Proposed Bill Lowers FHA Costs for Educated First-Time Buyers

Last updated on March 20th, 2014

A new bill being floated by Representative Karen Bass (D-Calif.) aims to lower the costs of obtaining an FHA loan, which have surged in recent months.

Back in April, the FHA’s upfront mortgage insurance premium increased from 1% to 1.75%. On a $200,000 loan, we’re talking about an increase of $1,500, which certainly isn’t incidental.

The change was implemented to bolster the FHA’s capital reserves, which were drained as a result of the ongoing mortgage crisis.

But clearly this has made FHA loans a lot less attractive to first-time homebuyers, many of which rely on the agency’s signature low-down payment loan program, which requires just 3.5% down.

Enter the Homeownership Preservation Education (HOPE) Act

To offset some of these new costs, Bass has proposed new legislation, namely, the “Homeownership Preservation Education (HOPE) Act.”

In short, it provides a 0.25% reduction on the FHA upfront mortgage insurance premium for first-time homebuyers who complete a HUD-approved housing counseling course.

On that same $200,000 loan referenced earlier, a borrower would save $500 in closing costs, making homeownership more attainable and a little less painful.

The general thinking behind the bill is that more educated homeowners default less often, which reduces foreclosures and losses for the FHA.

As a result, these types of buyers should be able to catch a break on the costly upfront mortgage insurance premium.

While it may seem minimal, every little bit helps because purchasing a home can deplete your assets very quickly.

Look at Mortgage Alternatives

While this bill is certainly well intentioned, first-time homebuyers should also consider other loan options, such as conventional loans.

Though you generally have to come up with 5% down, you won’t have to deal with the pesky FHA upfront mortgage insurance premium, which is now ridiculously high.

Or look at programs such as Fannie Mae Homepath, which only require a 3% down payment and NO mortgage insurance.

If possible, you may also want to consider getting a gift for a larger down payment, that way you can avoid mortgage insurance altogether.

And with a loan-to-value ratio south of 80%, you’ll also enjoy a lower mortgage rate, which will decrease your mortgage payment and increase your affordability.

So along with the HUD-approved homeowner education course, educate yourself on all your loan options well before applying for a loan.

Also be sure to take the time to review your credit report to ensure there are not any errors holding you back from securing a lower rate.

Putting in the time to do some housecleaning before applying for a mortgage is probably the best way to save money.

By the way, beginning next week, the FHA is cutting mortgage insurance premiums for streamline refinances., which should be a godsend to scores of underwater homeowners.

Read more: Which mortgage is right for me?

(photo: cdsessums)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


New Rule Aims to Demystify Mortgage Origination Costs and Fees

Posted on August 21st, 2012

Yet another proposed rule is being floated by the Consumer Financial Protection Bureau (yes, they’ve been busy) to help mortgage shoppers better understand the origination costs and fees associated with their home loans.

The group argues that in its current state, it’s difficult for consumers to compare different combinations of mortgage rates, points and fees.

So in reality, consumers can still wind up with a bad deal, or a not-as-good deal, unknowingly, thanks to the complicated nature of mortgage lending.

Additionally, without this rule, the Dodd-Frank legislation would essentially prohibit the payment of upfront points and fees, even if a borrower wanted to pay them to snag a lower mortgage rate.

[Watch out for low mortgage rates you must pay for!]

No-Point, No-Fee Mortgage Options Required

To clear things up a bit, the CFPB wants to make it a requirement for all loan originators to offer no-point and no-fee options alongside those where the borrower pays the fees.

They believe this will make it easier to comparison shop among different banks and lenders, because as it stands now, it’s really hard to get an apples-to-apples comparison.

Even if a consumer doesn’t shop around, the CFPB argues that they’ll be able to compare multiple loan offers from a single lender to better determine what rate and fee combination is best for them.

For example, a borrower could get the option of paying 1% of the loan amount for a 30-year fixed rate of 3.5%, or no origination fees at 3.625%.

The only time a lender wouldn’t have to offer these options is if doing so would lead to disqualification.

In other words, if a borrower’s mortgage rate jumped as a result of a no cost loan, making them ineligible for the loan to begin with.

My guess is that there will be a lot more no cost loans in the future, as most borrowers will prefer a loan where they pay nothing out-of-pocket, and only see their monthly mortgage payment rise by $20 or some other incidental amount.

Interest Rate Must Drop When Paying Upfront

In addition to that rule, the CFPB wants to ensure that paying mortgage discount points or loan origination fees at closing actually lowers a borrower’s interest rate.

So if a borrower pays one mortgage point, they should see their mortgage rate fall by a certain percentage, whether it’s a quarter of a point or just an eighth.

If the borrower’s mortgage rate doesn’t fall by some amount, upfront points or fees would essentially be disallowed.

