The government-backed ElderShield, a severe disability insurance scheme which provides basic financial protection to those who need long-term care, should be made compulsory, according to the ElderShield review committee.
In an interim update released yesterday, the committee made the following key recommendations:
- ElderShield to be a universal and inclusive scheme for future cohorts
- Inclusion age to be lowered to 30 to ensure more affordable premiums
- ElderShield should be administered by the government as a key pillar of the social safety net
- The ElderShield claims process should be made more accessible and convenient for policyholders and their caregivers.
The panel said that in carrying out the review, it heard a wide representation of views from over 800 Singaporeans, across 26 focus group discussions. These include long-term care service providers, financial advisors, academics, industry professionals, community partners such as unions and self-help groups, and youths. Public feedback, suggestions submitted to the ElderShield website’s online feedback form and email recommendations have also been taken into consideration. The full set of recommendations is expected to be finalised by the middle of this year.
The committee, appointed in 2016 by the Ministry of Health, recommended that people join the scheme at age 30 rather than 40 (as is the case at present) and suggested that the government, rather than private insurance providers, should be the single administrator. It also called for the claims process to be simplified.
The update said: “With a rapidly ageing population and shrinking family sizes, there is a need to plan ahead for our future long-term care needs. The demand for long-term care is set to increase. About one in two Singaporeans who is healthy at the age of 65 is at risk of having a severe disability over their lifetime.”
It added: “Universal ElderShield coverage for future cohorts is aligned with our principle of collective responsibility and supports our aim to be a caring and inclusive society.
“With universal coverage, Singaporeans in future cohorts with pre-existing severe disabilities would be included in the enhanced ElderShield scheme. This supports our aim to be a caring and inclusive society, and the low prevalence of severe disability at younger ages means that this can be achieved without significant impact on premiums.”
The panel recommended that the government provide premium support for low-income Singaporeans and those in financial difficulties, so that no Singaporean will lose ElderShield coverage due to financial difficulties.
Currently, ElderShield is administered by three private insurers on behalf of the Health Ministry. Singaporeans are auto-enrolled onto ElderShield at age 40 and are randomly assigned to one of the three private insurers—Aviva, Great Eastern or NTUC Income—and allowed to switch insurers at the point of enrolment.
Money is paid out when people cannot perform three of the six “activities of daily living”, which are: washing oneself in the bath or shower; wearing and unfastening all garments and putting on braces, artificial limbs or medical devices where required; to eat and drink without help; use the toilet to relieve themselves and manage the use of any protective undergarments or surgical appliances; move from room to room on level surfaces; and to transfer oneself from a bed to a chair or wheelchair, and vice versa.
Higher-earners filing their tax returns before the 31st January will for the first time face the nightmarish rules on pension allowances.
The 2016-17 tax year is the first where the pension annual allowance “taper” has been in place. The rules mean that anyone earning more than £150,000 will see the amount they can save into a pension each year reduced. Approximately 130,000 people earn this much or more.
But because total incomes are difficult to calculate in advance – many higher earners have bonuses, investments and other sources of income in addition to salary – those on lower wages of around £100,000 are also affected.
The changes have created what pensions experts are calling a “nightmare” scenario, and means many ordinary savers must produce two different measures of their income to work out how much they can put into their pension in the tax year.
Contribution limits can vary dramatically – from £40,000 down to £10,000 – so getting it right matters, particularly if you are reaching the end of your career and plan to give your pension savings a last-minute boost.
Part of the problem is that many people will not know how much they will earn until the end of the tax year, making it even more difficult to know how much to contribute without breaching the limits and being subject to a tax charge.
People with a final salary pension will also find that this can affect their allowance.
Working out your annual allowance without a financial or tax adviser is tricky, but not impossible.
Two types of income
Governments have been squeezing the amount you can save into a pension since 2011. For the 2016‑17 tax year you normally receive tax relief on annual contributions of up to £40,000; the value of your fund is also limited to £1m under the lifetime allowance.
As recently as 2010‑11 the limits were £255,000 and £1.8m. But the Treasury has gone a step further and introduced a sliding scale that reduces the annual allowance even further for people on higher incomes.
Jessica List, a technical specialist at Sipp firm Suffolk Life, said this was “one of the most complicated things ever introduced around the annual allowance”.
She added: “It’s also a chicken and egg situation – pension contributions themselves will have an effect on the allowance.”
