Thursday, May 23, 2013

Public Service Loan Forgiveness Program

Graham McCaulley, Extension Associate, MU Personal Financial Planning Extension

For many students this time of year marks graduation, and for some, graduation prompts thinking about student loans. Those graduating high school may be anticipating the disbursements of their first student loans in a few months to cover new tuition expenses. Alternatively, those graduating college may be expecting the end of student loan deferment and the beginning of repayment in the coming months. No matter where one is on the continuum of student loan debt, it is always important to think about the long term realities of student loans, including repayment options. This tip will outline one possible option for students who may go into careers in public service jobs.

What’s a public service job?

The definition of what is considered a public service job is fairly broad. Any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes. Some private, non-profit employers that are not tax exempt (i.e., 501(c)(3) status) can even be considered qualifying employment for the PSLF program, provided the employer provides certain public services (e.g., public health, safety, etc).

What types of loans are eligible?

Loans are either:

·         Federal- Made and/or regulated by the government, including Direct Loans, Federal Family Education Loans (FFEL), and Federal Perkins Loans; or

·         Private- Made by a bank/private lender and generally carry higher fees and interest rates than federal loans. For more information about avoiding deceptive private loans, visit

Private loans are not eligible for loan forgiveness programs, and not all federal loans are either. For a list of debt cancellation/forgiveness programs and which types of federal loan types are eligible for each program, visit Regarding the Public Service Loan Forgiveness Program (PSLF), only direct loans are eligible (i.e., loans you received under the William D. Ford Federal Direct Loan Program). Federal Family Education loans and Perkins loans are not eligible, however, they do become eligible if you consolidate them into a direct consolidation loan (more on this at

What do I have to do to get my debt forgiven?

·         Work full-time: At least an annual average of 30 hours per week. For purposes of the full-time requirement, your qualifying employment at a not-for-profit organization does not include time spent participating in religious instruction, worship services, or any form of proselytizing. If you are a teacher, or other employee of a public service organization, under contract for at least eight out of 12 months, you meet the full-time standard if you work an average of at least 30 hours per week during the contractual period and receive credit by your employer for a full year's worth of employment. If you have multiple eligible jobs, you must work a combined average of at least 30 hours per week.


·         Make 120 on time, full, monthly loan payments: Basically, you have to put in 10 years of full, on time payments before you can be eligible for the remainder of your loans to be forgiven. On-time payments are those that are received by your Direct Loan servicer no later than 15 days after the scheduled payment due date. Full payments are payments on your Direct Loan in an amount that equals or exceeds the amount you are required to pay each month under your Direct Loan repayment schedule.


·         Be paying back your loan through a qualifying repayment plan. You cannot necessarily choose a repayment plan that will greatly lengthen your repayment period so that you are eligible for most of your loans to be forgiven. For example, 30-year extended repayment plans are not eligible for the PSLF program. However, the income-based repayment (IBR) plan ( and the income-contingent repayment (ICR) plan ( are eligible. The 10-year Standard Repayment Plan is also eligible, however, after meeting the PSLF requirement of 120 consecutive payments, there would be no debt left to forgive!

Deciding whether or not the PSLF program is right for you depends on many factors, mainly how much student loan debt you have and how much money you will make during the first 10 years of your public service career. The more debt you have and the less you will make, the more attractive an option the PSLF may be for you (as payments tied to your income will be less when you make less money). Alternatively, if you make a high income you may very well have paid off, or be close to paying off, your student loans by the time you get to the end of the 10 year requirement under the PSLF.

There are many repayment options for student loans. A good first step would be to visit the Federal Student Aid repayment calculator at to see what all your options may be. You can also look at past financial tips (achieved at, especially the September and October 2011 tips) or visit the Managing Student Finances and Debt area of our website: Again, whether you are just starting to take out loans or have been paying them back for years, it is always good to consider your repayment options and realities. Even though the PSLF program may help some (and does encourage public service jobs), you will still end up paying back a substantial amount of the debt you take out, so never take out more loans than you need.

