Credit Cards 101

Credit Cards 101

You see it all the time on movies and TV! People go shopping and pull out their nice sparkly credit card to pay for the charge, but what exactly is it? Credit cards are actually a staple in adult finances. Read below for more on what credit cards are and why they matter!

Q: What is a credit card?

During a transaction, a credit card will work the same as a debit card. Both cards have a 16-digit number, a security code, and an expiration date; however, the mechanics behind them are different. 

While debit cards withdraw your own funds from the bank, credit cards draw from a loan. This “loan” is called your credit line. Banks will approve you for a certain loan amount and this loan is the maximum the bank is giving you to spend. If your credit line is $500, then you can only use $500. If your credit line is $1000, then you can only use $1000. 

Because the money is not yours, you have to pay the money back month-to-month. Most banks have a listed minimum payment amount. For example, you may have used $300 of your $1000 credit line, and you’re required to make at least a $35 payment each month. The minimum payments vary from bank to bank. 

Notably, credit cards charge you an interest rate. Because the bank is allowing you to use their money, they will charge you interest to make more money back. If your interest rate is 10%, then if you use $100, you have to pay the bank back $110 ($100 + $10 for interest). 

There are different types of credit cards. Some are specifically meant for college students! As you grow older, you will have options to cards that are specific to travel, rewards shopping, and more.

Q: Why should I get a credit card?

Importantly, credit cards can help build and increase your credit score! A credit card is a perfect way to show lenders that you are a reliable consumer through on-time payments and credit usage. 

If you pay your credit card bill every month on time, your credit score will go up! If you pay more than the minimum payment each month, your credit score will also go up!

Additionally, using only a portion of your credit limit is extremely beneficial! Financial experts recommend using only 30% of your credit limit. This indicates to other lenders that although you have access to more money, you do not need to use it all. So if you have a $1000 credit limit, it is recommended that you only use a constant $300. If you use more than 30%, your credit score may decrease, but if you manage to keep it at 30% or lower, your credit score will go up!

Q: Who can get a credit card?

There are a few requirements for a credit card. You must:

  • Be at least 18 years old. At this age, you must have a reliable source of income (your financial aid counts);
  • Have a social security number. If you are a DACA recipient, you can use the SSN assigned to you to apply;

Applications will then ask for other basic information such as your residence, birthdate, and more. Note that some banks may require that you have a co-signer. A co-signer is someone who becomes responsible for your debt if you cannot pay it back. If you miss your credit card payments, then the co-signer begins to be charged and becomes liable for the debt. 

After submitting an application, you will know if you got approved or not within a few business days. Some cards let you know if you got approved instantly!

Q: How do I get a credit card?

The first step is choosing a credit card to apply to. Because we are not financial experts, we cannot recommend specific cards; however, there is plenty of information available online. Some cards are specifically designed for college students. While your credit limit may be lower, it will have more advantages for college students such as easy approval or no yearly charges. 

Google, “best credit cards for college students,” and choose according to what you think is best! Remember that this is a huge financial decision and can impact you negatively if you get rejected. First, make sure that you can prove you have access to financial aid. A work-study or part-time job will always be a plus! If you have not worked for a few months anywhere, you should wait until you have a longer history of income. Credit cards are a safer option for people who have been working for at least a year or two.

Follow the links below for more resources on credit cards! Please remember that we at the Let’s Go team are not financial experts. More individualized advice is required by experts. 

 

Filing Taxes as a College Student FAQs

Filing Taxes as a College Student FAQs

Adulting is scary! Suddenly, money is everywhere and confusing. Part of that confusion can definitely stem from filing taxes. Taxes, however, can be tackled, no matter how mysterious. Here are some FAQs about filing taxes as a college student.

***Please note that Let’s Go to College CA can not offer professional tax advice. This post serves as a collection of answers found online. Consult a tax professional for specific questions regarding your unique situation***

Q: Do college students need to file taxes?

A: ANYONE who is single (not legally married) AND earned more than $12,400 in 2020 is required to file taxes. Earned income includes salaries, wages, tips, professional fees, and taxable scholarships and fellowship grants. 

Additionally, you are required to file taxes if your unearned income was more than $1,100. Unearned income includes taxable interest, ordinary dividends, capital gain distributions, unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.   

Source: Internal Revenue Service (IRS) 

Q: Can my parents still claim me as a dependent?

A: Yes! Your parents can claim you as a dependent until you are 24 years old AS LONG AS they provide more than HALF of your living support AND you are a full-time college student. If your parents provide less than half of your support and/or if you are not a full-time student, you should file your taxes independently from them.