To work out whether you will be affected you need to calculate a “threshold” and “adjusted” income.
If your threshold income is more than £110,000 and adjusted income is more than £150,000 a year you will be caught and start to see your annual allowance drop from £40,000 to a minimum of £10,000.
Threshold income includes income from all sources, not just your salary. Income produced by investments and buy-to-let properties fall within the scope.
You also have to add any income given up in a salary sacrifice arrangement, used by many employers to lower National Insurance bills, if it was set up after July 8 2015. From this deduct pension contributions you made to personal pensions, such as Sipps, and to workplace pensions. If you have received a lump sum from someone else’s unused pension on their death, this is not included.
If the figure produced is less than £110,000 there is nothing to worry about – your annual allowance will be £40,000. If it is above, however, you need to calculate adjusted income.
The Government estimates that 300,000 people who save into pensions will be in this situation. Adjusted income is calculated in much the same way as threshold income but includes the pension contributions that you and your employer make both from gross pay and via salary sacrifice.
If adjusted income totals more than £150,000 the taper applies and your annual allowance will fall by £1 for every £2 of adjusted income between £150,000 and £210,000. For adjusted incomes of £210,000 or more, the allowance will be £10,000.
However, using what is known as “carry forward”, you will be able to claw back some extra allowance if you have some left over from the previous three tax years. HMRC automatically tops any contributions up by 20pc, but higher and top-rate taxpayers need to claim the extra tax relief through their tax return.
If you have accessed your pension pot using the pension freedom rules introduced in April 2015 your annual allowance is automatically cut to £10,000 and carry forward cannot be used.
However, if you make your withdrawals using a “capped drawdown” plan set up before the freedoms took effect, your limit remains at £40,000.
If you do exceed the limits, HMRC will impose a charge at your marginal rate of income tax.
Your company’s HR department will be able to help you gather some of the information needed – such as the carry forward allowance – although it will not of course have any information on your income from other sources.
Jackie Holmes, a financial adviser at consultancy Willis Towers Watson, warned that “most people are unaware they even have an issue”.
She said people with final salary pensions, which unlike defined contribution pensions will pay guaranteed amounts, face greater challenges still.
“You won’t be able to find out how much has been contributed to your final salary pension until the end of the tax year, when you get your statement,” she said.
You can estimate how much will be added to your pension over a year but, again, this is fairly complicated and can vary between company schemes.
Those who earn bonuses are also likely to run into the problem of not knowing how much they have earned in a year.
Willis Towers Watson provides a free online tool that helps calculate your allowance, but you need to input all your own figures. You can also call a government helpline, the Pensions Advisory Service, on 0300 123 1047.
I’ve contributed as much to my pension as I can. What else can I do?
As the Government continues to restrict tax relief on pensions, more people than ever will find that it is not tax efficient to save any more into their pension, either in a given year or over a lifetime.
However, alternatives are available. The annual Isa allowance increased to £20,000 from April 2017 and there are also more niche tax-efficient schemes such as venture capital trusts and the Enterprise Investment Scheme. The Government gives a 30pc tax break on these investments, which give exposure to fledgling companies.
VCTs are listed on the stock exchange just like conventional investment trusts, although you have to invest when the trust floats to get the 30pc tax break, while investing via the EIS allows direct holdings in small, unlisted firms, so is typically higher risk.
Investors must hold shares in VCTs for five years, and three for the EIS, otherwise the tax credit is reclaimed. Gains on either are tax free and VCTs pay tax-free dividends.
Jason Hollands, of broker Tilney Bestinvest, said: “While clearly attractive to the right investor one mustn’t forget that these are higher-risk investments. The underlying returns don’t have to be stellar to offer a good outcome though.
“If you can get your initial VCT investment out without a loss after five years, turning a net cost of 70p into 100p, that’s equivalent to a 43pc return tax free. But the better VCTs have delivered very good returns on top of the tax reliefs.
“The main challenge however will be availability, as these schemes raise only limited amounts each year – the tight criteria around eligible investments mean there are only a finite number of opportunities.”
However, Nick McBreen, a financial adviser at Worldwide Financial Planning, was more sceptical. “All these assets are part of the mix, but VCTs and the EIS are not for the ordinary person in the street. You have to be really careful to understand the risks and the exit strategy – your money is tied up.