Thursday, May 16, 2013

Older Family Members and Finances

by Lucy Schrader

I expect to help our kids learn about money and finances.  I know we need to guide them, but not make all of their decisions.  We need to set up situations for them to succeed to become independent.  Yet when it comes to my parents, I hold some different beliefs—they are grown adults; they should take care of their own finances; who am I to tell them how to live and spend their money?  Yet with changes in aging, I may need to shift my thinking. There are more and more elderly adults who are not able to take care of their finances anymore or who need extra help.

So how can a person assist when parents or relatives need more help with their finances? This process takes time and for many families, this is not an easy thing to talk about.  Finances often have many emotions attached, including fear and anger.  And when someone loses control over financial decisions, they often loose independence (in where they live, how they live and what they can do or buy).

As you start discussions, be sure to:

·         Acknowledge feelings

·         Find a low-stress time to talk

·         Find natural times to talk about the issues or to ask questions (for example, use a news feature or an article to start the conversation)

·         Be aware of possible reactions (from relief to anger) from everyone involved, including yourself

·         Respect the person

Having financial conversations can be very hard to do.  Let the person know you want to help them in the way she wants to be helped and that you have her best interest at heart.  You might ask some questions, to encourage the person to put her wishes together and to have a place for all of these items (safe deposit box, fire-water proof file box, etc) so that if you need them in a medical emergency, then you can get to them. 


These questions (from can be useful as you help your relative plan for the future.  The person many not want to give you answers to all of these for privacy or other reasons.  Again, you can share the information and continue the conversation another time.

1.      Do they have a durable power of attorney?

The durable power of attorney (DPOA) is considered one of the most important personal legal documents for any older adult to have. Along with a healthcare proxy, it will give whomever your parent designates—whether it be you, one of your siblings, or someone else –the power to make financial and legal decisions (or, in the case of a healthcare proxy, to make medical decisions) if your parent is incapacitated. Without a durable power of attorney in place, you'll have to go to court to get appointed as your parent's guardian.

2.      Where do they keep their financial records?

3.      What are their monthly expenses?

4.      How can I pay their bills if necessary?

5.      Do they have any kind of medical insurance?

6.      What's their income and where does it come from?

7.      Have your parents done any estate planning?

8.      If they can no longer live on their own, what can they afford in terms of housing?

9.      What financial planning have they done?

10.  Do they have an advance health directive?

Helping someone with finances may not be an all or nothing approach. If you feel the person does need help, when at all possible, choose the least intrusive financial tool to keep your relative as financially independent as possible (Helping Older Family Members Make Financial Decisions guide).  For example, maybe your mother gets behind in paying her utility bills, so you set up automatic bill payments for her. She can, however, still manage some cash for grocery shopping, so you set up a system for her to get a cash amount every week to give her some independence.

Also in the guide Helping Older Family Members Make Financial Decisions, the authors look at different tools based on if the relative is or is not able to make financial decisions. (Please note, the following explanations are very brief.  You will need to seek legal and professional help in setting up several of these options.)


When the relative can make sound financial decisions, these tools can help:

·         Automatic bill payments

·         Joint bank accounts

·         Power of attorney
The person designates someone to make financial and legal decisions for him when he is not able (when he is incapacitated).

·         Living trusts

A trust is a three-party arrangement, where assets are transferred from one person (the grantor) to another (the trustee).  The trustee holds and manages these assets for the benefit of a third person (the beneficiary).


When your relative can’t make sound financial decisions, these strategies can help:

·         Representative payee

If a person cannot manage his checks from Social Security, veteran’s pension, railroad retirement or public benefit programs, a representative payee can be appointed.  Checks are written to the payee on behalf of the beneficiary.  The representative payee cannot get access to the person’s savings accounts or other assets.


