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5
Aug

2018 Tax Filing Data Shows Need to Review Withholding


The IRS continues to encourage taxpayers to review the amount of tax they have withheld to avoid an unexpected tax surprise when they file their 2019 tax returns next year. Preliminary 2018 tax filing data seems to show the need for taxpayers to review their withholding in order to make sure the appropriate amount of tax is being withheld from their paychecks to reflect recent tax law changes.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act made significant changes to the tax code, and 2018 was the first time that taxpayers filed with the new rules. Among other changes, the legislation modified individual income tax rates and brackets, eliminated the personal and dependency exemptions, raised the standard deduction amounts, limited certain itemized deductions (including the deduction for state and local taxes), increased the child tax credit and its phaseout thresholds, added a credit for other dependents,  and increased the alternative minimum tax exemption amounts and the exemption phaseout thresholds.

2018 tax filing statistics

Preliminary data for the 2018  tax year shows that more than 106 million federal income tax individual returns resulted in refunds, with an average refund of $2,879. Over 24 million individual returns showed tax due at the time of filing, averaging $5,160.1 Because of the difficulty many taxpayers seemed to have with their 2018 tax year withholding (some may not have realized changes were needed), the IRS waived certain penalties for many 2018 tax returns. It is important that you get withholding right for 2019 while there still may be time for any adjustments to take effect.

Getting it right

If you have too much tax withheld, you will receive a refund when you file your tax return, but it might make more sense to reduce your withholding and receive more in your paycheck. If you have too little tax withheld, you will owe tax when you file your tax return, and you might owe a penalty. You can generally change the amount of federal tax you have withheld from your paycheck by giving a new Form W-4 to your employer.  You can use a number of worksheets for the Form W-4 or the IRS Withholding Calculator (available at irs.gov) to help you plan your tax withholding strategy.

If changes reduce the number of allowances you are permitted to claim or your marital status changes from married to single, you must give your employer a new Form W-4 within 10 days. You can generally submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason.

In general, you can claim various withholding allowances on the Form W-4 based on your tax filing status and the tax credits, itemized deductions (or any additional standard deduction for age or blindness), and adjustments to income that you expect to claim.  You might increase the tax withheld or claim fewer allowances if you have a large amount of nonwage income. (If you have a significant amount of nonwage income, you might also consider making estimated tax payments using IRS Form 1040-ES.) The amount withheld can also be adjusted to reflect that you have more than one job at a time and whether both you and your spouse work. You might reduce the amount of tax withheld by increasing the amount of allowances you claim (to the extent permissible) on Form W-4.

You can claim exemption from withholding for the current year if: (1) for the prior year, you were entitled to a refund of all federal income tax withheld because you had no tax liability; and (2) for the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.

If you need help, talk to a tax professional about your individual situation.

1Internal Revenue Service, 2019

6
Jul

Qualified Charitable Distributions (QCD)

Changes in tax laws can require updating your planning.

The 2017 tax act has caused many to rethink their charitable giving. Charitable contributions for those over the age of 70.5 may benefit them by making their charitable contributions directly from their Individual Retirement Accounts (IRA).  These QCDs are treated as part of the Required Minimum Distribution (RMD) for the year they are distributed, but are not taxed.

You must be at least 70.5 when you make the contribution.

The contribution must be made from a traditional IRA. Payment from other retirement accounts do not qualify.

The payments must be to a public charity.

The maximum annual amount cannot exceed $100,000. There is no limit on the number of distributions or charities you make contributions to.

The distribution must be made directly from your IRA account to the charitable organization.

You may not receive benefits in exchange for the contribution. Examples include tickets to paid events and preferential seating.

The distribution must be part of your RMD. Amounts contributed after you have withdrawn your RMD do not qualify as QCD.  If you have already taken your annual RMD for the year, you cannot make a QCD for the year. Plan the timing of your QCD before you have taken your RMDs for the year. Distribute your QCDs early in the year before you have withdrawn all your RMDs for the year.