“You should be filling your boots with Isas and making sure you make full use of your capital gains tax allowance first.”
Have you had trouble calculating how much you can save? Get in touch, email [email protected]
The connected home is just one example of how insurers can tap into technology to deliver better outcomes for customers: not just covering risk but also helping prevent it in the first place.
Among the technology trends identified by Accenture as in its Technology Vision 2017 report is called Design for Humans. Just as the customer experience should be as frictionless and intuitive as possible, so should technology. Technology shouldn’t be something that we need to figure out. It should simply work—and when it does, it can be leveraged to help insurers and customers achieve better outcomes.
From processing claims to preventing risks
For claims leaders, becoming more customer-centric means a shift from processing claims to preventing risks in the first place. Insurers have opportunities to help customers prevent risks before they occur, especially as the connected home becomes equipped with the Internet of Things. Smart thermostats, security systems and appliances can provide early notice of impending repairs or failures, and notify both customer and insurer before small concerns escalate into severe ones.
Already, insurers across the globe are incorporating connected home technologies to offer more personalized premiums and risk coaching services that extend beyond the traditional insurance value chain. It’s not just personal lines, either. In commercial lines, connected sensors and intelligent automation could help customers schedule preventative maintenance of industrial equipment and facilities—helping to reduce insurance claims for damaged equipment or business interruption.
And what’s next? As natural language processing becomes more advanced, it isn’t hard to see something like Amazon’s Alexa used as a channel to communicate more frequently with customers—offering tips for risk prevention or home maintenance, as a first-notice-of-loss (FNOL) tool or even a sales channel. Accenture uses a three-part playbook to help insurers develop capabilities for a digital economy. View this video to learn more about how to drive next-generation claims outcomes.
79 percent of insurers agree that organizations transform from provider to partner by understanding customers’ objectives and designing tools to meet those objectives.
Design for humans: Action items
In the short term, these shifts are about reducing claims losses and strengthening the customer relationship. In the long term, it can help the claims function become a more strategic part of the business and become a crucial player in the continual effort to engage customers and foster loyalty.
Many insurers are falling behind other organizations in their expenditure on digital technology and few of them generating good financial returns from these investments.
Insurers are lagging many of their counterparts in other industries in the scale of their investments in essential digital technology. What’s more, they’re achieving lower financial returns on this spending than lots of their peers in other sectors. To catch up, insurance providers need to rethink their digital strategies.
Our research shows that only five percent of insurers have been able to couple significant investment in digital technology with strong financial performance (see illustration below).
Another 10 percent of insurance companies, according to our recent global survey, have ramped up their digital capabilities substantially but have been unable to translate this investment into stronger financial performances. This is about half the cross-industry average. The bulk of insurers, around 75 percent, are getting by without significant investment in digital technology. This is well up on the cross-industry average of 60 percent. The remaining 10 percent of insurers are managing to produce strong financial performances while retaining their legacy technology. Around 16 percent of all the companies we surveyed fall into this category. Insurers’ average annual investment in digital technology has been around US$45 million (€41.5 million) a company for the past three years.
Our survey of 343 leading global companies from eight industries reveals significant differences between organizations that are generating strong financial returns from their digital investments and those that are not. By applying our Digital Performance Index to our research data we were able to measure these companies’ digital expenditure against four critical business functions.
Plan (Digital strategy): Examines how organizations are incorporating digital trends in their strategic plans and gauges their success at implementing these plans.
Make (Digital production and delivery): Assesses the use of digital technology in the innovation, production and delivery of products and services.
Sell (Digital customer experience): Evaluates the management of the customer experience, including engagement, sales and after-sales service, across digital channels.
Manage (Digital corporate culture and operations): Studies how organizations evaluate their digital culture and infrastructure and their use of digital technology to improve operating efficiency and resources.
Our analysis reveals that many of the insurers that have invested heavily in digital technology are not reaping sufficient value from their investments because their expenditure lacks sufficient focus. This is significantly impairing revenue growth and return on equity.
In my next blog post, I’ll discuss three areas of digital technology investment that insurers can address to multiply the value they generate from this expenditure.
Until then, have a look at this link. I’m sure you’ll find it worthwhile.
Investment in insurance technology soared in 2015. And it’s set to climb again this year. Funding in firms developing technology solutions for the insurance industry reached US$2.65 billion last year, according to researcher CB Insights. This is more than three times the spend in 2014.
