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Parent PLUS Loans

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A Parent PLUS Loan is a federal student loan taken out by a college student’s parent. It is meant to supplement other available financial aid and can cover up to the full cost of attendance for the student, minus any other financial aid they have received. If you are looking for a way to cover a gap in your child’s college costs, a Parent PLUS Loan can help make those ends meet.

Parent PLUS Loans vs. private student loans

Parent PLUS Loans are federal student loans with terms and conditions that offer many advantages over private student loans. For one, you can postpone the payments until the student is no longer enrolled at least half-time. Not all private student loan lenders allow payment postponement.

Further, Parent PLUS loans come with a fixed interest rate which is lower than many private loans. For the 2019 – 2020 school year, Parent PLUS loans have a 7.08% interest rate. Private student loans may come with variable or fixed rates varying from 4.5% to up to 14%. The rate you get will depend on your financial circumstances and your credit. Those with excellent credit may find a better rate from a private lender but the many will likely find federal loans offer the most competitive rates.

It is also often easier to get approved for a Parent PLUS Loan than a private student loan, even if you have an adverse credit history. Additionally, federal loans come with perks such as the option to consolidate the loan into a Direct Consolidation Loan, temporarily postpone or lower your payments and opt for a loan forgiveness program. All of these are far less common, even among the best private student loan lenders.

Parent PLUS Loans vs. federal subsidized and unsubsidized student loans

Federal subsidized and unsubsidized student loans help eligible students pay for the costs of education at a community college, trade school, career school, technical school or four-year university. They are issued directly to the student rather than the student’s parent. But what is the difference between subsidized and unsubsidized loans?

With Direct Subsidized Loans, the U.S. Department of Education will pay the loan’s interest while the student is in school and enrolled at least half-time, during a deferment period and during the first six months after the student leaves school. However, they are only available to undergraduate students that have a financial need. On the other hand, Direct Unsubsidized Loans don’t require students to show a financial need but they hold the student borrowers responsible for paying interest throughout the loan term. You can postpone payments until you leave school but the interest will accumulate and be added to the principal amount of your loan.

Direct Subsidized and Unsubsidized Loans have a fixed interest rate of 4.53%, notably lower than the 7.08% rate for Parent PLUS Loans. They also don’t require a credit check while PLUS loans do. Even so, it’s best for students to use funds from Direct federal loans first and then to partner with their parents to cover any gaps with Parent PLUS loans.

How to apply for a Parent PLUS loan

If you think a Parent PLUS Loan is the right fit for funding your child’s education, here’s what you need to do:

Step 1: Fill out the Free Application for Federal Student Aid (FAFSA)

The first step is to fill out the FAFSA You can do so online on the official FAFSA website or can print off the form and mail or fax it to the U.S. Department of Education. The online application allows for faster processing.

Any family with a student attending college should fill out the FAFSA to find out if they are eligible to have their costs covered by grants (they don’t have to pay back) or various federal loan options. To do so, you will need your social security number, federal income tax returns, W-2’s, bank statements, records of investments, records of untaxed income, the school(s) your child may attend and an FSA ID. You can create an FSA ID here.

Note, dependent students will need their parents to fill this out the FAFSA on their behalf.

Step 2: Log in to studentloans.gov

Next, you need to apply for the Parent PLUS Loan. You can do so as early as April for the following academic year. To do so, you will need to visit studentloans.gov and log in. To log in, you will need an FSA ID. If you created one for yourself while filling out the FAFSA, that will work. If not, you’ll need to create one. Don’t use your student’s FSA ID as they will not be able to apply for this loan because they are not a parent. Once you have an FSA ID, log in.

Step 3: Fill out the Parent PLUS Loan application

Now that you’re logged in, click on the option to “Apply for a PLUS Loan.” Next, select “Complete PLUS Request for Parents.” Be sure you click the “Parent” button and not the “Graduate” button as making mistakes will delay your request.