After all, if a borrower is paying upfront costs for a lower interest rate on their loan, but doesn’t actually receive one, it’s arguably predatory.

All in all, it looks like there will be more transparency regarding interest rate buy downs and prepaid interest, which is a good thing if executed properly.

But there’s still some interpretation to the rule. A bank could charge a hefty loan origination fee and offer a disproportionate interest rate reduction.

More Qualified Loan Originators

Finally, the CFPB wants to beef up qualification and screening standards for the lovely people that originate our mortgages.

So no matter if an originator works for a bank, thrift, mortgage broker, or a nonprofit, they would be subject to the same character, fitness, and financial responsibility.

Additionally, they would be screened for felony convictions, and would all be required to undergo training to ensure they actually know what the heck they’re talking about.

Yes, there are scores of loan originators, mainly at the big corporate banks, who don’t know the first thing about mortgages. Instead, they rely on a computer to figure it all out for them, even if it’s not in your best interest!

Ideally, this will lead to more educated loan originators making better decisions for borrowers who need some guidance during the loan process.

The CFPB is seeking comment on these rules, and will finalize them by January 2013.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


The History of Federal Student Loan Interest Rates

More than two out of three of recent college students took out loans to help cover the costs of furthering their education—averaging $29,900 per borrower, including private and federal debts.

When it comes to paying back student loans, both the total amount borrowed (i.e., the principal) and the interest rates (i.e., the percentage charged on top of the principal) can shape how much a borrower ends up shelling out over the life of the loan.

And, just as the cost of attending college in the US has changed with the times, the interest rates charged on educational loans have historically fluctuated.

While the cost of attending college has steadily gone up, the history of student loan interest rates shows both ups and downs. For instance, the 2020-2021 federal loan rates for undergraduates are now 2.75%—compared to 4.29% just five years ago.

A wide variety of educational loans are available to eligible students—including subsidized and unsubsidized federal ones and those handled by private lenders.

Interest rates for different loans change over time. The US government plays a major role in shaping the student loan landscape, setting fixed interest rates each year on federal loans, which can impact the total amount a borrower ends up paying back.

To understand the history of student loan interest rates, it can be helpful to zoom out and take a wide-lens view of the student loan landscape in the US.

The US federal government is the major player in student lending—with $1.51 trillion in debt owed by more than 40 million borrowers. (By comparison, private lenders account for $119 billion in student debts).

Below is an overview of how current rates compare to the recent history of student loan rates:

Understanding US Student Debt

Of the around $14 trillion of outstanding household debt, more than $1.7 trillion comes from student debt—that totals more than what Americans owe for cars or credit card debt, respectively.

Besides mortgages, student loan debt accounts for the largest form of household debt. More than 90% of all outstanding student loans are federal student loans, making the student loan interest rate set by the federal government a significant factor for millions of student borrowers.

Whereas private student loans tend to be set according to a combination of prevailing interest rates and the lender’s projection of the student’s ability to pay, federal student loan rates can be shaped, in part, by something even more confusing than the fine print on a financial statement: politics.

Federal student loans are fixed interest (but the rates are adjusted annually), while private lenders often provide both fixed-rate and variable-interest loans.

Here’s an overview of federal student loan rates and some changes they’ve seen:

What Did the Coronavirus Pandemic Change?

Right now represents an exceptional period in student lending. Typically, federal student loan interest rates are set according to a formula established by the US Congress.

However, presently, the rate is set to zero through September 30, 2021. This means interest will not accrue on Direct Loans, FFEL loans, and Perkins loans issued by the Education Department.

Payments due on federally held student loans have also been paused through at least Sept. 30, 2021. Both actions are a result of a presidential executive order that extended benefits first established in the CARES Act—in response to the extraordinary economic situations triggered by the novel Coronavirus pandemic.

Federal Student Loans

Federal student loans represent the lion’s share of student lending. But, there’s more than one type of federal student loan. There are a variety of federal educational loans with different student loan interest rates that, historically, have changed with time—from subsidized to unsubsidized, from undergraduate to graduate.

Current federally owned student loans include Direct Loans, Direct PLUS loans, and Parent Plus Loans.

Direct Loans

“Direct Loans” are responsible for the majority of federal student lending. Issued by the US Department of Education, these loans include both subsidized and unsubsidized student loans.

Subsidized loans are for borrowers who can demonstrate financial need and are exclusively available for undergraduate education, while unsubsidized loans can be used by graduate students. There are also Direct PLUS loans for graduate students and parents of students.

Direct Loans for the 2020-2021 school year have a fixed interest rate of 2.75% for both direct subsidized and direct unsubsidized loans—notably lower than the interest set on federal loans in previous years.

As a point of comparison, Direct Loans for the 2019-2020 academic year were set at 4.53% for subsidized loans and unsubsidized loans. Two years ago (2018-2019), that rate was 5.05%.