After many years in the shadows, the insurance industry is firmly in the spotlight. Throughout the world, technology firms and their investors are clamoring to get a foothold in the market. A slew of smart start-ups have sprung up and are attracting heavyweight financial support. They include US companies Zenefits, Oscar Health, Clover, Collective Health and Gusto (formerly ZenPayroll) as well as Chinese innovator Zhong An. Each of them has pulled in more than $100 million in backing.
This enormous surge in investment has the potential to disrupt the insurance industry massively. It’s already reshaping health insurance. And soon almost every other sector of the industry will have to deal with rising competition and innovation. Much of it will come from new entrants to the insurance industry.
Before I look at some of the effects of this investment splurge, let’s take a step back. Why are big investors pouring money into insurance technology? Of course, rapid advances in digital technology, especially mobile communications, cloud services and data analytics, are driving big changes throughout the business. Agile companies are using digital technology to leap-frog competitors by delivering highly personalized online customer services and creating new, lucrative markets. But why is the insurance industry attracting so much attention from investors?
Well, the answers give some interesting insight into what is likely to happen in the next few years.
Market size – With annual premium revenue of around $5 trillion and assets under management close to $15 trillion, the global insurance industry is an enormous potential market for technology suppliers and their backers.
Technology shortfall – Insurance providers are well behind most other financial services firms in their investment in technology. Furthermore, spending has tended to focus on productivity and efficiency improvements rather than raising customer satisfaction and developing new business opportunities.
Conservative industry – The insurance industry throughout most of the world has changed little during the past 50 years (some might say 300 years!). Big, established carriers have become successful by prizing stability and caution above innovation and agility. This has created plenty of opportunities for nimble and inventive newcomers to the market. Of course the jury is still out on whether these new entrants will be able to transform the industry. But the chances are higher than ever before.
Detached customers – Insurance is a grudge purchase for many consumers. Relations between insurers and customers are often distant and contact infrequent. Customers are increasingly looking to their insurers to provide them with comprehensive online services similar to those they experience in other retail environments. Few can currently meet this expectation. As mentioned in an earlier blog post, one of the new mantras to emerge from the Digital Insurer Network that Accenture is running is “From touch points to trust points”. Traditional insurers need to not only increase the number of touch points they provide their customers. They must also add frequent digital interactions that build the trust of consumers.
Untapped market – While many insurers enjoy large and well-established pools of customers there are big populations of people, especially young individuals and low-income earners, who do not buy insurance products and services. The predominant paradigm of the industry remains: “insurance is sold, not bought”. Winning the hearts of new customers will be a big challenge. But it’s vital. Otherwise they’ll take up the insurance options that are being increasingly bundled with the sales of products such as cars, mobile phones and kitchen appliances.
Deregulation – The insurance industry throughout the world is heavily regulated. But changes in regulations in the U.S. and Europe have opened new opportunities for insurance providers. Some new entrants to the industry may benefit from some “regulatory arbitrage” until regulations are further adjusted. This is happening to some extent with start-ups such as Uber and Airbnb.
Could you ask for better conditions for disruption? It’s clear from the list above that the insurance industry is ripe for transformation. Technology innovators and savvy investors have spotted an opportunity to make their fortunes in the forthcoming upheaval. Many insurers have also recognized what’s coming and are beginning to change their businesses to meet the challenges that lie ahead.
Who will succeed and who will fail? It’s too early to tell. But the stakes are high for everybody.
In my next blog post I’ll discuss how the surge in investment in insurance technology is changing the industry.
The cost of car insurance has risen to the highest level on record, following a 40pc increase in the last two years.
Price rises have affected the whole market, but certain groups of drivers face the biggest hits.
The average of the five cheapest, fully comprehensive policies rose from £577 to £690 over the last 12 months.
Across the whole market, the average price jumped from £981 to £1,152 over the same period, according to data from the AA. The difference highlights the potential savings for those who shop around.
As prices have risen, the value of shopping around has increased.
The cheapest insurance policies are typically loss leading. Insurers therefore rely on customer inertia after the first year in order to raise their pricest.
The savings on offer for those who switch to the cheapest policy each year are substantial.
At the beginning of 2010, the difference between the market average and the cheapest prices for a comprehensive policy was £215, compared to £464 now.