Source: Internal Revenue Service (IRS) 

Q: Can I file my own taxes as a dependent?

A: Yes! Even if you are a dependent, you may still file taxes if you had earned income in 2020. If you had a job where you were taxed, you may be entitled to a refund. All you have to do is note in your tax return that you will be claimed as a dependent with your parents. A tax preparer or tax preparing website will assist you with this. 

Source: Internal Revenue Service (IRS) 

Q: What is the American Opportunity Tax Credit?

A: If you/your parents make less than $80,000 a year, you may be entitled up to a $2,500 credit from the government. The credit is meant to help you pay for qualified education expenses. The main factors of eligibility are being enrolled at least half-time during the beginning of 2020, not having finished the first 4-years of higher education, and having no felony or drug conviction.

If the credit brings down the overall tax you owe to zero, you can have 40 percent of any remaining amount of credit (up to $1,000) refunded to you.

Source: Internal Revenue Service (IRS)

Q: What information do I need to file taxes?

A: The main things you will need to file your taxes are your social security number, your mailing address, a W-2 form(s) (provided by your employers), a 1098-T (provided by your school), and a 1098-E (provided by your school loan servicer). 

Source: Internal Revenue Service (IRS) 

Q: Can I file taxes if I am undocumented?

A: Yes! If you are undocumented, you are required to file taxes if you made more than $12,400 in 2020. 

Source: The Balance

Q: What if I don’t have a social security number?

A: If you do not have a social security number, but still are required to file taxes, you can use an Individual Taxpayer Identification Number (ITIN). The ITIN does not allow you to work legally in the U.S., but can be used when reporting taxes. To get an ITIN, you can apply for one through the IRS. 

Source: Internal Revenue Service and The Balance

Q: What if I don’t have a mailing address?

A: You can choose to use a P.O box for tax filing purposes. If you are experiencing homelessness, however, you can ask a shelter or service center if you may use their address on your records and they may allow it.

Source: Get It Back 

Q: Can I claim a device such as a laptop or a tablet as a qualifying educational expense?

A: Yes! If you bought a device in 2020 because it was required for school, then it qualifies as an education expense. However, if you are claiming the Lifetime Learning Credit, you may not deduct equipment purchased from the education institution. 

Source: Turbo Tax

 

Public Service Loan Forgiveness: Snapshot of the Application Process

Public Service Loan Forgiveness: Snapshot of the Application Process

To qualify for Public Service Loan Forgiveness (PSLF), you must make 120 total monthly payments while:

  1. Enrolled in an Income-Driven Repayment Plan 
  2. Have Federal Direct Loans or have consolidated other federal student loans
  3. Working full-time for a government agency or certain types of nonprofit organizations

Before Graduating or Immediately Upon Graduation – check these eligibility requirements first and early on to plan for Public Service Loan Forgiveness:

  1. Check what kind of loan you have by logging in to www.StudentAid.gov.
  2. Confirm that you have a Federal Direct Loan that is not in default. This is the only federal loan that is eligible for PSLF. 
  3. If some of your federal student loans are not Direct Loans (FFEL and Perkins Loan), they need to be consolidated to qualify; this is likely your situation if you borrowed before 2011. Payments on FFEL or Perkins Loans made before you consolidate will not be counted. Depending on your circumstance there may be pros and cons to consolidating in order to apply for PSLF.

As You Start Working in Public Service – Document Your Employment Using the PSLF Application Form:

  1. Submit a PSLF application form every year or when you change employers. You’ll want to have documented every qualified employer where you worked while you made a payment towards PSLF. Especially if you have multiple public service employers.
  2. Make sure that your PSLF application form has all required fields completed. Incomplete forms or inconsistencies may affect your eligibility. If you do not meet a PSLF qualification, the response letter to your application will provide more information.
  3. Make sure you have all the information required: employer’s address, Employer Identification Number (EIN) which can be found on your Wage and Tax Statement (W-2), and consistent info with your previous application.

As You’re Working in Public Service – Submitting your forms using the PSLF Help Tool:

  1. Log in with your FSA ID. The tool will import your loan info automatically.
  2. The Tool will ask a series of questions to confirm you’re on the right track to loan forgiveness and that your employer qualifies for PSLF.
  3. Find out if your loans qualify and options available to you if they don’t.
  4. Get a signature from an “authorized official” at your employer, typically someone in your human resources office.
  5. Print and mail your completed form. Save and archive your documentation (PSLF application, response letters from FedLoan Servicing, and employment documents) in case there are any discrepancies.