·         Conservatorship (or guardianship of the estate or guardianship of the property)

Only a court can create a conservatorship.  A person asks the court for the right to manage another person’s financial affairs after that person cannot do so (and if a durable power of attorney or a living trust is not in operation).


Families should be aware of their motives for seeking a conservatorship (or any of these tools)—do they have inheritance concerns or concerns about protecting an older person’s money for his or her own needs and wants.  Also, are there differences in values?  Sometimes the older person spends money on different wants and needs, but he is not endangering himself.


On an emotional level, none of these may be easy to do.  Role reversals, change of care and change of life habits can be difficult to come to terms with. Be aware of your family member’s and your reactions and reasons and reassess the situation regularly. The goal is to help the person stay as financially independent as possible.


References and Resources

5 Most Important Financial Questions to Ask Your Parent. Retrieved May 9, 2013

10 Things You Should Know About Your Parents' Finances. Retrieved May 9, 2013

Parker, K. & Patter, E. (2013.) The Sandwich Generation: Rising financial burdens for middle-aged Americans. Pew Research Center.

Schmall, V., Nay, T., & Bowman, S. (2005.) Helping older family members handle finances. Oregon State University. Retrieved May 9, 2013



Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211
573-882-4071 or


Strong Families for Strong Communities



Wednesday, May 8, 2013

Top Ten Financial Tips for a New College Grad

            Often we are asked to work with a promising undergraduate on a project allowing them to receive Honors credit for a course they take in our department.  A common course where this occurs is our Introductory Personal and Family Finance course. Ms. Paige Wheeler wrote her paper on the ten most important financial tips for a new college graduate, after reading The Only Guide You’ll Ever Need for the Right Financial Plan, by Larry Swedroe. This financial tip will enumerate her highlights for her peers and, hopefully, you.


1.      Stay within your means.  While it is normal to graduate with debt, proper debt management is crucial.  Don’t get over extended.  Shop for the best rates from quality companies.  Pay off your loans as quickly as possible.

2.      Appropriate insurance is vital to financial success.  People buy insurance to protect their property, their income, and their wealth by transferring risks they do not want to keep to an insurance company.  Shopping for insurance is the same as shopping around for loans – you need to search for the best rates from high quality companies

3.      Having a well prepared and detailed investment plan is a necessary condition for financial success.  A good investment plan helps eliminate fear and emotion when making investment decisions, as you will be more disciplined. You cannot predict the market but you can stick to your plan, including paying yourself first, dollar cost averaging, and diversification.

4.      Understand the difference between risk and uncertainty.  In finance, risk is calculated using historical data but the returns on your investments depend on the uncertain returns of the future.  This uncertainty demands a diversified portfolio.

5.      Related to the above, financial success requires one to make financial decisions with your head and not your stomach, as “stomachs rarely make good decisions”. Yes, one can spend a lot of time doing research and making calculations, but making informed choices is key for success. Gut feelings are not a good basis for decision making.  Use the information available to make an educated decision and decide which risks are worth taking and which aren’t.

6.      You have to be smart about which risks you do take.  Importantly, never invest more than you can afford to lose.  Sure, if you are worth 1 billion dollars, risking 1 million dollars with the hopes of making 2 million may not be that big of a deal.  If you are worth 1 million dollars, however, and are consider risking all of it with the hopes of it doubling, it is a huge deal.  If you are wrong, you are financially devastated.

7.      A well-diversified investment portfolio is paramount to financial success.  It must have appropriate asset allocations to fit your risk tolerance and time horizon.  As a young person, you should try to can take on more investment risk, but do so in a highly diversified set of equities.  In addition to equity investments, it is important to have proper asset allocations among stocks, real estate, bonds, etc.  A related point is the need to periodically rebalance the portfolio to make sure it reflects your investment plan.

8.      It bears repeating that a younger investor should be more heavily weighted in equities.  Equities (common stocks and stock mutual funds) are one of the few asset classes that consistently keep pace with inflation over the long run.  Inflation diminishes purchasing power but equities will help preserve wealth, in spite of inflation.