The level of price increases experienced by consumers has varied significantly by age group, area and gender.
For instance, in Northern Ireland the cost of the cheapest policies increased by 3.5pc between the first and second quarters of 2017. In London over the same period that increase was 7pc, and in Anglia – the highest – it was 11pc.
Age wise, 50 to 59 year olds have suffered the smallest rise in car insurance costs this year, with a 6.2pc increase between the first and second quarters.
By comparison, 17 to 22 year olds have borne the heaviest price hike – with costs soaring by 10.6pc over the same period.
The biggest gender gap sits in the 40-49 year old age range. Between the first two quarters of this year, men in this age range experienced a 6.6pc price rise, compared to 9.6pc for women.
A number of factors have been blamed for the dramatic increase in prices.
Insurance Premium Tax (IPT) has more than doubled since 2011, and a recent formula change has upped payouts for those who suffer long-term injuries. These are costs that have been passed on to customers.
Aside from policy changes, the main driver behind rising costs is insurers’ compromised ability to make money from their other activities, such as selling add-ons to policies.
A planned crack-down on fraudulent personal injury claims is intended to reduce insurance costs, but may not have the desired effect.
Michael Lloyd, the AA’s insurance director, said: “We are in a sharply upward cycle and premiums will continue to rise until competitive pressure once again forces a downward spiral – but that is some way off.
“I fear that the Chancellor may once again target IPT in the autumn Budget as a quick win to fill in some of the Government’s financial potholes.”
For Britons travelling on the continent, a European Health Insurance Card (EHIC) – which affords travellers state provided necessary medical treatment in the host country – has long been a default item to take on holiday.
They cover temporary stays in European Economic Area (EEA) countries, plus Switzerland, and over 27 million people have one, according to the Department of Health.
Patients are effectively treated as a resident of the country in question, either at a reduced cost or for free by the state healthcare system, with the home nation picking up the tab.
However, the future of this benefit has been thrown into doubt by the vote to leave the European Union.
Nothing will happen to the EHIC when Article 50 is triggered, as it merely starts the process of leaving the European Union.
One of the major factors in deciding whether the EHIC will remain available to British citizens is whether there is a separation from the EEA, as the card is not an EU initiative.
There are countries, such as Norway and Iceland, who are EEA members but not EU members and accept the EHIC. The UK could feasibly adopt this model.
However, Gemma Sonfield, head of travel insurance at comparison website comparethemarket.com, said: “One of the Leave campaign’s major arguments centred on immigration and border control. As the EEA allows for the free movement of people around the EU’s 28 member states, it is also feasible that Brexit will sever ties with the EEA as well, in which case the EHIC would likely cease to exist.”
Ms Sonfield highlighted Switzerland as an exception that is neither an EU or EEA member, but accepts the EHIC as part of the single market.
“There has been speculation as to whether the UK could follow the Swiss model,” she said.
The knock on effect to insurance costs could be significant in the event that the EHIC becomes unavailable for British citizens. Insurers would have to take into consideration that they would be footing the bill for all medical treatment, rather than having a proportion dealt with through the EHIC system.
Ms Sonfield added: “The card provides such good health protection that some insurers now insist you have to have an EHIC to take out a policy, and many will even waive your excess if you do have one.”
A Government spokesman said: “The rights and entitlements that will apply following the UK’s exit are subject to the wider negotiation on our future relationship with the EU.
“At every step of these negotiations we will work to ensure the best possible outcome for the people of the United Kingdom, including those travelling to and living in EU countries.”
In early June, my husband and I took a bucket list trip to Europe with our kids. While we’ve visited countless countries worldwide as a couple, this was our first “big trip” with our daughters, ages six and eight. In addition to the four of us, we took a family caregiver to help with the kids and give Mom and Dad a break. Over the course of 19 days, we spent time in Germany, Italy, and Switzerland. The entire ordeal was exhausting, but it was an absolute blast!
Fortunately, we planned far enough ahead that we didn’t spend too much out of pocket while we were there. By leveraging travel rewards credit cards and setting a daily spending budget, we were able to get the entire trip, which would normally cost $20,000 retail, for around $3,500.
In addition to the virtues of planning ahead as a savings strategy, we learned numerous financial lessons during our travels. While we were aware of most of these lessons already, seeing the world through our children’s eyes served as the perfect reminder of the reasons behind some of our most important financial decisions.