Start the application by selecting the academic year for which you are applying for the loan. Then, you will need to carefully enter your student’s information, not yours. Next, you will have payment deferment options to choose from and can opt to allow the loan to be used for other education-related costs like textbooks. You will then select the school you want to send the loan to, the amount you want to borrow, and when you want to receive the funds (usually for the full academic year).

The next page will ask for the borrower’s information — that’s you. Carefully provide all of your information and make sure it’s accurate, as you can’t edit the information after you submit it. Then, click apply.

Step 4: Receive an answer

After you submit your application, your credit will be checked and you will receive an answer in minutes.

Step 5: Master Promissory Note

If you are approved, the next step is to complete the Master Promissory Note (MPN) at studentloans.gov. The MPN is a legal document that outlines the loan rates and terms and asks for your promise to pay. After that, you can wait for a notification from the school stating that the loan has been applied to your student’s bill.

Parent PLUS Loans are only available for one academic year at a time so if you need the loan for various years, you will have to reapply for each year you need funds.

Parent PLUS Loan repayment options

While you will be put on a repayment plan when you originate a Parent PLUS Loan, you can opt for a different repayment plan at any time if you find it will be more advantageous. The repayment plans available for Parent PLUS Loans include the Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan.

The Standard Repayment Plan calculates a fixed monthly payment amount so your loan will be paid off within 10 years. This plan usually costs less than any other plan.

The Graduated Repayment Plan sets your monthly payment lower in the beginning and then it increases every two years or so to ensure your loan is paid off within 10 years. This plan will cost more than the Standard Plan but less than the Extended Repayment Plan. It provides some flexibility if you anticipate your income to increase in the near future.

The Extended Repayment Plan sets your payments so your loan will be paid off within 25 years. The monthly payments can be fixed or increasing. This will cost more overall but less per month.

The bottom line

Parent PLUS Loans are a helpful financing option provided by the federal government that allows parents to take out an affordable loan to pay for their children’s education. However, it should be weighed alongside all other available financial resources available. Students may be eligible for grants they don’t have to pay back or direct subsidized federal loans with lower interest rates and other perks. The best first step is to apply for the FAFSA and review all of your options. Then, identify which strategy will be the most cost-effective. Learn more about student loans on our 2019 Student Loan Resource Page.

The post Parent PLUS Loans appeared first on The Simple Dollar.



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Socially Responsible Investing: Is It Also More Profitable?

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Since the Dawn of Mustachianism in 2011, the same question has come up over and over again:

“MMM,

I see your point that index fund investing is the best option. But when you buy the index, you’re getting oil companies, factory farm slaughterhouses and a million other dirty stories.

How can I get the benefits of investing for early retirement without contributing to the decline of humanity?”

And in these nine years since then, the movement towards socially responsible investing has only grown. Public pension funds have started to “divest” from oil company stocks, and various social issues like human rights, child labor, climate change or corporate corruption have bubbled to the surface at different times.

And all of this has led to the exploding new field of Socially Responsible Investing (SRI), and a growing array of new ways to do it.

So it seems that this is not just a passing trend – people just might be starting to care a bit more. And since capitalism is just an expression of human behavior, the nature of capitalism itself may be starting to change.

This leads us naturally to the question:

What can I do with my money to help fix the world? And even better, is there a way I can make money in the process of fixing it?

The answer is a good, solid “Probably.”

As long as you don’t get too hung up on getting every last detail perfect, because just like real life, investing is a haphazard and approximate and unpredictable thing. But by understanding the big picture, you can make slightly better decisions on average, which lead to slightly better results. And slightly better results, stacked up consistently over time, can lead to a much better life, or even a much better world.

This is true in all of the main areas we care about – personal wealth, fitness and health, even relationships and happiness. And while your money and investments are certainly not the most important thing in life, they are still worthy of a bit of easy and effective optimization.

So anyway, the first thing to understand with SRI is, “what problem am I trying to solve?”

The answer is, “You are trying to make your investing (especially index fund investing) have a better impact on the world.”