Additional Types of Federal Student Loans

The other type of direct loans are PLUS loans and PLUS parent loans. These both carry interest rates determined through a federal government formula. For the 2020-21 school year, the rate on PLUS loans is 5.3%, coming down from 7.08% in 2019-20, and 7.6% two years ago.

For those going to graduate or professional school, the rate for direct loans is now 4.3%. Federal PLUS education loans have a fixed interest rate.

Disused Federal Student Loan Types

The Federal Perkins Loan Program offered fixed-rate loans, at a 5% interest, to qualifying students. This program was aimed at students with exceptional financial need. Schools stopped disbursing Perkins Loans in 2018—after their authority to do so expired under federal law.

How Are Rates Determined?

Traditionally, federal student loan interest rates have been determined in response to laws passed by the US Congress. According to a piece of legislation from 2013 known as the “Bipartisan Student Loan Certainty Act,” the rate on direct loans is determined by a formula pegged to borrowing cost for government debt.

The first year under this formula produced 3.86% rates on direct loans. During the year before, the 2012-2013 academic year, subsidized loans were 3.4% and unsubsidized loans were 6.8%. (A 2007 bill had lowered the subsidized rate to 3.4%, but it was due to expire in 2012 and go back to 6.8%.) The bill, which set up the formula currently governing federal student loan rates, was meant to address this snapback to a higher rate.

Before the legislation passed, Congress directly set the student loan interest rate, with 3.4% rates on subsidized loans and 6.8% on unsubsidized loans for the 2012-2013 school year. The 2013 bill also introduced caps that limit how high interest rates could go on the new formula.

The cap for direct loans to undergraduates was 8.25%, for graduate student loans it was 9.5%, and for PLUS loans, it was 10.5%. Since 2013, the rates have remained well below the legal caps. You can find previous rates for Direct on the Federal Student Aid website .

Politics and Student Loans

Today’s rates are governed by a formula that differs for different types of loans.

For undergraduate loans, the formula is the interest rate on one type of government debt at a certain time of year plus 2.05%. (The extra interest is added to cover the cost of deferrals, forbearance, and defaults). For graduate student loans it’s that same government debt rate plus 3.6%. And, for PLUS loans, it’s that rate plus 4.6%.

Put another way, the cost students pay to borrow money from the federal government is determined by the cost the government pays to borrow money—plus a fixed buffer of extra interest, which is intended to reduce risk to the government of students not being able to pay back their loans.

Since late 2018, government borrowing costs have been coming down and since the coronavirus epidemic slammed the brakes on the world economy, borrowing costs have been especially low. So, since the 2018-19 school year, rates have been falling, from just over 5% to under 3%.

Federal student loan interest rates for the 2020-21 school year dropped considerably, in part due to the COVID-19 pandemic and resulting economic downturn. The interest rate on direct subsidized and unsubsidized loans is just 2.75%, down from 4.53% during the 2019-20 school year.

The Takeaway

The interest rates on federal student loans are set by congress each year and are fixed for the life of the loan. The interest rates are determined based on a formula that the rate on direct loans is determined by a formula tied to borrowing cost for government debt. Federal student loan interest rates for the 2020-21 school year are historically low . The interest rate on direct subsidized and unsubsidized loans is 2.75%.

Millions of students use federal student loans to help them pay for their higher education. These loans come with benefits baked in—including grace periods, income-driven repayment options, forgiveness for public service, and forbearance—that are not guaranteed by private student loans.

But sometimes, federal student aid isn’t enough to cover the cost of tuition and other expenses. For some, a private student loan may help cover the total cost of attending college—including school-certified expenses like, tuition, fees, room and board, and transportation.

Private loans are disbursed by non-government institutions. SoFi, for instance, offers competitive rate in-school loans that come with no fees. And, when a borrower enrolls in autopay, they could get a rate discount.

For those with outstanding student debt, refinancing may be an option to consider. Refinancing student loans may help eligible borrowers pay off their loans faster or lower their monthly payments. (It’s worth noting that refinancing a federal loan with a private lender eliminates federal benefits).

Looking to pay off your student loans? Learn how refinancing with SoFi might help save thousands and lower your interest rate. Check your rate in just two minutes.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.



Biden Housing Secretary Seeks $100B Funding Boost

Marcia Fudge, the Biden administration’s recently confirmed Housing and Urban Development Secretary, has urged lawmakers to top off the department’s budget by as much as $100 billion. So reports Politico.

Fudge also called for Congress to make permanent the majority of housing-related pandemic legislation.

HUD’s annual budget, holding near $55 billion of late, is inadequate to meet the needs of more than 500,000 homeless, fix up deteriorating public housing and remove lead from subsidized housing, Fudge said in a press briefing.

Read the full article from Politico. 


