps” are now distributed through an electronic payments card. These are federal benefits administered through state agencies.
• Help paying the rent. The federal government’s Emergency Rental Assistance program is designed to provide aid to needy tenants. This aid is distributed though state and local agencies. There’s a search tool on the Consumer Financial Protection Bureau website that can help you locate the appropriate agency in your area.
• Affordable healthcare. Under the Affordable Care Act, online health insurance marketplaces were created for each state to help people find the most cost-effective options. Medicaid provides assistance to needy households. The Children’s Health Insurance Program (CHIP) provides extra aid to families with children. Medicare provides assistance to people over age 65 or with qualifying medical conditions.
• Assistance with utility bills. There are a number of federal programs that provide help to needy families for water, energy and phone bills. Some states and municipalities provide additional assistance. Use online resources to find the appropriate program in your area.

Options for paying tax bills

With tax season approaching, you may be worrying about how to afford your tax bill. You are not alone. According to the IRS, in the 2021 tax year over 8 million individual taxpayers were late paying their bills.

Possibly the worst thing you can do in that situation is trying to hide from the tax collector. It is preferable to work with the IRS. From filing extensions to extended payment plans to programs for partial settlement of tax debt, the IRS offers a variety of ways to work out your tax problems with them.

None of this happens automatically. You have to contact the IRS and apply for the programs. This is a better idea than waiting for the IRS to track you down.

Small business assistance

If you have a small business that’s struggling to make it through a rough period, the federal Small Business Administration (SBA) is designed to help you. They provide government-backed loans for starting or expanding a business, as well as emergency loans for companies in federal disaster areas.

The SBA also provides free business counseling and information on how small businesses can score government contracts, so they can be a resource beyond financing.

Whether you need a little help or a lot, it’s okay to ask. Assistance is available for a variety of needs. You just need to take the first step.

If you enjoyed Financial Aid Awareness Month 2023, you may be interested in:

• 6 Things You Should Know Before Taking Out a Student Loan
• How to Build Credit as a Student

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Financial Aid Awareness Month 2023 appeared first on Credit Sesame.

2022 is going down in recent history as The Year of Economic Changes. Most notably:

• Inflation soared
• Interest rates rose sharply
• Recession became a serious threat

These developments pose significant challenges to household finances that persist into 2023. And yet, several recent news stories suggest that consumers have not adjusted to those challenges. Consumers seem to be in denial about the new economic reality. That denial may be leading them into serious financial trouble.

When is the next windfall check?

For many Americans, COVID assistance checks and enhanced unemployment benefits more than made up for any income lost due to pandemic lockdowns.

In the first couple of years of the pandemic, people received a cash windfall but had fewer ways to spend money with much of the economy shut down. Debt levels dipped, and savings soared.

Now though, those special government checks have stopped. Meanwhile, consumers have more opportunities to spend money and inflation has driven the prices of their purchases much higher.

It seems consumers are spending as though they are expecting another windfall check, but one it is not coming. Economic changes in 2022 resulted in debt soaring to a record level. And an analysis by JP Morgan Asset Management found that consumers have spent down over $1 trillion worth of savings they accumulated during the early months of the pandemic.

This may mean that many households are relying on borrowing and spending down savings to make ends meet. Without a budget adjustment, this puts them on course to run out of savings and a borrowing cushion.

What do you mean it costs more?

There have been signs in recent months that inflation is starting to ease. However, it’s important to understand what that means.

Even if the Federal Reserve succeeds in bringing inflation back down to its 2% target, the price increases of the past 18 months are here to stay.

Based on Consumer Price Index data from the Bureau of Labor Statistics, Credit Sesame calculated that prices have risen by 11.1% over the past year and a half. That means you get less bang for your buck. What you used to buy for $10 now costs $11. To accommodate this higher cost of living, households would be wise to adjust and make hard choices about their spending.

Why isn’t it a good time to borrow?

It’s bad enough that consumer debt hit a new high in 2022. What makes this worse is that it happened while rising interest rates made borrowing more expensive.

The Federal Reserve increased interest rates by 4.25% last year and loan and credit card rates increased sharply.

Borrowing puts a greater strain on household budgets because of higher interest rates. Consumers may need to adjust by reining in borrowing and paying down debt.

Do economic changes mean a recession?

The Fed committed to raising interest rates to fight inflation, but many economists believe a recession will result.

