Editors Note: The following article was written by Allen Kors who is the founder and CEO of Achieve Lending

How To Save Money On Student Loans

Student Loans have been in the news a lot lately, and for good reason. A recent Brookings Institution report stated that 17% of college students with debt wrote in the survey that they had no debt, leading many to wonder if college students who take on student loans truly understand what they’re getting into.

Aside from recent debates on student loan forgiveness, college is the first major financial decision many young adults make. The amount you borrow and the interest rate you agree to could impact your finances for the rest of your adult life, which is why it is frightening that a large portion of the population has no idea the impact student loan burden can make.

Student loans aren’t all bad: they provide a way to better yourself and access education for those who don’t have a trust fund or scholarship to fall back on.  The average student takes out nearly $30,000 in student loans over four years. With an interest rate of 9% annually, the student can expect to pay nearly $15,700 in interest over ten years, if it took them ten years to pay off the loan. That is a lot of money in interest, over half of the original amount borrowed. The monthly payment on this amount would be $380, which is a lot for someone right out of school and making entry-level salary.

This is why the #1 thing you can do to save money on your student loans and promise a financially bright future is to shop and compare interest rates on your student loans before you sign on the dotted line.

Students can also get creative when it comes to shopping for education financing, such as using peer-to-peer lending sites. New technology, like Achieve Lending’s student loan search engine and comparison tool also allows students to competitively shop interest rates between private lenders with ease.

Exactly How Much Can I Save?

Say that by shopping for private loans you got an interest rate from a lender of 7%, which is competitive given that the federal rate is 6.8% currently. The same borrower who took out $30,000 at 7% interest annually would pay $11,800 over ten years, with a monthly payment of $350. For those interested in a lower monthly payment, this is a monthly savings of $30, or $360 each year that could be used to fund a savings account or contribute to retirement.

If a student were to take that extra $30 each month and apply it to their student loan balance, they’d be able to pay off the debt in 8.8 years (as opposed to 10)  and save an additional $1,384 in interest.

The difference in interest rates in our example shows a total savings on the loan of almost $4,000. Many students do not feel the need to shop for loans, but $4,000 for an afternoon’s worth of research is a lot.

It may not seem like a large amount now, especially if you space it out over ten years, but as a working adult, $4,000 adds up quickly. It could add to the down payment on a house or serve as the total down payment for a car.

Borrowers are always encouraged to shop for interest rates and get the total picture before signing on a loan. As you can see, shopping for interest rates not only saves you money over the lifetime of the loan, but if you use the extra cash wisely, interest rate shopping can help you pay off debt faster. When you’re ready, you can click here to begin shopping loan interest rates.

Allen Kors is the founder and CEO of Achieve Lending, the first ever search engine for private student loans. With Achieve Lending students can shop, compare, and choose between lenders and interest rates, often in as little as thirty seconds. See the tool in action here.

Disclosure: Links to Achieve Lending are affiliate links.

Picture by Donkey Hotey

Editors Note: This article was written by an ABC reader.  He is a professional tax preparer who wishes to remain anonymous, but wanted to pass on his knowledge about income tax fees to you. Any ideas or opinions expressed in this article do not necessarily reflect those of this website.

The Grinch hates paying retail for anything, so here is his advice:

1.  Free Tax Preparation.    If you only have wages from a job and/or social security, take all of your documents to your nearest VITA office.  The volunteer will interview you and complete your return for free.  If you want to do it yourself for free, go to www.irs.gov and look up Freefile.  If your income is under the threshold, you can select from multiple tax programs to do yours online for free.  I used to pay to use one of those programs back in the day, now it is free.  You may have to pay for a state return.

2.  The ‘Tweener.  Ok, you made over $57,000 last year, but your real estate holdings are less than Donald Trump’s.  It should be simple to file your own taxes using a software program (such as E-file.com or esmarttax.com ) and avoid all those preparer fees.  After all, nobody would buy the programs if they weren’t accurate, right?  There are lots of good programs, but be careful going this route.  If you don’t have documentation, don’t be tempted to claim it.  Some of the dependent and social security questions can be easily misunderstood.  You want a program that will compare all of the education credit/deduction options, if you have higher education expenses. Also make sure it will file your state taxes, if necessary.  You will have limited assistance if you receive a letter from the IRS.  And you will be responsible for maintaining a copy of your tax return for 3-7 years in case of audit or when you move.  An encrypted cloud could be valuable here.