After Working at Least 10 Years in Public Service – Applying for PSLF and Getting Your Loan Forgiven:

  1. Upon making your 120th payment you’re ready to apply for PSLF. You must still be working for a qualified employer when you submit your application.
  2. Gather your current employer information and any documentation used to prove previous employers qualified while you made payments towards PSLF.
  3. Complete and submit the PSLF application by using the PSLF Help Tool (see above), by mail, or fax. 
  4. If your PSLF application is approved, then all remaining balance including interest and outstanding principal will be forgiven. Any payments made after the required 120 will be refunded as well.

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Federal Loans vs. Private Loans

Federal Loans vs. Private Loans

What are the Differences Between Federal & Private Student Loans?

Federal student loans are provided by the government after a student or their family fills out a FAFSA. The conditions are mandated by law and include specific protections (such as fixed interest rates and income-driven repayment plans) not usually associated with private loans. Unlike federal loans, private loans are provided by private companies like banks or credit unions. Private loans have terms and conditions that are set by the lender. Private student loans are generally more expensive and offer fewer benefits and protections than federal student loans.

How Do I Know If I Have a Private or Federal Loan?

Federal student loan information can be found by going to www.StudentAid.gov. If you do not know the name of your lender or servicer, and you cannot find your loan information at StudentAid.gov, you most likely have a private loan. You can find information about your private loan by checking your credit report.

Any student loan information that shows up on your www.StudentAid.gov account are federal loans. It is common that borrowers have both Federal and private loans. If you have a loan that doesn’t show up on your www.StudentAid.gov account, it is important to check your credit report to find out who your private loan company is.

Are There Different Interest Rates With Federal and Private Loans?

Federal loans have fixed interest rates that are usually lower than private loans. Private student loans can have variable or fixed interest rates. The interest rate on private student loans can be higher or lower than the interest rate on federal loans.

Do Private Student Loans Have Repayment Plans?

Only federal student loans have mandated repayment plans by the government. If you have a private student loan, and are struggling to make your monthly payment, you should contact your loan servicer to inquire about any repayment plans they offer. 

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COVID-19 Relief: CARES Act & Executive Action Impact on Student Loans

COVID-19 Relief: CARES Act & Executive Action Impact on Student Loans

What is the CARES Act & Executive Action?

The CARES Act provides relief to some student loan borrowers during COVID-19 by mandating that federally-held, direct student loans are automatically placed in an administrative forbearance that suspends both payments and interest until September 30, 2020. President Joe Biden used executive action to extend this relief until September 30, 2021.

Who qualifies to have loans paused?

Under the CARES Act and executive actions, federal Direct Loans all qualify as well as Federal Family Education Loans (FFEL) that are held by the Department of Education. The only loans that do not qualify are commercially-held FFEL Loans, Perkins Loans owned by your college, and private loans.

Is the pause automatic or do I need to opt-in?

The pause on most federal student loans is automatic and you DO NOT need to opt-in. Eligible federal loans are automatically placed in administrative forbearance from March 13, 2020, to September 30, 2021. If you made a payment after March 13, you can request a refund by contacting your servicer.

How does the pause work with the grace period upon graduation?

Existing rules allow for students who leave their program or recent graduates to not begin making payments on their federal student loans until 6 months after leaving school – this is called the “grace period.” Those whose “grace period” ends during the pause on federal student loan payments will automatically have their payments paused as well. Those whose “grace period” ends after the pause on federal student loan payments expires will immediately enter repayment.

How does this affect Public Service Loan Forgiveness?

The Department of Education states that suspended payments WILL be counted toward Public Service Loan Forgiveness (PSLF) if you meet all other loan forgiveness requirements. These requirements include if: (1) you have Federal Direct Loans, (2) continue to work for an eligible employer, and (3) were on a qualifying repayment plan prior to the implementation of the CARES Act.

What happens if I am already in default?

The Department of Education announced a pause on debt collection against defaulted borrowers, including wage garnishment, reduction of tax refunds, and reduction of Social Security and Social Security disability benefits. Recent guidance states that the pause on debt collection applies from March 13, 2020, to September 30, 2021. If collections against you were being processed after March 13, you are eligible for a refund on that amount.

What happens after September 30, 2021?

At this time, federal student loan payments will resume on October 1, 2021. If you are concerned about your ability to make payments, the guidance states that your federal loans are eligible for an income-driven repayment (IDR) plan, setting your payment based on your income for the next 12 months.

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