On its own, index fund investing is ridiculously simple. You just get an account at any brokerage like Vanguard, Etrade, Schwab or whatever, and dump all your money into one exchange-traded fund: VTI.

When you do this, you are buying a stake in 3500 companies at once(!), which is both impressive and overwhelming. How do you even know what you are holding?

Well, this is all public information, and easily available with a quick Google search. For example, here’s a list of the top 90 holdings in VTI (click for larger):

Top 90 holdings in Vanguard’s VTI Exchange Traded Fund

As you can see, the biggest chunk of money is allocated to today’s tech darlings, because this index fund is weighted according to market value, and these are the most valuable companies in the US today.

Through a convenient coincidence, the total value of the VTI fund happens to be just under $1 trillion dollars, which means you can just throw a decimal point after the ten billions digit of market value to get a percentage. In other words, about 4.7% of your money will go towards Apple stock, 4.4 towards Microsoft, and so on. Together, these top 90 companies are worth more than the remaining 3,410 companies combined, so these are what really drive your retirement account.

And within this list, you will see some of the usual suspects: Exxon and Chevron (oil), Philip Morris (tobacco), Raytheon and Lockheed (bombs), and so on.

But what about the less-usual suspects? For example, I happen to think that sugar, and especially sugar-packed beverages like Coke, is the biggest killer in the developed world – a major contributor to 2 million of the 2.8 million deaths each year in the US alone. Should I exclude that from my portfolio too?

And what about drug and insurance companies – aren’t they behind the political stalemate and high costs of the US healthcare system? Comcast funded some election disinformation campaigns here in my home town in the early 2010s, should I exclude them too? And if you’re part of a religion that is against charging interest on loans, or in favor of pasta and Pirate costumes, or against a spherical Earth, or any number of additional ornate rules, you may have still more preferences.

The higher your desire for perfection, the more difficult this exercise will become. However, if you are like me and you just want to get most of the desired result with minimal effort, you might simply have a look at the Vanguard fund called ESGV.

ESG stands for “Environmental, Social and Governance”, and in practice it just means “We have tried to avoid some of the shittier companies according to some fairly simple rules.”

And the result is this:

Vanguard’s ESGV Exchange traded fund (ETF) – top 90 holdings

The first thing you’ll notice is that it’s almost the same. In fact, the top five holdings – Apple, Microsoft, Amazon, Facebook, Alphabet (Google) and Netflix not far behind, collectively referred to as the FAANG stocks – are completely unchanged – and this means that there will be plenty of correlation between these funds.

It’s also the reason that the stock market as a whole has recovered so quickly from this COVID-era recession: small businesses like restaurants and hair salons have been destroyed by the shutdowns, but big companies that benefit from people staying at home and using computers and phones are making more money than ever. The stock market isn’t the whole economy, it’s just the publicly traded companies, which are the big ones.

But let’s look at the biggest differences between the normal index fund versus the social version.

The following large companies listed on the left are missing in the ESGV fund, in order of size. And to make up the difference, the stake in the companies on the right have been boosted up to take their place in your portfolio.

Main differences between VTI and ESGV (source: etfrc)

The omission of Berkshire Hathaway was a bit of a shocker, as it is run with solid ethical principles by Warren Buffett, one of the worlds most generous philanthropists. And in fact the modern day nerd-saint Bill Gates is on the Berkshire board of directors, another person whose work I follow and respect greatly.

(side note: Apparently the company fails on the “independent governance” category. And Buffett disputes this category, but in his characteristic way has decided to say, “Fuck it, I’ma just keep doing my own thing with my half-trillion dollar empire over here and you can have fun with your little committee” – I’m paraphrasing a bit but he totally did say that.)

Furthermore, both funds hold the factory meat king Tyson foods, while neither holds Roundup-happy Monsanto, because it was bought by the German conglomerate Bayer AG a while back. Nextera is a giant electric utility in the Southeastern US that claims to be the world’s largest generator of renewable energy. Some do-gooders are against nuclear power, while others (including me) think it’s the Bee’s Knees and we should keep advancing it. And all this just goes to show how nobody will agree 100% on what makes a good socially responsible fund.