3.  More Complicated Returns.  High-Wage earners, Small Business Owners, Rental Owners, Self-employed,…  These returns should be done by a professional, but a little work can ensure you pay the least tax.  Save every receipt that you think may be usable in an envelope.  Go to www.irs.gov and order pub 17 and other pubs that pertain to your tax situation.  The IRS will mail them to you for free.  Or you can read the pdf online and print out the pertinent pages.  Read the pubs and highlight the particular sections, especially the credit and deduction sections.  Credits are always more valuable than deductions (a $1 credit reduces your tax $1, a $1 deduction reduces your tax 15,25, or 28 cents based on your tax bracket).  Take these highlighted sections to your tax preparer interview and ask about each one.

4.  Tax office or Accountant? The preparers in a franchise office are part-time seasonal workers.  They train at nights in the fall to prepare for the next tax season.  When you sit down at an interview to have your taxes done, the preparer  you have may be a beginner or an old pro.  Here is how to find a good preparer.  Call the office and ask a specific tax question.  If the person that you are talking to answers the question to your satisfaction, ask that person when you can schedule an appointment with him (or her) to do your taxes.  If he or she is hesitant, thank them and call the next day at a different time.  I have never used an accountant, though I am friends with a CPA.  If you have a very complicated return, then spend the time and money for a good accountant.  Be sure you understand all the records he or she asks you to keep.   I have seen people bring their documents to our tax office after the CPA made mistakes, and I have talked to people that would only use a CPA because a tax franchise made a mistake.  One thing to consider, most tax franchises have a separate ‘back office’ staff that independently reviews each tax return before it is transmitted to the IRS.  Ask your preparer if there is a second check of your return before it is transmitted.  Also ask what help they will provide if you get a letter from the IRS. With a franchise office, it is possible to file your taxes in Lansing, Michigan then move to Jacksonville, Florida 2 years later and pick up a copy of your return at the corner office.  Most professionals will identify questionable entries that invite IRS letters.  Those are advantages of paying a professional.  I have also seen a lot of good old boy tax preparers that invent deductions and credits.  Use them at your own risk.

5.  Tax Preparation Fee.  It seems a shame that after paying the federal and state governments income taxes, we have to pay professional-level fees for the paperwork on top of that.   First, you need to understand what those fees cover.  There is the obvious office overhead, plus all those computers, boxes of paper, franchise fees, training fees, wages, insurance, and advertisement fees. The office has to make enough in 3 months to pay office rent and a staffer for the rest of the year.  All paid preparers are subject to a $500 fine from the IRS for filling out a tax return without using due diligence to ensure all income is reported.   Each paid preparer must also have a Preparer Tax ID Number (PTIN) that costs $63 each year to renew.  The cost of your return is most likely based on the number of IRS forms filed, so in theory the more complicated return will cost more than the simple return.  The bottom line is that a professional tax office is an expensive business, but there are several ways to reduce your fees.  See your preparer in early January and discuss your tax situation.  You may not have all of your documents, but it is a good time to get some answers.  Most tax offices are open and would love for someone to come in to chat.  At that time, if you do not receive some type of discount coupon to return with your documentation, ask for one.  When February starts, avoid tax preparation offices.  Most people that receive the Earned Income Credit rush in as soon as they have their W-2’s.  February is the tax ‘peak’ season, when the office is packed and everything is full price.  Come back in March.  The preparers are more experienced and will have more time to do an accurate return.  Plus, the peak season is over and the office is empty, which is a good time to ask for a discount.  If you wait until April, you will also pay full price because it is the ‘mini-peak’ period.

6.  Navy Training, Sir!  The best way to ensure your taxes are done correctly for the least amount of money is to attend a tax school and learn how to do taxes.  These courses are taught by tax professionals with many years of tax experience and training.  I have attended Jackson Hewitt and Liberty Tax courses and recommend them both.  I have also heard good things about H&R Block’s course.  Regardless, most courses meet one or two nights a week in the fall.  The books are about 4″ thick, but don’t worry, you will get through all of it.  The best part is that you can focus on your personal tax specifics, and stay after class for one-on-one counseling.  One instructor said he helped at least one person in each class to amend a return for a bigger refund.  Expect to do many sample problems with weird family situations as well as real estate and depreciation.  The courses are well worth the money spent, and you may receive a job offer when you graduate!  Another way to learn taxes is by volunteering as a VITA.  The VITA  tax course is taught by IRS field agents, so you are getting information straight from the horse’s mouth.  The VITA course is a simple one, since volunteers are limited to low income and senior citizen tax returns.  You will be expected to serve as a volunteer during the tax season, but it is a free way to learn taxes.

This is just the tip of the iceberg, but you will notice that there are ways for people in all types of life situations to save money on tax preparation fees.  And that makes the Grinch smile- a little.

Photo by Sam Breach

Links to efile.com and esmarttax.com are affiliate links.