Tag Archives: Student loans

What to watch for in Biden’s budget: Israel, student loans, growing deficits

By Andrea Shalal and Trevor Hunnicutt

WASHINGTON (Reuters) – President Joe Biden will unveil his first full budget on Friday, setting the stage for a pitched battle with Republicans opposed to his plans to spend trillions on infrastructure, childcare and other public works.

The Democratic president in April provided a partial wish list for about $1.5 trillion in government spending for the fiscal year that starts on Oct. 1, just a sliver of the total budget.

Friday will see more details, from foreign aid to immigration and policing, and could include jumps in funding for Medicaid and other social programs that consume most federal government spending.

Including his already announced hopes to pass new bills worth over $4 trillion over ten years as well as the $1.9 trillion in deficit-fueled stimulus already passed, Biden’s budget is expected to reflect soaring spending and a larger debt in an attempt to remake the economy.

NO SURPRISE INITIATIVES

Do not expect any previously undisclosed major policy initiatives, said Rob Friedlander, spokesman for the Office of Management and Budget.

Instead, look for details on Biden’s $4 trillion plans to bring more women back into the workforce, fund home care for the aging and disabled, expand broadband coverage to underserved and rural areas and combat climate change, by raising taxes on companies and the wealthy.

“The president’s budget will … include the American Jobs Plan, the American Families Plan, and the president’s proposals to reinvest in research, education, clean energy, public health, and other critical priorities,” Friedlander said.

Congress, where Democrats have a narrow majority, must pass any budget. Biden hopes to secure Republican support for some of that investment – but may rely on a congressional procedure known as reconciliation to pass it without Republican backing.

Biden will need to corral the often-warring progressive and moderate wings of his own Democratic Party to do so.

PROGRESSIVE PROMISES?

Biden made sweeping campaign promises to progressive voters about what he would get done during his presidency, from cutting student loan debt to adding a public option to the Obamacare health insurance law.

They may be disappointed.

“Every entity may not be reflected in this budget,” White House press secretary Jen Psaki said last week, when asked about pledges on drug pricing and health insurance.

PENTAGON PRIORITIES

Biden’s initial proposal to keep Pentagon spending roughly flat in inflation-adjusted terms angered liberals who want to cut the funding and hawks who want it raised.

Friday’s budget may show how sharply Biden plans to shift focus away from the Middle East, as well as the cost impact of withdrawing troops from Afghanistan and the level of funding for emerging threats like China.

It will also show how much Biden wants the Pentagon to invest in fighting cyber crime, climate change and environmental mediation.

The budget will ask for 85 fifth-generation F-35 jets made by Lockheed Martin Co. Recently, U.S. governors have written to Biden urging him to support the program and the jobs it creates.

AFTER GAZA

Some progressive lawmakers, such as Senator Bernie Sanders, want Biden to cut military aid to Israel following its air strikes in Gaza that killed dozens of civilians in response to rocket fire from Hamas militants.

But White House aides said they were happy with the program and expect to keep funding consistent.

Egypt, which was a key intermediary for U.S. diplomacy during 11 days of fighting, is also expected to remain a major recipient of U.S. aid despite concerns over Egyptian President Abdel Fattah al-Sisi’s crackdown on political dissent.

DEBT, ECONOMIC GROWTH

The budget is likely to include detailed economic growth assumptions and deficit projections that will be heavily scrutinized by economists, political opponents and investors.

Biden argues his investment plans would expand the economy by creating jobs, funding research and freeing up more workers.

The president’s proposal to pay for home care for the elderly and disabled would boost funding for the healthcare program Medicaid, a target of deficit hawks, by $400 billion over a decade.

CLIMATE CHANGE

Biden’s budget will put meat on the bones of the U.S. pledge to cut greenhouse gas emissions by more than 50% below 2005 levels over the next decade as its new Paris agreement target, after his “skinny budget” proposed $14 billion to fight climate change in fiscal 2022.

(Reporting by Andrea Shalal, Trevor Hunnicutt, Valerie Volcovici and Mike Stone; Editing by Heather Timmons and Peter Cooney)

Explainer: Trump wants to bypass U.S. coronavirus aid talks with executive order. Can he?

By Patricia Zengerle

WASHINGTON (Reuters) – With congressional Democrats and White House negotiators so far unable to agree on a deal to salve the heavy economic toll of the coronavirus pandemic, President Donald Trump has threatened to bypass Congress with an executive order.