Include a cover letter specifying the payment is a QCD and request an acknowledgement.

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent individual professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources. 

6
Jun

U.S.-China Trade War: Who Pays the Price?

On May 13, 2019, escalating trade tensions between the United States and China sparked a worldwide stock sell-off that wiped out more than $1 trillion in global equity values.1 The markets recovered over the next three days, but tensions between the economic giants continued to drive volatility with no resolution in sight.2 Investors sometimes overreact to short-term events, but the conflict with China has been simmering for decades, and an extended trade war could have long-term economic consequences.

The issues

China was the largest U.S. trading partner in 2018, with $737 billion in goods and services exchanged between the two nations, accounting for 13% of all U.S. trade. The fundamental issue is the imbalance in this relationship; the goods and services trade deficit of $379 billion represented more than 60% of the total U.S. trade deficit. The United States maintains a surplus in services (primarily travel spending by Chinese citizens and software), so the critical concern is the deficit in goods, which totaled $419 billion in 2018 — an increase of 11.6% over the previous year.3-4

For years, U.S. officials have accused China of using unfair trade practices to maintain this imbalance, even as China has grown into a global economic powerhouse. Among the most contentious issues are currency manipulation, excessive restrictions on U.S. companies, forced technology transfers, and theft of intellectual property.

The tariffs

In early 2018, the Trump administration began imposing global tariffs on imported steel, aluminum, solar panels, and washing machines. While these tariffs were intended to stimulate U.S. manufacturing by protecting domestic production, the primary focus soon turned to China. Between July and September 2018, the United States imposed a 25% levy on $50 billion of Chinese goods and a 10% tax on an additional $200 billion of goods, which was set to rise to 25% on January 1, 2019, unless China took steps to level the playing field. China retaliated by placing tariffs of 5% to 25% on $110 billion of U.S. goods, covering almost all U.S. exports to China.5-6

In December 2018, both nations agreed to a truce, and President Trump extended the deadline to raise tariffs. When negotiations broke down in early May 2019, the U.S. raised the 10% tariffs to 25% effective May 10, and the president threatened to levy tariffs on the remaining $300 billion of Chinese goods. China retaliated by raising tariffs on more than half of U.S. goods already being taxed.7

Carrying the costs

U.S. importers of Chinese goods must pay the actual tax, but the question is who absorbs the additional costs. An academic study of the 2018 tariffs found that Chinese exporters generally did not lower their prices, so part of the increased cost was absorbed by the importers, cutting into their profit margins, and the rest was passed on to U.S. consumers in the form of higher prices. The net cost to the U.S. economy was estimated to be $1.4 billion per month.8

A separate study found that prices for nine categories of goods most affected by the tariffs increased by an average of 3% from early 2018 to early 2019, while the prices of other goods (excluding volatile food and energy) declined by 2%. This study also found that some U.S. manufacturers used the tariffs as an opportunity to raise prices, which is the fundamental purpose of protective tariffs — to allow domestic producers to set prices without being undercut by imports.9

The new 25% tariffs do not apply to Chinese goods that were already in transit as of May 10, so the effects may not reach U.S. consumers until later this summer. Based on the 2018 tariffs — only 10% on most imported goods — the increase to 25% will likely raise prices significantly on a wide range of consumer goods from laptops and mobile phones to clothing, furniture, sporting goods, luggage, and fish. Higher tariffs on supplies such as circuit boards, computer chips, and auto parts will likely be passed on to consumers as well.10 A Federal Reserve study estimated that the tariffs will cost the average household $831 per year.11

Shifting supply chains

Many U.S. manufacturers and importers are looking for suppliers in other countries and/or moving production out of China. Over the long term, this should reduce U.S. dependence on Chinese products, but the “Made in China” label is so pervasive in the U.S. market that it will be a slow process. Consumers may not notice the difference in products made in Cambodia or Mexico rather than China, but the long-term effect on consumer prices remains to be seen.12