It remains to be seen whether this prediction is correct. However, the strong possibility of a recession should make this a time to build up a savings reserve. A robust emergency fund could see a family through a period of joblessness should unemployment rise.

Fortunately, the job market is still strong. There is still time to build up an emergency fund. Bear min mind, if economists are right about the economy weakening, that time may be running out.

Is it time to think about retirement?

People save for retirement based on how much money they expect to need when they stop working. The economic changes in 2022 and the recent surge in inflation means most people face a higher cost of living than they previously expected at retirement.

That makes it the right time to crank up retirement plan contributions. Unfortunately, many seem to be doing just the opposite. A 401(k) management firm Vanguard study found that early withdrawals from 401(k) plans rose in 2022. So did loans against 401(k) balances.

These actions are likely to impede retirement savings just when people should be ramping them up.

Withdrawals of pre-tax contributions are likely to be subject to income tax, and can’t be restored to the retirement plan. In addition, they may be subject to a 10% tax penalty.

You can borrow from your 401(k) without a penalty, but you miss out on any potential investment gains while the money is out of the plan. Also, you face tax consequences if you fail to pay back the loan. Some plans may require you to pay back the money immediately if you leave the employer that sponsors the plan. This can create extra financial hardship if you lose your job.

Workers, particularly those close to retirement, would be wise to consider raising their 401(k) contributions in 2023 instead of treating them like a piggy bank they can dip into whenever they want.

Are student loans going to be forgiven?

People with student loan balances might well feel they had the rug pulled out from under them in 2022. After being promised forgiveness of $10,000 to $20,000 of their loan balances, a court shot down the forgiveness program.

The case is under appeal, so the final outcome is unknown. However, if you have a student loan, a better approach may be to assume you must start repayments at some point in 2023. If the student loan forgiveness program ends up being rescued, treat it as a windfall.

Student loan payments are increasingly likely to resume in 2023. Young people may think about using the time before that happens to build extra savings. That may take the sting out of the impact on their budgets when payments resume.

Is good credit important?

While defaults on credit payments are still relatively low, they have trended upward over the past year. According to the S&P/Experian Consumer Credit Default Indices, default rates on mortgages, auto loans and credit cards all rose over the past year. The overall composite of default rates climbed 59% in the past twelve months.

This is an indication that consumers are having more trouble paying their bills. Along with higher credit utilization, late payments tend to damage credit scores.

Consumers are advised not to take credit for granted. A good credit score in a rising interest rate environment is especially important because it can help you qualify for the lowest rates available. Also, if the economy goes into a recession lenders are likely to tighten approval standards and require better credit to qualify for new loans and credit cards. If you do not know your credit score, now is a good time to check it online for free.

Overall, consumer behavior in 2022 seemed out of step with the emerging economic reality. Consumers may have no choice but to adjust faster in 2023.

If you enjoyed Are Consumers Adjusting to Economic Changes too Slowly? you may be interest in:

• The Cost of Bad Credit to Consumers
• How to Combat Inflation Every Day
• 5 Things to Do as Interest Rates Rise

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Are Consumers Adjusting to Economic Changes too Slowly? appeared first on Credit Sesame.

On November 10, 2022 a U.S. District Court in Texas ruled President Biden’s student loan forgiveness program to be unconstitutional.

Beyond being a setback for the President and the millions of borrowers who may be affected, this ruling creates a lot of uncertainty over what happens when student loan payments resume in January.

This is understandably an emotional issue to people who have thousands of dollars worth of debt hanging in the balance. It is important to think rationally about what to do next. Coping with the uncertainty the right way could save you money and help protect your credit score for years to come.

This is not the end of the story

The ruling in question is more definitive than an earlier court challenge which put the loan forgiveness program on hold. That earlier ruling by the Eighth U.S. Circuit Court of Appeals simply delayed implementation until the court could consider separate challenges to the program.

The new ruling by a U.S. District Court judge found the program to be unconstitutional on the grounds that the Executive Branch had overstepped its authority to forgive student loans.

In a statement following the ruling, Secretary of Education Miguel Cardona noted that the Justice Department had filed an appeal of the U.S. District Court decision. In short, the District Court judge’s ruling is not the final word on the matter. Given what’s at stake, it wouldn’t be surprising if the issue were not decided until it goes before the Supreme Court.