But What About The Performance?

In the past, some investors were nervous about giving up oil companies in their portfolio, because while it was a dirty substance, it was also what made the world go round – which meant it was a cash cow.

Now, however, oil is on its way out as renewable energy and battery storage have crossed the cost parity threshold – meaning it’s cheaper to make power (and vehicles) that don’t use oil. In its place, technology is the new cash cow, and tech is heavily represented in the ESG funds. The result:

Traditional index fund (VTI) vs Socially Responsible equivalent (ESGV)

As you can see, the performance has been similar but the ESG fund has done significantly better in the (admittedly short) time since it was introduced at Vanguard.

Of course, we have no idea if this will continue, but the point is that at least our thesis is not a ridiculous one – environmentally sustainable companies do have an advantage, if the world gradually starts to care more about these things. And if you look at the share price of Tesla and other companies that surround it in electric transportation and energy storage, you will see that there are many trillions of dollars already lining up to benefit from this transition. And the very presence of so much investment money creates a self-fulfilling prophecy, as Tesla is now building or expanding five of the world’s largest factories on three continents simultaneously.

So What Should You Do? (and what I do myself)

Image
My latest home-brewed ebike project – this one can reach 42MPH / 67km/hr!

First of all, it helps to remember a fundamental piece of economics: your spending dollars will probably have a much bigger impact than your investment dollars. This is because you are sending a direct message to the world rather than an indirect one:

When you buy a new gasoline-powered Subaru (or a tank of gas for your existing guzzler) or a steak at the grocery store, or a plane ticket, you are telling those companies directly that consumers want more of these products, so they will produce more of them immediately.

When you buy shares in Exxon, you are only subtly raising the demand for those shares, which raises the average price, making it ever-so-slightly easier for Exxon to maybe issue more shares in the future. In other words, you are making it easier for them to access capital. But capital is only useful if there is demand for their products. And with oil there is a nearly constant surplus, which is why OPEC and other cartels need to work together to artificially restrict supply, just to keep prices up.

Plus, as a shareholder you are theoretically eligible to place votes and influence the future direction of companies – even companies that you don’t like. If you look up the field of “shareholder activism”, you’ll see this is a tradition that goes way back.

So I have tried to take a few simple steps on the consumer side myself, and I find it quite satisfying: Insulating the shit out of all of my properties, building a DIY solar electric array on one of them, and buying one electric car so far to eliminate local gas burning. And a few electric bikes including a super fast one I made myself.

Each one of these steps has provided a very high economic return, percentage-wise, but that still leaves a lot of money to account for, which brings us back to stock investing.

As someone who loves simplicity, I have done this:

  • Bought almost entirely VTI (or similar Vanguard funds) from 2000-2015
  • Started experimenting with Betterment in 2015, liked it, and have been adding a percentage of my ongoing savings to that account to that since then. (Note that Betterment now also offers a socially responsible portfolio option.)
  • Switched the dividend re-investing of my old Vanguard VTI over to Vanguard ESGV, to avoid “wash sales” in making the most of Betterment’s tax loss harvesting feature.
  • Bought some shares of Berkshire Hathaway separately, and also make a few sentimental investments in local businesses, including the MMM HQ Coworking space.

But you could choose to be more hardcore in your ESG/SRI investing:

  • Buy your own basket of stocks based on the index, but with different weighting based on your own values
  • Spend more money on other things that generate or save money (a bigger solar array on your house, better insulation, electric car, an ebike to reduce car trips, etc.)
  • Invest in local businesses of your choice, rental real estate, community solar projects, or other things which generate passive income – publicly traded stocks are just one of many ways to fund an early retirement!

Like most areas of life, investing is not something you have to do perfectly in order to succeed – even socially responsible investing. If you apply the 80/20 rule to get the big picture right, you have probably found the Sweet Spot and you can move on to the next area of life to optimize.