The Chinese market is far less dependent on U.S. goods, which gives China less of an edge in levying tariffs but also causes less disruption for Chinese consumers. Agricultural products are a major U.S. export to China, and the Chinese have already shifted to other suppliers, drying up an important market for American farmers. The Trump administration has authorized subsidies to affected farmers, but uncertainty about potential markets has disrupted farming operations.13

While U.S. consumers and businesses may bear the brunt of the tariffs in the short term, the United States is better positioned to outlast China in an extended trade war. Despite headwinds from trade concerns, the U.S. economy remains strong. One estimate suggests that the 25% tariffs may reduce gross domestic product growth by 0.3% — enough to slow the current pace but not enough to shift the economy into reverse.14

Market volatility is likely to continue as long as investors react to moves on either side of the conflict. However, many other factors also influence the markets, and it would be wise to focus on your long-term investment goals without overreacting to short-term market swings.

All investments are subject to market volatility and loss of principal. Investments, when sold, may be worth more or less than their original cost. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, and economic and political risk unique to the specific country. This may result in greater share price volatility.

1) Bloomberg, May 13, 2019

2) Yahoo! Finance, May 22, 2019

3) Office of the U.S. Trade Representative, 2019

4) U.S. Census Bureau, 2019

5) Reuters, May 8, 2019

6) BBC News, May 14, 2019

7) CNN Business, May 13, 2019

8-9) The Wall Street Journal, May 15, 2019

10, 13-14) The Wall Street Journal, May 10, 2019

11) Federal Reserve Bank of New York, May 23, 2019

12) The Wall Street Journal, May 9, 2019

30
May

Retirement Confidence Increases for Workers and Retirees

The 29th annual Retirement Confidence Survey (RCS), conducted by the Employee Benefit Research Institute (EBRI) in 2019, found that two-thirds of U.S. workers (67%) are confident in their ability to live comfortably throughout their retirement years (up from 64% in 2018). Worker confidence now matches levels reported in 2007 — before the 2008 financial crisis.

Confidence among retirees continues to be greater than that of workers. Eighty-two percent of retirees are either very or somewhat confident about having enough money to live comfortably throughout their retirement years (up from 75% in 2018).

Retirement plan participation

Retirement confidence seems to be strongly related to retirement plan participation.  “Workers reporting they or their spouse have money in a defined contribution plan or IRA, or have benefits in a defined benefit plan,  are nearly twice as likely to be at least somewhat confident about retirement (74% with a plan vs. 39% without),” said Craig Copeland, EBRI senior research associate and co-author of the report.

Basic retirement expenses and medical care

Retirees are more confident than workers when it comes to basic expenses and medical care. Eighty-five percent of retirees report feeling very or somewhat confident about being able to afford basic expenses in retirement, compared with 72% of workers. Confidence in having enough money to pay medical expenses in retirement was also higher among retirees than workers: 80% versus 60%. However, 41% of retirees and 49% of workers are not confident about covering potential long-term care needs.

Debt levels

The survey consistently shows a relationship between debt levels and retirement confidence. “In 2019, 41% of workers with a major debt problem say that they are very or somewhat confident about having enough money to live comfortably in retirement, compared with 85% of workers who indicate debt is not a problem. Thirty-two percent of workers with a major debt problem are not at all confident about their prospects for a financially secure retirement, compared with 5% of workers without a debt problem,” said Copeland.

6
Feb

What Are the Costs of the Government Shutdown?

The longest government shutdown in U.S. history ended after 35 days on January 25, 2019. A temporary appropriations bill extended funding for shuttered federal agencies to February 15, 2019, while a bipartisan committee negotiates a new spending bill for the Department of Homeland Security.1

The full impact of the shutdown will not be known for months, but official estimates have been released, and it may be helpful to look at the estimated cost to the U.S. economy, as well as the effect on public safety and other government services.