Here are a few lessons we relearned thanks to our trip abroad.
1. Failing to plan means planning to fail
One of the most expensive components of our trip was dining, mostly because there were five people in our group. No matter how cheaply you try to eat, feeding five people three meals a day means your food budget adds up quickly.
While we tried to minimize our food costs by eating breakfast in our condo and searching for budget options, there were times where we didn’t plan ahead and paid a steep price for our lack of preparation.
One meal in particular stands out. We traveled by train to Rome in the morning and arrived in early afternoon without researching restaurants or stores in the immediate area. In a tired and hungry daze, we entered the first restaurant we walked past near Piazza Navona.
Unfortunately, we paid big time for this oversight. Not only was the food overly touristy (pictures on the menu — blech), but our lunch set us back nearly $90. If we had searched ahead of time, we would have known we could have found much cheaper (and probably tastier) options had we walked a block in the other direction.
2. Expensive does not equal better
That meal also served as a reminder that expensive isn’t always better. We paid $90 for a lunch that was mediocre at best on that particular day, but at other times we enjoyed meals that were absolutely delicious and downright cheap.
One that comes to mind was a meal we had in nearby Florence, Italy. In order to keep our food budget under control, we started researching local restaurants once we arrived. Eventually, we stumbled upon a sandwich shop — Panini Toscani — that was uber-cheap but was also the third highest rated restaurant in Florence.
We wound up eating there twice. The food was delicious and convenient, and our total meal for five people was less than $20 both times.
3. Even budget trips can be fun
By the time we got to Switzerland (our last stop), I was pretty tired of spending money in general. So, when we had our final “free day” in the country, I spent some time looking for something fun and affordable to do.
Eventually, I remembered a town we drove by that had the most beautiful, clear-green lake I had ever seen. After looking up the details, I found that the tiny village of Lungern had a public beach and a few waterslides with a daily admission cost of about $5.25 per adult.
This relatively cheap day was probably the most fun we had. All of us swam and rode waterslides the entire day, stopping only to have a low-cost lunch.
It just goes to show that budget travel can absolutely be fun, and that you don’t have to spend a ton of money to enjoy yourself.
4. There’s more than one “right way” to do things
One of the most rewarding components of travel is watching my kids react to the many ways other countries handle things differently. My kids were obsessed with euros, for example. They couldn’t understand why anyone would choose to offer two euros in the form of a coin.
I also had to explain why we didn’t tip as much as we normally do. Since workers in Europe are paid higher wages, you don’t have to tip 15–20 percent like you do in the states.
While we could argue all day over which way is better, I told my kids there is more than one “right way” to do things sometimes.
5. We actually need very little
While I wasn’t sure we could pull it off, we made it through the entire trip with just carry-on luggage and two school-sized backpacks of stuff. It helped that one of our condos had a washing machine, but I was still amazed we enjoyed ourselves without many comforts from home.
This just goes to show that most of us don’t need a lot to be happy. We need clothes, food, and shelter, but everything else is optional. We can be happy and content without having a bunch of stuff to bog us down.
6. Most people are honest, but not everyone
Most of the people we dealt with abroad were both kind and honest — except for a couple of small incidences. First, we encountered a taxi driver who tried to charge us $28 (instead of running his meter) to take us four blocks in Rome. Not only was this outrageous since we’d paid $7 for the same ride earlier that day, but it was illegal for him to do this since the city of Rome regulates official taxis.
Second, when we got home from the trip, we received a fraud alert from Chase. Apparently, someone had swiped our card information and tried to make a purchase in Peru.
This kind of stuff happens no matter where you are, so it’s important to always stay vigilant.
7. Exchange rates matter
Whenever I travel abroad, I almost always struggle to keep track of the currency exchange rate and how it affects everything we buy. But, since a single U.S. dollar is currently worth just .87 euros, this is an important detail to keep in mind. If something costs 10 euros, for example, you’re actually paying $11.55.
While I used a credit card with no foreign transaction fees to pay most of our expenses, I tried hard to impart this lesson on our kids. No matter where you are in the world, chances are good the money isn’t worth the same as at home. And, if you don’t pay attention, you could wind up spending a lot more than you think!
8. Some experiences are worth the money, even if they’re expensive
While we definitely saved a bundle on this trip due to the way we leveraged credit card rewards, we still spent $3,500 of our hard-earned dollars. On top of that, I probably spent 30–50 hours planning not only our credit card rewards strategy, but our hotels, flights, and trains.
