Student Loan Debts Still High

Story first appeared on USA Today.

Households have whittled down the massive debt they racked up in the mid-2000s credit bubble, but apparently not enough to nudge them into a spending binge that could jump-start the recovery, some economists say.

Household debt is closely watched by economists because consumers burdened by big monthly payments for mortgage, credit card and student loan obligations are less likely to splurge on clothing, furniture and travel. And consumer spending makes up about 70% of the economy.
Many economists expect the government to report Friday that the economy grew at a moderate 2.5% to 3% annual rate in the first quarter, driven largely by exports and business investment. Consumer spending likely rose a more modest 2.1%, according to IHS Global Insight.

One reason consumer purchases have not taken off is high debt. Consumers have worked hard to pay off credit card, mortgage and other debt in recent years. Total mortgage and other consumer liabilities have fallen from a record 123% of disposable income in late 2007 to 105% in the fourth quarter, according to the Federal Reserve and IHS.

Yet the decline masks key areas of concern. Student loan debt increased $117 billion last year to a record $1 trillion, according to the Consumer Financial Protection Bureau. Many Americans are staying in school or returning to bolster their skills amid a bruising job market.
Mounting student loans are burdening young workers who are key to overall spending. Rising debt, as well as poor job prospects, have prompted many to put off marriage and live at home longer, dampening household formation and furniture purchases. More than 80% of 18-to-34-year-olds who took out college loans still have a balance, and more than a third of those owe more than $20,000, says a CouponCabin.com survey released this week.

Mortgage debt, meanwhile, has dropped more than 7% since early 2008. But consumers who owe more than their homes are worth are still burdened by high debt and have cut spending as a result, according to a report last month by the Brookings Institution.
Credit card spending picked up late last year, helping fuel strong holiday sales. But with wage growth still tepid, such purchases declined in January and February.

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Unpaid Taxes Eating Into Your Tax Refund

Story first appeared in the Detroit Free Press.

The joy of going out and spending a tax refund on that new living room furniture set you've had your eye on, could be short-lived if you owe past taxes.

The Internal Revenue Service is warning taxpayers that the U.S. Department of Treasury's Financial Management Service, which issues federal tax refunds, can use part or all of your federal tax refund to cover specific unpaid debts.

So before you dream about spending that refund, consider:

• Do you owe state or federal income taxes from the past? Your federal refund will be offset to pay those taxes.

• Do you have debt outstanding for child support or student loans? Again, the Treasury can use your refund to offset those debts.

The IRS notes that taxpayers would receive a notice if some debt is automatically paid off with refund money.

The notice would include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

The publisher of Fastweb.com and FinAid.org, said what's known as a "Treasury Offset" occurs after someone defaults on a federal student loan -- both the federally guaranteed student loans and the direct loan programs. The offset typically happens about a year after the borrower defaults. And both federal and state income tax refunds can be intercepted.

In some cases, a spouse could mount an innocent spouse defense to protect his or her share of the refund from being offset.

There are options if you dispute the actual debt or the amount taken from the refund. But you'd need to contact the agency shown on the notice -- not the IRS.

Of course, sometimes there's the case where only one spouse is responsible for that debt. So, maybe the spouse can get that new dining room table they've been looking at.

If you filed a joint return and you're not responsible for the debt, but you're entitled to a portion of the refund, you can file IRS Form 8379, or Injured Spouse Allocation.

A certified public accountant and director of the tax-assistance program of the Accounting Aid Society of Detroit, said some taxpayers might be tempted to not file jointly, as one spouse owes debts that are subject to the tax refund offset.

However, he warned that if they file separately, certain credits and deductions are not available.

So in general, it is often best to file jointly to get the largest refund and file the Form 8379 to protect the part of the refund owed to the injured spouse. The Form 8379 can be filed with the tax return if a refund offset is anticipated.

The IRS notes that you'd want to follow instructions for Form 8379 carefully to avoid delays. If you don't receive a notice that spousal relief was granted or you don't receive a refund, it's possible to contact the Treasury's Offset Call Center at 800-304-3107 weekdays.

The Michigan Department of Treasury also offsets refunds for certain debts and then the state mails taxpayers a Form 743, Income Allocation for Non-obligated Spouse. That form must be completed and returned within 30 days. Only the Form 743 received from Michigan Treasury can be submitted.  The Form 743 is not otherwise available and is only issued after processing of the return.

It's important that taxpayers anticipating a Michigan state tax refund offset on a joint Michigan return watch for this Form 743 in the mail and submit it in a timely fashion.

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