Nine departments closed

The shutdown began on December 22, 2018, when funding lapsed for nine cabinet-level departments (agriculture, commerce, homeland security, housing and urban development, interior, justice, transportation, Treasury, and state) as well as a number of other government agencies.2

About 800,000 federal workers in these organizations missed two consecutive paychecks.3 Some 380,000 of these workers were originally placed on unpaid leave (furlough), while 420,000 were deemed “essential” and required to report to work without pay.4 As the stoppage progressed, tens of thousands of furloughed workers were ordered back to work without pay.5

All federal employees will receive full back pay as soon as possible — many by the end of January — but about 1.2 million government contractors had no guarantees and may lose income permanently. It has been estimated that contractors faced more than $200 million a day in lost or delayed revenue.6-7

Family hardship and public safety

Missing paychecks was a hardship for many families and especially difficult on lower-paid essential workers. (Furloughed workers in many states could apply for unemployment benefits or seek other employment opportunities.)

The most visible manifestation of this issue was increased absences by Transportation Security Administration (TSA) workers. On January 20, the absentee rate for TSA airport screeners was 10%, up from 3.1% on a comparable day last year. According to the TSA, many workers took time off for financial reasons, such as an inability to pay for child care or transportation. Increased absences resulted in long lines, delays, and gate closures at some airports.8

Air traffic controllers, who are better paid, remained on the job without pay and normal support staff. However, on January 25, an increase in absences by controllers temporarily shut down New York’s LaGuardia Airport and led to substantial delays at airports in Newark, Philadelphia, and Atlanta. This may have been an impetus to reopen the government later that day.9

Other public safety employees who worked without pay include the U.S. Coast Guard, customs and border protection agents, and law-enforcement officers at the Federal Bureau of Investigation, U.S. Marshals Service, Drug Enforcement Administration, and Bureau of Prisons.10

Disrupted services

While essential workers maintained some federal services, furloughed workers left significant gaps. National parks were closed or understaffed, resulting in lost revenue, vandalism, and mounting trash.11 Many federal services were delayed or suspended, ranging from food inspections and civil court cases to consumer protection services, rural home loans, and federal reports used for everything from projecting the economy to deciding what crops to plant.12-16

The IRS called back 26,000 furloughed workers to process tax refunds, but almost 14,000 of them had not reported as of January 22. The IRS is understaffed under normal circumstances, and it may take time to get up to speed, adding to the challenges of processing returns that reflect changes in the new tax law.17 About $2 billion in tax revenue may be lost as a result of reduced IRS compliance efforts during the shutdown.18

Broader economic impact

According to the nonpartisan Congressional Budget Office (CBO), an estimated $18 billion in government spending was lost or delayed during the shutdown. This includes $9 billion of direct spending on goods and services and $9 billion in compensation for federal employees. Assuming the government stays open, most of this is expected to be recouped over the next eight months, but $3 billion in gross domestic product (GDP) may be permanently lost.19

Three billion dollars is a tiny fraction of total U.S. GDP — about 0.02% — but quarterly GDP growth may take a larger hit. The CBO projects an annualized loss of 0.2% growth in the fourth quarter of 2018 and 0.4% in the first quarter of 2019. So the CBO’s pre-shutdown estimate of 2.5% annualized growth in the first quarter would be reduced to 2.1%. GDP growth may be 1% higher than expected in the second quarter.20

Even if delayed spending is recovered, lost productivity by furloughed workers and government contractors will not be regained.21 Consumer confidence dropped in December and January due in part to the shutdown, but may rebound if the government remains open.22 A longer-term concern is the potential loss of federal workers, including those who leave for other opportunities and qualified candidates who may look elsewhere due to doubts about the future stability of federal jobs.23

It remains to be seen whether all government agencies continue to operate with full funding after the February 15 deadline. If so, the long-term economic costs of the shutdown may be relatively small, but the impact on individuals who fell behind financially or missed out on government services could be significant.

