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Unless Congress acts soon, student loans subsidized by the government will become significantly more expensive. Mandated interest rates on subsidized student loans will jump from 3.4% to 6.8% for the 2012-2013 school year. With unemployment still high for recent graduates, increased interest rates will add to the debt burden. Tuition costs are still increasing as is the cost of living.

Without a job or in other economic hardship, an individual with student loan debt can defer payments. Student loan deferment delays the debt without increasing the amount of interest owed on the loan.

College studentsThe availability of easy credit for education has certainly helped a larger segment of society obtain an undergraduate degree, but it has also encouraged institutions to raise prices. Knowing that the market can continue to bear significant increases in tuition, there is no end in sight for these climbing fees.

Going into debt to receive a college education and degree has become the norm. It is possible, however, to go to college without getting into debt. Author and University of Massachusetts alumnus Zac Bissonnette has explored this idea, as we’ve discussed on an earlier podcast.

Cancelling the planned student loan interest rate increase, scheduled to go into effect on July 1, has a cost to taxpayers. The public is subsidizing these loans — so the financial institutions that offer the loans to students can continue to profit while students are in school. According to lawmakers, this subsidy at the low interest rate costs the government $6 billion a year.

Both Barack Obama and Mitt Romney support extending the lower interest rate, with the Democrats saying they could pay to extend the lower interest rate by changing the tax code to require small business owners who file their taxes for a business entity classified as an S Corporation to pay self-employment taxes on the full business income.

Thanks to the availability of student loans and the G.I. Bill, college education is attainable for everyone who wants it. But as the percentage of college graduates within the American population has increased, the ability to use that degree to differentiate oneself in a competitive employment marketplace has diminished.

Meanwhile, the cost to attain that degree has continued to increase with no end in sight. Some might argue the quality of that degree in general has decreased as well, and question whether a degree is worth the investment of time and money. The perceived reduction of value draws students and their influential parents to better-branded institutions; if the degree itself can’t differentiate someone from a crowd, perhaps a degree branded with Harvard or Yale will set the student apart.

Extending the low interest rates will keep a college education more affordable for families who need financial aid and will emphasize the idea that a college education is important for every individual who wants the sociological and financial advantages that the degree might provide. It won’t solve the problem of ever-increasing costs to attend college.

Photo: Pink Sherbet Photography
CNN, New York Times

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At the height of the recession, President George W. Bush and the congress authorized a bail-out of banks and investment companies headed for failure.

In a similar plan to bail out Fannie Mae and Freddie Mac, the government authorized the Treasury moved forward with the plan to stabilize the financial industry, and to an extent the economy. The Treasury purchased $225 billion in mortgage-backed securities insured by Fannie Mae and Freddie Mac.

These securities were considered toxic because investors believed that the underlying mortgages were risky, and the price on the open market did not reflect that risk. When investment banks couldn’t get rid of these bad products on the open market, the Treasury stepped in and paid a discount to acquire the assets. This helped the investment banks pad their balance sheet with more cash, improving their financial conditions, avoiding bankruptcy or failure, alleviating to some degree panic in the market that could have led to a more damaging recession or economic depression.

One year ago, the Treasury began selling these mortgage-backed securities, and as of today, the government no longer has any of the assets purchased under this bailout plan. Not only that, but the Treasury earned $25 billion on its $225 billion investment. That works out to a total return of about 11 percent over about three and a half years (the purchases began in October 2008), though that doesn’t take into account the timing of the buying and selling transactions. The good news is that the Treasury did not lose money on toxic assets, a legitimate concern at the time.

The concern is not over, however. The quality of the underlying mortgages is still in question. The investments could still fail.

… [I]f the mortgages behind those securities fail, taxpayers will still be on the hook, since federal housing giants guarantee the loans and taxpayers have been propping up Fannie Mae and Freddie Mac.

The $25 billion earned through the bail-out of Fannie Mae and Freddie Mac will go to paying down government debt.

Photo: cliff1066
CNN

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Consumer Privacy Bill of Rights

This article was written by in Consumer. 9 comments.

Last week, the White House released a Consumer Privacy Bill of Rights. This isn’t a law or regulation, but a set of guidelines that could possibly underscore future actions by Congress and enforcement by the Federal Trade Commission. Private, personal information should be private and personal, but when consumers enroll for any type of service, the terms of use of those services often require signing away the rights to this information.

If, for example, you’d like to use Facebook to share photographs with your friends and see what they’ve been doing lately, you must agree to the service’s policies which include the service’s ability to keep your personal data on file and use it to deliver targeted ads and to track the other, non-Facebook websites you visit.

FacebookThe Consumer Privacy Bill of Rights aims to give consumers more control of their personal information. Some of the guidelines are common sense, and many companies already follow these guidelines or come close. Codifying these principles is a positive step towards making consumers aware of expectations for the companies they interact with every day, like social media websites, banks and other financial institutions, and retailers.

Here are the main points:

Consumers have a right to exercise control over what personal data companies collect from them and how they use it.

  • Companies should give consumers choices about how companies collect, use, and share personal data.
  • The ability to make these choices should be easy to use and easily accessible.
  • The ability to change these choices after initially selecting them should be just as easy to use and accessible.

Consumers have a right to easily understandable and accessible information about privacy and security practices.

  • Companies should clearly explain how personal information is collected and used internally and with third-parties.
  • Companies should clearly define the policy for deleting private customer data.

Consumers have a right to expect that companies will collect, use, and disclose personal data in ways that are consistent with the context in which consumers provide the data.