In the Comments:
What is your own investment strategy? Have you thought at all about this ESG / SRI stuff? Did this article bring anything new to the table?



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One half of this millennial couple is cheap, the other doesn't believe in budgets at all

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It’s like clockwork. When a 37-year-old HVAC technician we’ll call Rick is plugging away at piecing together a new system, the push notifications on his phone come in rapid succession: Boom, boom, boom. Rick, who earned $185,000 in 2019, receives an alert each time his wife, a 31-year-old stay-at-home mom we’ll call Leslie swipes his credit card. On cue, Rick’s Apple Watch will send him a follow-up notification: This one simply says, “breathe.”

Sometimes, it’s hard for Rick to remember when he knows he earned $8,900 in a recent month and he and his wife spent all but $1,050 of it.

It sounds like something out of the 1950s sitcom the Honeymooners, with Rick and Leslie living out an episode that’s been updated for the modern era. For them, friction over money isn’t an old-fashioned cliché, it’s at the centre of their relationship.

Rick earns $51.67 per hour and regularly works 60-hour weeks to generate the income his family needs to live its current lifestyle — one where they can afford to have two condos, spend more than $10,000 per year on vacations and spoil their kids. Leslie usually does most of the spending.

They say opposites attract and that seems to be the case here. Rick sees himself as frugal — he’s a penny-pincher working those long hours because he’s concerned they won’t be there forever. Naturally, he wants to be on a budget.

There’s just one problem.

“(Leslie) doesn’t believe in budgets,” Rick said.

Leslie won’t think twice about spending on food or shopping, especially if it’s for her children. She doesn’t believe her husband when he brings up the need to save.

“He wants to save money because he’s cheap not because he actually needs to save money,” Leslie said. Rick, she says, earns enough money to make watching what they spend an irrelevant exercise.

“I wouldn’t say I don’t believe in a budget, I just don’t understand a budget,” she said. “I feel a budget is for people who don’t have money. I feel (Rick) makes a substantial amount of money and it doesn’t apply to me.”

Whenever Rick floats the idea that Leslie should be spending less money, she fires back and says that any extra savings should come from his expenses and not hers, particularly when it comes to money he spent on alcohol ($450), eating out ($101) or new clothing, like a shirt from Nordstrom ($121). It’s almost insulting to Leslie when he suggests that she reduce the grocery budget by shopping at a discount grocer.

“If money is as tight as you make it seem, why are you spending it on yourself?” Leslie asks.

Meanwhile, Leslie spent more than $1,000 on groceries and treats like ice cream and candy for her kids. More than half the shopping expenses were hers — mostly in toys and clothes, again for her kids.

Inevitably, a discussion around budgeting will lead to Rick suggesting that Leslie goes back to work. Rick suspects she might be able to earn around $50,000 as an administrative assistant.

I asked Leslie if she’d consider that change.

“I refuse,” she said. “I have zero desire to get … a good job or a career, because I need to be there for my kids.”

Leslie had two complicated childbirths and grew very close to her children because of it. One of them is also autistic and needs extra attention and she doesn’t trust a babysitter to do the job.

There’s only one work scenario she’ll entertain and it’s outside Toronto.

 Rick earns $51.67 per hour and regularly works 60-hour weeks to generate the income his family needs to live its current lifestyle.

Leslie wants Rick to sell the two condos he owns — the family lives in one and he holds the other as an investment property — so they can move to a house in Stoney Creek, Ont. Her parents live there and own a mom-and-pop shop in the community. She wouldn’t mind working 20 hours per week with them close by to help with the kids.

She’s at her “breaking point” living in her current home, a 1,000 sq. ft. condo with a 200 sq. ft balcony, and doesn’t see the use of Rick owning a second property. But Rick won’t budge on selling that second condo. He wants to keep it as an investment even if it’s not currently generating additional income for the family.