1, 9) The Washington Post, January 25, 2019

2, 18-20) Congressional Budget Office, January 2019

3, 23)  CNBC, January 26, 2019

4) The Wall Street Journal, December 21, 2018

5, 13) CNN, January 16, 2019

6) Federal News Network, January 28, 2019

7) Bloomberg, January 17, 2019

8) Associated Press, January 21, 2019

10) ABC News, December 29, 2018

11) nationalgeographic.com, January 7, 2019

12) The Wall Street Journal, January 9, 2019

14) Federal Trade Commission, December 28, 2018

15) CNBC, January 9, 2019

16) CNN, January 8, 2019

17) The New York Times, January 25, 2019

21) S&P Global Ratings, January 11, 2019

22) The Conference Board, January 29, 2019

9
Dec

Prioritizing Savings for College and/or Retirement

The November 2018 AAII Journal, American Association of Individual Investors, included an interview with Harold Pollack. The discussion was about “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated” (Portfolio, 2016). He wrote it with Helaine Olen.

The following passage is from a response to a question about prioritizing where to direct money.

There are different ways that people can do this. You should match your method with what gives you the mojo to actually do it.” … “Suppose I’m a young parent and I’m choosing between prioritizing my retirement and savings for my kid’s college. Mathematically, retirement tends to be the answer for most people, but your kid’s college gives you mojo in a different way. If you’re walking with your seven-year-old daughter in a store and you see a sweet $500 camera lens, you can point to it, and tell your daughter: “I really want that lens, I’m going to put that $500 toward paying for your college. Maybe some day you’ll do that for your daughter.’ That’s powerful and motivating.”  

2018 Nov.Beyond-the-Index-Card-Implement

 

7
Nov

2018 Year-end opportunity

The end of the year presents a unique opportunity to look at your overall personal financial situation.   With factors like tax reform, life changes or just working towards your goals, end of year is an especially important time to review things.  Weaving together your prior planning, subsequent changes and revised goals helps you stay on course. Following are some things you consider before the year ends.

Income Tax Planning –Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills.   It is also good to review your current year tax projection based on your income and deductions year to date and how that may be different from before.

Estate Planning – Examine your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you.  Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements and beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.

Investment Strategy– The recent market volatility has some people feeling uncomfortable.  Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative.  Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio.  And, if you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.

Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving.  If you are at least 70.5 you may want to consider Qualified Charitable Distributions (QCD) from your IRA.

Retirement Planning –Think about your future when working becomes optional.  Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you.   If you are at least 70.5 you should be sure your 2018 Required Minimum Distributions (RMD) from your IRAs are paid before year-end. Qualified Charitable Contributions, up to $100,000, will be treated as part of your RMD but not taxed.

 

Cash Flow Planning – Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals.  If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions.  If you are over age 70.5 make sure you are taking your RMDs because the penalties are significant if you don’t.

Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.

Education Funding – Funding education costs for children or grandchildren is important to many people.  While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key.  With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.

Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical.  Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.

The decisions you make each year with your personal finances will have a lasting impact.  I hope this has begun to generate some insight to areas of your personal finance that need attention. Please contact me if you have any comments or questions.

 

 

 

6
Nov

2019 retirement account limits announced by IRS

The limit on 401(k) contribution are increased to $19,000, $25,000 for those that are are 50 or older.

The limit on IRA contribution are increased to $6,000, $7,000 for those that are 50 or older.

IRA Adjusted Gross Income deduction phase- will start at $103,000 fir joint returns and $64,000 for single and head of household filers.

IRS Link: COLA Increases for Dollar Limitations on Benefits and Contributions

The above apply for contributions made for 2019 not for 2018 contributions made in 2019

5
Jul

New Medicare cards are coming

New Medicare cards are coming

Medicare is mailing new Medicare cards to all people with Medicare now. Find out more about when your card will mail.