9.      Find the right investment management strategy, either active or passive.  Having actively managed funds means you try to stay ahead of the market with the hopes of performing above expectations.  On the other hand, passively managed funds, only require the investor to invest across each asset class and to rebalance.  Many are the advocates for passive investing, as you can earn market rates of return with low expenses and high tax efficiency.

10.  The final tip for a new college graduate is a key to long-run success.  Begin saving for your retirement.  Take advantage of the opportunities employers provide to enable you to lead a comfortable retirement life.  If your employer has a 401(k) program in which they match funds, make sure you set aside at least enough to get the full employer match.  Be sure to maintain a well diversified investment plan.  Understand the pros and cons of a Traditional IRA versus a Roth IRA.  (More information on IRAs is contained in an earlier Financial Tip (click here).)


Having a solid financial plan and sticking to it is crucial for financial success.  To assure the desired result; plan ahead, spend wisely, and understand your insurance and investment portfolio.  Stay on top of your financial life, so as to not be crushed by your financial mistakes. Along the way, never forget that the right decision depends on your definition of financial success - as it will set your path toward your financial success.  It will likely differ from your friends’. 



Paige Wheeler, Undergraduate student, MU School of Journalism

Robert O. Weagley, Ph.D. CFP®

Thursday, May 2, 2013

The Importance of Personal Financial Planning for College Graduates

by Ryan H. Law

Over the past 5 weeks we have had more than 350 graduating seniors come through our doors to receive student loan exit counseling. By the time the semester is over we will have visited with more than 500 of them.

Seeing all these seniors come through our doors has caused me to reflect on my own graduation and some things I did well as well as some things I wish I had known or done upon graduation.

Today’s tip will focus on some specific steps that I think all graduating seniors should take (but don’t worry – it’s good advice for everyone – even if you haven’t graduated yet or graduated years ago).

Become financially literate

Financial literacy in the United States is, unfortunately, not widespread. Most high school students fail a personal finance exam (less than 50% of questions answered correctly) and college students score just 62%[1]. One of the best things you can do for your future is to become financially literate. If you can take a college course in personal finance I highly recommend it. In a 3-credit personal finance class you will learn about everything on this list and you will be more financially literate by the end of the course than most people in America. If you don’t have the option to take one on campus look into one of the many excellent Open Courseware classes – you won’t get any college credit for it, but you can’t beat the price tag – free![2]

As a part of becoming financially literate I recommend you learn the fundamentals of how the U.S. economy works. Learn about the business cycle, unemployment rates, inflation and interest rates. All of these things affect your personal finances, so a basic understanding of them is helpful.

Don’t get your financial advice from amateurs

Financial advice can be found almost anywhere – it is prolific on the internet and on the bookshelves at libraries and bookstores. However, I would caution you to be careful that you are not getting your financial advice from amateurs. For example, a few years back there was a taxi driver who “figured out the system to wealth” day-trading stocks. A lot of people lost a lot of money following his advice. Be careful of advice received from friends or family about the latest “hot tip” on a stock. This tip, like all the others, will take you back to the first recommended suggestion – a good solid class will teach you much about how to win at personal finance.

Establish financial goals and take action to achieve them

You need to start thinking about some short and long-term financial goals. How soon do you want to pay off your consumer debt? How much money do you need at retirement? Do you plan to buy a home eventually? Do you plan to have children and send them to college? What are your plans for increasing your earning potential? I recommend you take some time to sit down and make some decisions about where you are financially, where you want to be, and how you plan to get there.

Learn to budget

No company would go one day without a good, solid budget. They understand how much is coming in, how much is going out and exactly where those dollars are going. You should likewise have a budget. A budget is not a record of where your money went (though that is important as well); it is a plan for where you want your money to go. Learn the process for budgeting then discipline yourself to take action and stick to your budget[3]. A key component of your budget should be to spend less than you earn and to pay yourself first. As part of your budget you should work diligently to build up a 3-6 month emergency fund.