The thing is, I don’t regret a single cent — or a single second. Over my lifetime, I’ve learned that some experiences are worth the money and the time, even if it seems like a lot.
It’s hard to put a price tag on a fun family trip that exposed us to cultures in a completely different part of the world. I believe it was priceless. Some memories are worth saving up to splurge on.
Americans are more burdened by student loan debt than ever, with the average graduate in their 20s making $351 a month in student loan payments. Suggested changes to the federal student loan program could have even more college students questioning just how much student loan debt they want or can afford.
As part of its overall budget plan, the Trump administration would like to eliminate current provisions in which the government pays the interest on student loans taken out by low-income students while the borrower is still in school and for six months after graduation.
The Trump administration is also proposing to end the Public Service Loan Forgiveness program. This program allows borrowers who go on to work for the government or for nonprofits to have the remainder of their federal student loans forgiven after they make 10 years of payments.
Even though these potential changes might never be signed into law, just the possibility of such changes makes it even more important for students to ask the right questions before they take out federal or private student loans.
Here are six questions you should ask before signing up for any student loan.
1. Have you considered all education options?
Your first-choice school might be the most expensive university on your list. You might be able to reduce the amount of money you borrow each year by choosing a less costly option.
Instead of attending a private college, you might investigate a public university. Instead of going to an out-of-state school, you might consider going to school in-state, which comes with lower tuition. You could also attend a community college for two years before transferring to a private or public university for the remainder of your college years. These choices could reduce the amount of student loan debt you’ll have to take on.
2. Can you cut out room and board?
The College Board reported that the average yearly cost of room and board at a public four-year university stood at $10,440 during the 2016–2017 academic year. You can save that expense if you attend a college that allows you to live at home while taking classes.
Yes, you will lose out on some of the traditional college experience. But taking on less student loan debt might be an acceptable trade-off.
3. Are you borrowing too much for your potential future income?
Certain careers pay more than others. You need to remember this when applying for student loans. You don’t want to take on huge debts if you expect to make $40,000 a year when you graduate. But taking on larger amounts of debt might be a solid financial choice if you are working toward a higher-paying degree.
4. How big of a student loan payment are you willing to make once you’re working?
Borrowing money might seem easy when you’re still in school. After all, you’re probably not making payments on these loans yet. But once you’re out in the working world, that student loan debt won’t seem so benign.
You will have to make payments each month. And these payments will come in addition to rent, car payments and, eventually, mortgage payments. Student loan payments become a huge financial burden to many. Before borrowing today, you need to consider how comfortable you’ll be making those payments in the future.
5. Are there other types of financial aid available?
Before applying for a student loan, make sure you explore all financial aid options with your high school counselor, or the university you plan to attend. Many universities offer merit scholarships to incoming students. You usually don’t have to apply for these scholarships. Schools automatically provide them, usually based on your academic performance. Even if you’ve been offered one, you might be able to persuade your university to provide you with a larger merit scholarship, especially if you are worried that you won’t be able to afford the yearly tuition without financial help.
There are other types of scholarships, too, that you should investigate. The U.S. Department of Education says that there are several ways for college students to search for scholarships and grants. They should first speak with the financial aid office at the college they are attending. These professionals often have tips for hunting down scholarship and grant money.
They can also use the free online scholarship finder offered by the Department of Education. The department also offers an online list of state grant agencies that students can search to find scholarships and grants in their states.
Call your school’s financial aid office to discuss options such as work-study programs and possible additional financial help.
6. Can you get by without private loans?
Even if you get grants and scholarships, you may still need student loans. There are two types of student loans to consider: Federal loans offered through the federal government or private loans offered by private lenders. Federal loans are preferable because they usually come with lower interest rates and more flexible repayment programs. Federal loans also provide more options if, after graduating, you find yourself struggling to make payments, including deferment and eventual forgiveness programs.
It’s far better to rely as much as possible on federal subsidized or unsubsidized student loans. The challenge is that these federal loans have limits; you can only borrow so much each school year.
Your school might also offer its own lower-interest loans that would be cheaper than private loans. But if these options still aren’t enough, you’ll have to determine whether taking out less attractive private student loans to attend college is worthwhile. It might be the only option.