View an example of the current card.

10 things to know about your new Medicare card

  1. Your new card will automatically come to you. You don’t need to do anything as long as your address is up to date. If you need to update your address, visit your mySocial Security account.
  2. Your new card will have a new Medicare Number that’s unique to you, instead of your Social Security Number. This will help to protect your identity.
  3. Your Medicare coverage and benefits will stay the same.
  4. Mailing takes time. Your card may arrive at a different time than your friend’s or neighbor’s.
  5. Your new card is paper, which is easier for many providers to use and copy.
  6. Once you get your new Medicare card, destroy your old Medicare card and start using your new card right away.
  7. If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare—you should still keep and use it whenever you need care. And, if you have a Medicare drug plan, be sure to keep that card as well.  Even if you use one of these other cards, you also may be asked to show your new Medicare card, so keep it with you.
  8. Doctors, other health care providers and facilities know it’s coming and will ask for your new Medicare card when you need care, so carry it with you.
  9. Only give your new Medicare Number to doctors, pharmacists, other health care providers, your insurers, or people you trust to work with Medicare on your behalf.
  10. If you forget your new card, you, your doctor or other health care provider may be able to look up your Medicare Number online.

Watch out for scams

Medicare will never call you uninvited and ask you to give us personal or private information to get your new Medicare Number and card. Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If someone asks you for your information, for money, or threatens to cancel your health benefits if you don’t share your personal information, hang up and call us at 1-800-MEDICARE (1-800-633-4227).  Learn more about the limited situations in which Medicare can call you.

How can I replace my Medicare card?

If you need to replace your card because it’s damaged or lost, sign in to your MyMedicare.gov account to print an official copy of your Medicare card. If you don’t have an account, visit MyMedicare.gov to create one.

If you need to replace your card because you think that someone else is using your number, let us know

How do I change my name or address?

Medicare uses the name and address you have on file with Social Security. To change your name and/or address, visit your online my Social Security account.

Note

Medicare is managed by the Centers for Medicare & Medicaid Services (CMS). Social Security works with CMS by enrolling people in Medicare.

20
Jun

Interest Rates Rise on Federal Student Loans for 2018-2019

Interest rates on federal student loans are set to rise for the second year in a row. This table shows the interest rates for new loans made on or after July 1, 2018, through June 30, 2019. The interest rate is fixed for the life of the loan.

New rate 2018-2019 Old rate 2017-2018 Available to Borrowing limits

Direct Stafford Loans: Subsidized

Undergraduates

5.045%

4.45%

Undergraduate students only

Subsidized loans are based on financial need as determined by the federal aid application (FAFSA)

For dependent undergraduates:

1st year: $5,500 ($3,500 subsidized)

2nd year: $6,500 ($4,500 subsidized)

3rd, 4th, 5th year: $7,500 ($5,500 subsidized)

Max: $31,000 ($23,000 subsidized)

Direct Stafford Loans: Unsubsidized

Undergraduates

5.045%

4.45%

Undergraduate students only; all students are eligible regardless of financial need

For dependent undergraduates:

1st year: $5,500 ($3,500 subsidized)

2nd year: $6,500 ($4,500 subsidized)

3rd, 4th, 5th year: $7,500 ($5,500 subsidized)

Max: $31,000 ($23,000 subsidized)

Direct Stafford Loans: Unsubsidized

Graduate or Professional Students

6.595%

6%

Graduate or professional students only; all students are eligible regardless of financial need

Unsubsidized loans only

$20,500 per year (unsubsidized only); max $138,500 ($65,500 subsidized)

Direct PLUS Loans:

Parents and Graduate or Professional Students

7.595%

7%

Parents of dependent undergraduate students and graduate or professional students

Unsubsidized loans only

Total cost of education, minus any other aid received by student or parent

Subsidized vs. unsubsidized

What’s the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.