Develop a net worth statement and update it annually

A net worth statement is a snapshot of a particular moment in time. It should list all of your assets (everything you own that is worth money) and all of your liabilities (debts). Minus your liabilities from your assets and you will come up with your net worth. You should update this annually to see how you are doing. Over time this number should increase.

Care about your credit

You should know what your credit report contains[4], what your credit score is and what steps you can take to improve that score[5]. Your credit score determines what interest rate you pay on loans, what your auto insurance will cost, if you can rent certain apartments, and in some cases if you can even get a particular job.

Pay off consumer debt as quickly as possible

Carrying consumer debt, especially credit card debt, is toxic to your financial goals. Pay it off as quickly as possible by paying more than the minimum and refusing to take on additional unnecessary debt[6].

Start saving now for retirement and take advantage of employer-sponsored retirement plans such as a 401(k) or 403(b)

If your employer offers a tax-advantaged retirement savings plan, such as a 401(k) or 403(b), take advantage of it! You will save on taxes now and can often get free money through a company “match” of your savings.

Time is your best friend when it comes to saving for retirement. If a 23-year old saves $3000 a year at 8% interest until he or she is age 65 they will have about $912,000 in the bank. If a 33-year old does the same thing they will have about $402,000. That is the power of compound interest!

Understand taxes, insurance and basic estate planning

Even if you pay someone else to prepare your tax return for you, you need to understand your own taxes. You should know your average tax rate, your marginal tax rate, and some steps you can take to reduce your tax burden. You should understand the difference between taking the standard deduction and itemizing deductions.

You also need to understand your insurance products. We spend a lot of money on disability insurance, life insurance, auto insurance, renter’s or homeowner’s insurance and other types of insurance. You should understand what your policy covers, what it doesn’t cover and how much you are paying for each one. You should occasionally check around to see if you can get lower cost insurance.

Everyone needs to do some basic estate planning. Even if you are single with no dependents you at least need a basic will, healthcare directives and a power of attorney. As your situation changes you should review these documents and update them and add other important estate planning documents as necessary.

Start an uncomplicated financial record-keeping system

You and your loved ones should know where important financial documents are and what each one is for. For example, if I were to pass away today I would want my wife to know exactly where my life insurance policies are and how to begin the process of collecting that money. The system I use is a fireproof file box with the HomeFile Organizer system[7]. With this low-cost system I can file and find auto titles, insurance policies, medical records, warranties and any other financial documents.

Give yourself an annual financial checkup

I recommend that you set aside a day each year to give yourself a financial checkup. Review your goals, your budget, your net worth, your insurance and estate policies, your savings and your debt level and determine some steps you can take to improve in each area. As part of the review I recommend you choose a new personal finance book to read over the next year. Take this opportunity to reassess where you are and determine a plan for how to get to the next level.


Hopefully you got some good ideas about improving your financial situation from this list. I recommend you choose just one or two things from this list that you can take action on today. As that becomes a habit you can incorporate another item until you have implemented all of them that fit your situation.


Ryan H. Law, M.S., CFP®, AFC®


Personal Financial Planning Department

Office for Financial Success Director

University of Missouri Center on Economic Education Director


162 Stanley Hall

University of Missouri

Columbia, MO 65211


573.882.9211 (office)

573.884.8389 (fax)


[2] If you are looking for an excellent course I recommend Alena Johnson’s Family Finance course from Utah State Open Courseware: This is the course I took that convinced me to change my major and helped determine my life’s work.

[3] is a great, free resource for budgeting. The software I personally use can be found at It isn’t free, but I highly recommend it.

[4] is the only place to get a free copy of all three of your credit reports annually

[5] has a great explanation of credit scores and is the most reliable place to purchase your score.

[6] is a great free resource to figure out how you can pay your debt off quickly