Some of his proposals exceed his legal authority and would face immediate legal challenges, though in at least one case House of Representatives Speaker Nancy Pelosi, the nation’s top Democrat, told him to just go ahead.

WHAT DOES TRUMP WANT TO DO?

Trump said on Twitter he is considering executive orders to continue expanded unemployment benefits, reinstate a moratorium on evictions, cut payroll taxes and continue a suspension of student loan repayments amid a health crisis that has killed nearly 160,000 Americans.

He and administration officials negotiating with Congress have not provided specifics.

CAN HE DO IT?

The Constitution puts control of federal spending in the hands of Congress, not the president, so Trump does not have the legal authority to issue executive orders determining how money should be spent on coronavirus.

Democrats said executive orders would prompt a court fight, but legal action could take months.

Trump has sidestepped Congress on spending before. In 2019, he declared a national emergency at the border with Mexico to shift billions of dollars from the Pentagon budget to help pay for a promised wall that was the cornerstone of his 2016 election campaign.

Congress passed legislation to stop him, but there were too few votes in the Republican-controlled Senate to override his veto.

“There has to be a political will to do that and there has to be a priority given by members of Congress to assert their institutional interests,” said Mark Rozell, dean of the Schar School of Policy and Government at George Mason University in Virginia. “And that just isn’t there right now.”

WOULD DEMOCRATS OR REPUBLICANS OBJECT?

The $600 per week enhanced unemployment benefit in the massive “Cares Act” passed in March has been a major sticking point in negotiations. Democrats want to continue the federal payment, which expired on July 24, to the tens of millions who have lost their jobs in the crisis and have rejected a short-term extension. Trump’s fellow Republicans have argued that is too high a payment, contending it is a disincentive to work.

The moratorium on evictions was less contentious, and could be covered by reprogramming money that Congress has already approved for housing that has not been spent. Pelosi on Thursday said an order extending the moratorium “would be a good thing.”

Congressional Republicans and Democrats alike reject cutting the payroll tax, which is collected from both employers and employees to fund Social Security and Medicare. A cut would disproportionately benefit Americans with high salaries, and threaten funding for the popular programs for retirees. It also only benefits people still getting paychecks, not those who have lost their jobs.

The parties are closer together on student loans. Democrats included a 12-month extension of the student loan payment suspension in a relief bill the House passed in May. Republican senators did not include student loan relief in the proposal they unveiled in July. However, there is a Republican plan in Congress to extend the suspension for three months.

(Reporting by Patricia Zengerle; Editing by Scott Malone and Nick Zieminski)

College pay-off seems elusive for many U.S. young people

FILE PHOTO: Graduating students arrive for Commencement Exercises at Boston College in Boston, Massachusetts, U.S. on May 20, 2013. REUTERS/Brian Snyder/File Phot

By Gail MarksJarvis

CHICAGO (Reuters) – When Scott Petracco graduated from the University of Illinois at Chicago with a bachelor’s degree in biology eight years ago, he thought he would quickly get a job in a laboratory and pay off $30,000 in student loans.

But the country was just emerging from the 2007-2009 recession, and he could not find a job related to his degree. Now, at age 30, he works part-time as a kidney dialysis technician in Chicago for $15 an hour. Since that does not pay the bills, he also has a second job loading freight.

“It’s nothing very exciting, but it pays well,” said Petracco, who does not think the money he spent on college was worth it. Tormented by his student loans, he has given up on going to medical school or working in his field, and is devoting “every dime I have into getting rid of the debt within six years.”

Petracco is not unusual. A study by the Federal Reserve published in May found that half of people under 30 with bachelor’s degrees wonder if the money they spent on college was worth it. It is a stunning finding in the Report on the Economic Well-Being of U.S. Households in 2017 https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf, and evidence that the generation that finished college right after the Great Recession is turning into the “lost generation” some economists predicted a decade ago.

Separate research by the St. Louis Federal Reserve has found that rather than bouncing back from bad economic times, the wealth of the millennial generation has decreased since 2010 and is far less than their parents’ generation at a similar stage in life.

“The generation born in the 1980s has not seen the college pay-off,” said William Emmons, an economist with the St. Louis Fed.

A key to this: Pay has not kept up with the cost of college borrowing.

Even though job opportunities have improved since the recession, Emmons thinks this year’s graduates could be weighed down by the same trends.