It’s clear Rick and Leslie aren’t going to agree on either a budget or their housing situation so I asked Nicola Wealth financial planner Ron Haik to weigh in.

This story is about compromise, Haik said, and so the only solution that’s going to work is one that won’t be ideal for either one of them. To start, they’ll have to implement a budget because even the wealthiest Canadians need them.

“It’s not about how much you make,” said Haik, disagreeing with Leslie. “It’s not even about how you much spend. It comes down to how much you can save. That’s your discipline.”

But most of what’s being cut will come from Rick’s side of the equation. Haik lowered the alcohol expenditures to a maximum of $360 per month, down from $460 and the eating out expenses to $280 from $337. Shopping will also be trimmed down to $900 per month.

The budget he drew up is for the couple to follow once they move to a $1.3-million home in Stoney Creek. That will mean that Rick will have to sell both of his condos, Haik said — financially, that’s the best move considering that the investment property isn’t generating income.

Haik suspects Rick will net about $600,000 from the sales that he could then combine with the $70,000 in his TFSA to fund a down payment. In order to afford higher housing expenses, which he estimates could be around $3,582 per month, and live the same lifestyle, Leslie will have to go back to work, at least for 20 hours per week.

“This is about give and take,” Haik said. “There’s only one other scenario (where they can afford a house) and that’s Rick working 60 hours a week forever. That’s not good for anybody, health wise.”

If Leslie could earn slightly more than $2,000 per month, Haik said, that would allow Rick to lower his hours to 50 per week and for their income to still reach a combined $10,627. Leslie’s salary would also be more than enough to offset child care, which Haik estimated would cost about $1,550 per month.

The fact that Haik sided with neither Rick nor Leslie appeared to work just as he said it would. Both were happy with the result.

“I was completely delusional,” Leslie admitted about her spending. Knowing that finding a job would mean allowing her to get her dream house next to her parents also changed her former hard stance. Now, she’ll consider it, she said.

“The compromise is fair,” Rick said. “I don’t see how else we can get there unless both of us are making compromises and pulling in the same direction.”

Financial Post

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5 Tips for Building a Side Business

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You’ve probably noticed that people are embracing entrepreneurship like never before. Due to the widespread availability of technological business tools, there’s never been a better time to become your own boss. With an internet connection and a smart-phone or laptop, you can work from just about anywhere on the planet.

If you’ve been dreaming of quitting your day job to start a business, you might be wondering if taking such a big leap is worth it.

While there’s nothing wrong with holding down a W-2 job and getting a steady paycheck, having income from your own business comes with many upsides. But if you’ve been dreaming of quitting your day job to start a business, you might be wondering if taking such a big leap is worth it.

The good news is that there are incremental ways to become self-employed that are stable and reduce your risk, instead of plunging abruptly into a precarious financial position. In this chapter excerpt from Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers, you’ll learn practical strategies for building a solo business while keeping the security of a regular job.

Tips for building a business on the side

Becoming your own boss may seem glamorous from the outside, but it can have stressful pitfalls, such as little pay, no insurance benefits, and unpredictable clients. However, you can avoid or minimize some of the downsides by maintaining a reliable day job while you grow your solo business.

Having the security of a job and the excitement of becoming a solopreneur gives you lots of upside with much less risk. A steady paycheck may give you the confidence you need to take business risks—such as buying more advertising, equipment, or software—that will make your venture more profitable.

Having the security of a job and the excitement of becoming a solopreneur gives you lots of upside with much less risk.

Aside from maintaining a reliable income stream, being both an employee and an entrepreneur can make you a better worker. In my experience, growing a side business also builds skills and experiences that make you more effective at your regular job. You may even find your side hustle revives an appreciation for your day job. There’s a lot to like about having a salary, benefits, and other perks, after all.

Whether you decide to be both an employee and your own boss for weeks or years, it will take some juggling to manage successfully. Here are five tips to face your career fears responsibly and prepare for the future by adding entrepreneurship to your resume on the side.

Define…

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