Even then, there are other court challenges to the program in the works, on different legal grounds. It’s entirely possible that the program could be in limbo for a long time to come.

That creates a very challenging situation for a large number of borrowers. In his statement, Secretary Cardona noted that 26 million borrowers had applied for loan forgiveness under the Biden program. 16 million of those had already been approved.

Are payments to resume in January?

The backdrop to this legal wrangling is the fact that the scheduled resumption of payments is fast approaching. The appeals process and other legal challenges are unlikely to be resolved by January.

There is the possibility that the Biden Administration will grant yet another extension of the deadline for resuming payments, but that is far from certain. The pause on student loan payments was originally put in place because of financial hardships caused by COVID. Now that employment has soared past pre-pandemic levels that reasoning no longer applies.

Significantly, Secretary Cardona’s statement made no comment on what borrowers should do if the deadline for repayment should come before the fate of the loan forgiveness program is resolved. Until such guidance is forthcoming, borrowers are left to decide for themselves how to proceed.

Prepare for either outcome

While the best solution may depend on a borrower’s particular circumstances, the safest thing to do might be to assume that you still owe your full amount of debt. That means getting ready to resume your payments in January.

Preparing to make payments based on the full amount of your debt covers you in case the forgiveness program is not ultimately rescued. That way, you won’t be subject to penalties, additional interest charges and damage to your credit score as a result of failure to make full payments.

At the same time, there’s no harm in applying for the forgiveness program, if you haven’t done so already. Then, if it turns out the forgiveness program is saved, you could be in line for a financial windfall.

The following are a few steps you can take to be prepared for either outcome.

Apply for the forgiveness program anyway

As of this writing, the application for the student loan forgiveness program is still live on the official Federal Student Aid website.

If you haven’t done so already, go ahead and fill out your application. It doesn’t cost anything, takes about five minutes to complete and requires no special documentation.

If the legal challenges are resolved in favor of the loan forgiveness program, having your application already processed allows you to benefit sooner.

Contact your loan servicer before year end for an update on your obligation

Since payments have been suspended for over two years now, contact your loan servicer to see where you stand. Check your remaining balance and payment amount if you have to start making it again.

Failing to resume your loan payments could have consequences. It could cost you additional interest charges plus penalties. It could also damage your credit for years to come.

Apply for income-based repayment now

One under-utilized tool for people with student loan debt is income-based repayment. That can limit the size of your payments to a certain percentage of your income. The aim is to make sure those payments are not too onerous.

If you expect to have trouble making your payments because your income is too low, it might be worth looking into income-based repayment.

Also, there are a variety of other loan forgiveness programs available. These are based on the borrower’s occupation or circumstances. Information on other student loan forgiveness programs can be found on on the Federal Student Aid website. It’s worth checking out whether you’re eligible, in case the general loan forgiveness program doesn’t survive.

Create a budget based on no forgiveness

While the Biden program is still in doubt, work out a budget assuming that you owe the full amount of your debt. Practice living on this budget between now and the end of the year so you will be ready. This may even help you put a little extra cash aside to help you get by once student loan payments resume.

Prioritize your debts

If you’re going to be juggling student loan payments along with other debts, you need to prioritize how you repay your debts.

The best approach is to make sure you make at least the minimum payment on every debt. Then, if you have any money left over, apply that to the debt with the highest interest rate.

Government-sponsored student loans typically have relatively low interest rates. So, you may want to apply extra payment amounts to more expensive debt, like credit card balances.

Frustrating as it is to have the student loan forgiveness yanked away, you are simply back to where you were before it was announced. For now, manage your finances as if you have to start payments and student loan forgiveness is blocked for good.

You may also be interested in:

• 6 Things You Should Know Before Taking Out a Student Loan
• How to Build Credit as a Student

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Student Loan Forgiveness Blocked: What Now? appeared first on Credit Sesame.

1. Court puts a hold on student loan forgiveness
2. Water bills leaving Californians awash in debt
3. Economists support continued Fed rate hikes
4. Fannie Mae and Freddie Mac to use expanded credit score models
5. Consumer confidence fell in October
6. CFPB warns that some bank fees may be illegal
7. Non-banked population falls to new low
8. U.S. economic growth rebounded in the third quarter

1. Court puts a hold on student loan forgiveness

The 8th U.S. Circuit Court of Appeals has put a hold on President Biden’s student loan forgiveness plan. The hold is temporary until the court can rule on a lawsuit filed by six Republican-led states that are attempting to block the program. The lawsuit claims that the President overstepped his authority by granting the debt relief. The Biden Administration has argued in response that those state governments don’t have the legal standing necessary to be heard on this matter. The Department of Education has stated that even with debt forgiveness itself on hold, it will continue to process applications so it can act swiftly once the court rules. See full article at ABCNews.com.