Although unemployment has declined to just 5.3 percent for young college graduates, the New York Federal Reserve reported in April that 42.5 percent of recent college graduates are underemployed, working in jobs that do not require college degrees.

While engineers are doing fine, with only 17 percent of industrial engineers underemployed, some 57 percent of liberal arts majors and 49 percent of biological science majors are underemployed.

That suggests that Petracco’s problem finding a job stemmed not just from the recession. So many people now go to college that competition for jobs is intense. And because so many people with college degrees are available to employers, “We should not expect to go back to the 90s with big increases in salary,” for graduates, said Emmons.

GENERATION GAP

Buyer’s remorse over the big college purchase among 20-somethings fits the times. There has been a tremendous change in prosperity since baby boomers went to college.

For the generation born in the 1950s and 60s, when far fewer people went to college, graduating from college lifted incomes for young adults 57 percent higher than people who did not go to college, according to the St. Louis Fed. Now it is just 43 percent higher for people born in the 1980s, who now in their 30s or late 20s.

There has been an even worse drop-off in the ability to build wealth among people who went to college. Baby boomers born in the 1950s bought homes shortly after college and quickly built wealth in their 20s and 30s. Their wealth was 185 percent more than peers who had not gone to college.

Today, after borrowing heavily for college and starting jobs with relatively stagnant pay, those born in the 1980s have wealth only 42 percent above peers who did not go to college.

Housing – both rentals and buying – is unaffordable in many major metropolitan areas. Freddie Mac recently reported that less than half of college graduates could afford to live independently in cities. Fewer own homes.

Those who do buy often do so with help from a parent or grandparent, said Dana Bull, a 29-year-old Boston real estate agent who caters to her generation.

Having a college degree has not helped some of her peers, who struggle to get jobs. Then, Bull said, they compound the problem by adding on more debt for master’s degrees.

(Editing by Beth Pinsker and Frances Kerry)

Student tax breaks survive the tax bill, make the most of them

Graduates celebrate receiving a Masters in Business Administration from Columbia University during the year's commencement ceremony in New York in this May 18, 2005 file photo. dreams of many college seniors. REUTERS/Chip East/Files

By Gail MarksJarvis

CHICAGO (Reuters) – If you are going to college, getting extra training for a job, or paying off student loans, there are myriad tax breaks worth thousands of dollars to people burdened by college costs.

Although many were threatened in early versions of the tax bills crafted by the Senate and House and Representatives, students can breathe a sigh of relief that the benefits all remain. Tax experts suggest using these strategies before the end of December to get every penny possible:

* Student loan interest deduction

About 12.4 million borrowers make use of this deduction. You can deduct up to $2,500 in interest per year, which can result in tax savings that for some top $600.

The deduction depends on how much you have paid in a single tax year toward your student loans and also depends on your income.

If your loan payments made so far for 2017 do not qualify for the $2,500 maximum deduction and you are still paying off student loans, consider paying more before the end of the year to boost the deduction, said Mark Kantrowitz, publisher of www.Cappex.com. You can find out how much interest you have paid so far this year from the student loan servicer that collects your monthly payments.

To take the full $2,500 deduction, an individual cannot have a modified adjusted gross income over $65,000, and for couples $135,000. For individuals with incomes up to $80,000 and for married couples earning up to $165,000, smaller deductions apply.

Paying extra by Dec. 31 would be particularly wise if your income next year is likely to put you over the income cutoff, said Gil Charney, director of tax and policy analysis for The Tax Institute at H&R Block.

* College credits

Both the American Opportunity Credit and Lifetime Learning Credit provide tax breaks to help pay for education, but apply to different stages.

For undergrads, the American Opportunity Credit is worth up to $2,500 per year, but can be used only for the first four years of college. Students must attend at least half-time.

If you have not paid enough tuition and fees to qualify for the full credit this year and have been billed for the first quarter or semester in 2018, consider paying the bill now to maximize the 2017 credit, Charney said. The credit covers 100 percent of the first $2,000 in tuition and fees paid in a year; then 25 percent of the next $2,000.

Remember, there are income limits. You can’t get the full credit with modified adjusted gross income over $80,000; $160,000 for couples.

If your income will exceed the limit in 2018 but qualifies in 2017, this would be the year to capture as much as possible.

The same strategy applies to the Lifetime Learning Credit, which is valuable to part-time students, graduate students or workers trying to enhance job opportunities with an extra course or training.