  • Companies should not provide consumers’ personal information to third parties who will use that information for a different than it was intended. For example, if I, as a Facebook user, “like” the band Pink Floyd, I shouldn’t begin receiving emails from Amazon.com advertising Pink Floyd albums.
  • Companies have a right to ask whether any particular customer would consent to this type of information sharing.

Consumers have a right to secure and responsible handling of personal data.

  • From the text of the Privacy Bill of Rights: “Companies should assess the privacy and security risks associated with their personal data practices and maintain reasonable safeguards to control risks such as loss; unauthorized access, use, destruction, or modification; and improper disclosure.”

Consumers have a right to access and correct personal data in usable formats, in a manner that is appropriate to the sensitivity of the data and the risk of adverse consequences to consumers if the data is inaccurate.

  • Companies should ensure the data they collect is accurate and current.
  • Consumers should be able to review and correct stored information.
  • Consumers should be able to request stored information be deleted.

Consumers have a right to reasonable limits on the personal data that companies collect and retain.

  • Companies shouldn’t collect more information than necessary.
  • Companies should securely dispose of information when no longer needed.

Consumers have a right to have personal data handled by companies with appropriate measures in place to assure they adhere to the Consumer Privacy Bill of Rights.

  • Consumers should expect companies to follow these guidelines.
  • Both companies and consumers should expect the employees of companies collecting users’ personal information to follow these guidelines.

Time, CNN

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This is a relatively long review of TurboTax 2012 Online, software for completing tax forms and submitting them to both the federal and state authorities. I’ve updated the review to reflect the changes to the software in 2012 (for filing 2011 tax returns).

Recently, the IRS began accepting federal tax returned filed electronically. Even before the IRS began accepting returns, you could still have completed your tax forms online through software. Programs like TurboTax, H&R Block, and Jackson Hewitt have been accepting customers and holding off on filing until now. This delay affected those who had itemized deductions, claimed the tuition and fees deduction, or claimed the sales tax deduction.

Many taxpayers are just getting started with their 2011 federal returns now. I’ve been using the services of an accountant for the past few years, and he was able to cut through the more confusing tax consequences of owning a business, saving me $15,000. Before my tax situation was complicated, however, I completed my taxes online using various software. Following a series of questions, completing and filing my 1040 form was easy.

Every year, the companies that provide tax e-filing services like TurboTax and H&R Block tweak their products, not only for the latest tax laws, but to improve features, making the process of tax filing easier. I took a look at TurboTax to see what changes the newest edition has to offer.

The first thing I noticed with TurboTax is the wide variety of products they have available. There is an option that is completely free for filing federal returns, but it is limited. This free version is for taxpayers whose returns can be completed using the 1040-EZ form, a simplified version of the 1040 form. If you have deductions, investments, a mortgage, or self-employment income, or if you want a step-by-step hand-holding guide to completing the forms, you will not be able to take advantage of the TurboTax Free Edition.

TurboTax offers several flavors in addition to the Free Edition, including Deluxe, Premier, Home & Business, and Business, each to handling more complicated tax situations above and beyond the lighter editions. The Deluxe Edition focuses on capturing all of your deductions. The Premier Edition does deductions, as well, but also includes the forms you need for investments like stocks, mutual funds, and rental properties. Home & Business covers all of the above as well as self-employment income, and the Business Edition is for anyone who is a partner in or owner of a corporation.

The editions are flexible; start with the Deluxe Edition, and as you come across features you need, TurboTax will ask if you’d like to upgrade — without charging you yet — to the edition that takes all of your needs into account. I started the Deluxe Edition to see how far I could go. I saw that for the most part none of the upgrades are needed if you are confident about your tax accounting abilities and are willing to enter your information directly into forms rather than have the software hold your hand through every decision.

Get your refund in as little as 8 days. E-file with TurboTax today. It’s Easy

Here is an overview of my entire process of completing my federal and state tax returns with TurboTax.

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Home Mortgage Interest Deduction

by Flexo
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Although the home mortgage interest deduction is one of the most oft-cited benefits of owning a home, most taxpayers don’t take advantage of it because it requires itemizing taxes. If itemized deductions including mortgage interest paid throughout the year exceed the standard deduction, a taxpayer can take advantage of the benefit. The benefit isn’t as ... Continue reading this article…

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The Consumer Financial Protection Bureau’s Director, Richard Cordray

by Flexo
Richard Cordray

As many Presidents of the United States have done, President Obama avoided confrontation with Congress by appointing an individual to direct a government organization while lawmakers were on recess. Yesterday, the President appointed former Ohio attorney general Richard Cordray to the long-delayed position of director of the Consumer Financial Protection Bureau (CFPB). Now that this ... Continue reading this article…

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Binding Arbitration: Wells Fargo Taking Away Customers’ Rights

by Flexo
Wells Fargo

February 14, 2012 update: The change in terms described here goes into effect tomorrow. It’s not too late to switch banks. If you enter into an agreement with a company, and that company does something to wrong you, most of the time you can avail yourself of the American judicial system to correct the problem. ... Continue reading this article…

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The CFPB’s New Credit Card Agreements

by Flexo

Although Congress is dragging its feet in confirming the Consumer Financial Protection Bureau’s potential director, the bureau has been busy developing new tools to help consumers understand agreements that are potentially damaging to a family’s finances. Last year, issuers debuted new credit card statements designed to frighten borrowers into paying off debt faster. The new ... Continue reading this article…

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