2. Water bills leaving Californians awash in debt

A long-term drought combined with outdated infrastructure has left Californians with sharply-higher water bills. In many cases, this has left them owing money on overdue water charges. Water costs in California have been rising rapidly for more than a decade. A survey found that 12% of Californians are behind on their water bills, with an average household debt on those bills of $500. Governor Gavin Newsome recently vetoed a bill that would have provided rate assistance to residential water customers. His reason for blocking the bill was the strain the multi-billion dollar cost would have put on the state’s budget. See article at LATimes.com.

3. Economists support continued Fed rate hikes

With the Federal Reserve scheduled to make its next interest rate decision next week, a poll of economists found that most think the Fed should continue to raise rates until inflation eases. A majority of the economists polled expect another 0.75% rate increase when the Fed meets next week. The poll found a median target of a 4.4% inflation rate to be the point at which economists think the Fed can halt its interest rate increases. Economists recognize the necessity of continued rate increases despite the heightened risk of a recession as a result. See article at Reuters.com.

4. Fannie Mae and Freddie Mac to use expanded credit score models

The Federal Housing Finance Agency (FHFA) has approved the use of new credit score models by Fannie Mae and Freddie Mac. The two mortgage finance companies make government-insured loans. The new credit score models are the FICO 10T and the VantageScore 4.0. These new models use a broader range of payment history which includes rent, utilities and telecom payments. The FHFA also announced that Fannie Mae and Freddie Mac will be cutting upfront mortgage fees for lower-income borrowers. They will make up for those cuts by raising upfront fees on most cash-out refinance loans. See full article at ABA.com.

5. Consumer confidence fell in October

The Consumer Confidence Index declined in October, following two consecutive positive months. Both components of the Index, one that measures consumers’ views of current conditions and one that measures expectations for upcoming conditions, declined. The Expectations Index declined by less, but was already below a level that has traditionally signaled an upcoming recession. See full release at Conference-Board.org.

6. CFPB warns that some bank fees may be illegal

The Consumer Finance Protection Bureau (CFPB) has issued new guidance on its interpretation of the Consumer Financial Protection Act. This guidance puts banks on notice that some of their practices may be against the law. Specifically, the CFPB is warning banks to stop charging fees to deposit account customers under two circumstances. One is where the depositor has a check from a third party bounce. The CFPB’s interpretation is that unless the depositor has repeatedly tried to deposit checks that bounce from the same source, the customer should not be penalized for someone else’s bounced check. The second circumstance is where a debit card transaction is authorized when the account has a positive balance, but subsequent transactions cause the balance to go negative. The CFPB is advising banks that they should not charge overdraft fees on transactions that were authorized when there was a sufficient balance to cover them. See full release from ConsumerFinance.gov.

7. Non-banked population falls to new low

An updated report by the FDIC found that the percentage of the U.S. adult population without access to a bank account has fallen to its lowest level since the FDIC began tracking this data in 2009. The report found that just 4.5% of households had no bank accounts. This is down from a high of 8.2% in 2011. While income plays a role, race or ethnicity seem to be even more of a factor in people remaining unbanked. See full report at FDIC.gov.

8. U.S. economic growth rebounded in the third quarter

Gross Domestic Product (GDP) grew at a 2.6% inflation-adjusted annual rate in the third quarter. That marks a return to growth after slight declines in inflation-adjusted GDP in the first two quarters of the year. GDP growth was helped by a reduction in the trade deficit, as exports grew and imports declined. The inflation-adjusted GDP number was also helped by an easing in the rate at which the Personal Consumption Expenditure Price Index rose in the third quarter. That index is the measure of inflation that the Fed prefers to use. See full release at BEA.gov.

Weekly News Headlines from Credit Sesame

• Last week’s news roundup October 22, 2022
• Next week’s news roundup November 5, 2022

The post Personal Finance Weekly News Roundup October 29, 2022 appeared first on Credit Sesame.