The Lifetime Learning Credit is worth $2,000, or 20 percent of the first $10,000 spent in a year. So consider paying ahead for 2018 education, especially if you are near an income cutoff: over $56,000 in modified adjusted gross income for individuals, or $112,000 for couples for the maximum credit.

Keep in mind that if two spouses are going to school they cannot both claim the $2,000; it is a maximum per household. The American Opportunity Credit is kinder because it applies per student. Parents with three children in college at the same time could claim the credit for each child and do it annually for the four years a child is in an undergraduate program.

For more details, see IRS Publication 970

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Beth Pinsker and Leslie Adler)

An update on winners and losers on the U.S. tax scorecard

A man walks the campus of the City College of New York in the Harlem borough of New York, U.S., December 16, 2017. REUTERS/Eduardo Munoz

By Beth Pinsker

NEW YORK (Reuters) – In the lead-up to the conference agreement for the U.S. Tax Cut & Jobs Act released on Friday, there were too many moving parts for most Americans to know how it would affect them.

Until the bill is voted into law, the various provisions are still a moving target, but taxpayers now have a better sense of the real math of what it means to them.

Here is an update on what some of the key issues would mean to your wallet:

* EDUCATION

Graduate students pleaded with Congress not to adopt the U.S. House of Representatives’ proposal to make tuition waivers count as taxable income. In the end, the conference bill left that provision out.

The final bill still allows for individuals to deduct up to $2,500 in student loan interest and retains the current selection of higher education tax credits.

Teachers can continue to deduct up to $250 in supplies. Employees can still receive tuition without claiming it as income.

However, the bill changes the rules for the use of contributions to 529 college savings plans. In the past, the funds could only be distributed for higher education expenses. The final bill allows for $10,000 a year to be taken for each child’s K-12 expenses.

* CHARITABLE DEDUCTIONS

The charitable deduction was never going to go away, but experts predict many fewer people will itemize deductions under the new rules, which almost double the standard deductions and get rid of personal exemptions.

People who expect not to itemize their taxes in the future should think about making major donations before Dec. 31 to capture as many tax advantages as they can.

The compromise in the tax bill to double the estate tax exemption also would affect charitable giving because fewer wealthy people will need to donate assets to avoid going over the limit and sticking their heirs with a tax bill.

* CHILD TAX CREDITS

The conference bill settles on a $2,000 per child deduction, with $1,400 of it refundable to people with no income tax liability. The deduction is now phased out at a much higher income level.

These credits will help offset the tax bill’s removal of personal exemptions, which would hit families with children hard.

* MEDICAL DEDUCTIONS

There is good news for those worrying that the tax overhaul will do away with the itemized deduction for medical expenses.

The conference bill not only keeps the deduction, it also makes it available for expenses above 7.5 percent of adjusted gross income for the next two years, rather than the recently established 10 percent threshold.

* ALIMONY

Get ready for a flood of divorces in 2018. The final bill does away with a tax deduction for paying alimony and with the need for those receiving alimony to claim it as income, but it delays this until 2019.

Those who were rushing to get divorced by Dec. 31 can take a deep breath. But as the news sinks in, expect couples where one spouse is anticipating alimony to file for divorce sooner rather than later, or face tough negotiations on how much he or she might get.

* STATE AND LOCAL TAXES

The compromise in the final bill is that filers will be able to claim $10,000 in some combination of state and local taxes, including real estate taxes. The cap on mortgage interest was bumped down from $1 million to $750,000.

There has been a lot of worry that the proposed changes would dampen home sales because it will change the math on affordability. While the final bill ended up better for homeowners than expected, there are still lingering questions about its impact.

* BRACKETS AND AMT

For those on the lower end of the income scale, the change in brackets will probably not be top of mind, at least until the Internal Revenue Service sorts out the final tax tables and starts to adjust withholding rates, probably sometime in late winter.

Wealthy Americans are getting somewhat of a mixed bag, however. The top rate is dropping to 37 percent, but the Alternative Minimum Tax remains.

While this sounds like something to mourn, the AMT might not have as big an impact as people generally believe.

* RETIREMENT SAVINGS

When the tax overhaul process started, the way we save for retirement was on the table for big changes, including to workplace 401(k) retirement savings plans. In the end, however, Congress left it all pretty much alone.

(Editing by Lauren Young and Lisa Von Ahn)