New Legislation Will Bring Changes To The Credit Card Industry

If you’ve been reading this blog for any period of time, you probably know that I’m not a huge fan of credit cards.  As a Dave Ramsey fan and facilitator for his Financial Peace University class, you’d probably understand why.  In general I think that using debt and credit are just poor ways to get ahead.

I’ve also talked about how Credit Card companies often do things that are unethical, and how they won’t look out for your best interests.  Sometimes they’ll even do things that are downright illegal!  Needless to say, in many respects the credit card industry is in need of some increased regulation.  It looks like that may be happening.

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A Good Idea Or Not? Could There Be Unintended Consequences?

Not everyone is hot on the idea of this credit card legislation saying that it could hurt the industry, and have the unintended consequence of hurting those it is trying to help.  From the Washington Times:

“When you start restricting the price banks can charge to customers, they are going to start cutting back their lending,” said Erik Benrud, finance professor at Drexel University in Philadelphia.

“If the banks know they can’t raise rates on existing balances, that too will restrict their desire to make loans to certain groups,” he said.

In essence he’s saying that the people who might be helped by the provisions in the bill would actually be harmed because they wouldn’t be able to get credit in the first place, or as another person mentioned, the cost of higher risk borrowers would be transferred to responsible borrowers through higher interest rates and fees for everyone.  It could also mean fewer rewards programs.

Consumer advocates disagree that the bill will hurt as some industry experts have mentioned.

“You mean, if they can’t rip us off they are going to give us less credit?” said Gail Hillebrand, financial services campaign manager at Consumers Union. “We’ve been hearing that argument for a long time.

“I don’t think they’re going to give us less credit, but if they can’t rip us off, that’s a good thing,” she said.

Others went on to say that the argument that all borrowers will pay higher interest rates is a moot point – as many responsible borrowers are already seeing rate increases or added fees for no reason other than the companies are trying to make up for losses in other areas.

Personally I can see the law having some unintended consequences, and I fully expect that the credit card companies could in fact restrict access to credit, raise interest rates for all borrowers and cut rewards programs significantly.  We shall see if that actually  happens.


The credit card legislation really isn’t a big issue for me as i don’t use credit very often, and when I do it gets paid off right away (with cash I already have saved).  For borrowers that are responsible and pay off balances quickly, the provisions in this bill will probably have limited effect.

For those that carry a balance from month to month this bill will most likely give some added stability and transparency to their credit card relationships, and keep the companies from completely taking advantage of them.

Personally the only reservations I have about this legislation is that once again it means the government is getting way too involved in another industry, and they’re on their way to controlling pretty much every aspect of our financial lives.  I’d much prefer the free markets take their course, and that the government instead stress personal financial responsibility for average Americans, and help to make credit card use a thing of the past! (yeah right)

What do you think of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD)?  do you think it’s a good idea?  Do you think it will have unintended consequences? Let us know what you think in the comments!

What Others Are Saying


Mother-In-Law Apartments Provide Benefits With Relative Ease

Whether you’re housing an elderly relative, a recent grad, or out-of-town visitors, an accessory dwelling unit can be a real asset.

By Barry Bridges

The term “mother-in-law apartment” seems straight out of the Don Draper era — a sardonic reference to strained relations between married couples and parents. These days, many homeowners are turning to these separate-but-joined living quarters as a way to reduce friction in their daily lives, not increase it.

A “mother-in-law apartment” is an accessory dwelling unit (ADU), a separate living space that is either attached to or located on the same grounds as a single-family home. ADUs are also referred to as mother-in-law suites or guesthouses.

The purposes and desired rewards of ADUs vary. You could use the extra space to house an aging family member, an arrangement that offers convenience, peace of mind and an alternative to pricey senior housing.

Got a Boomerang Kid who’s back at home after finishing college? An individual living space can supply some adult-level privacy as he or she figures out a career strategy.

For homeowners without familial obligations, renting out their ADU is a way to earn extra income.

The potential benefits of a mother-in-law apartment are clear. But before you start thinking about floor plans and furnishings, make sure you also have a clear understanding of the work involved

Get ready to spend

ADUs typically fall into two categories: attached (a converted garage or basement, for instance) or detached (such as building a free-standing cottage beside your home). Whichever route you take, be prepared to spend some money and navigate your way through some red tape.

The costs of planning, designing and constructing an ADU can vary a great deal, mainly depending on whether you want to add to an existing home or build from the ground up.

Converting a garage into a separate living space could cost as little as $40,000. Building a detached structure tends to be more expensive, with costs that could approach $100,000 or more. Advocates say prefabricated cottages offer an affordable option, but any ADU is a serious investment.

Think about how you plan to use the unit — as living space for a family member or as a source of income — and spend your money in the way that makes the most economic sense.

What about regulations?

Like any other living space, your ADU will have to comply with local and/or state housing regulations. Fortunately, many urban planners like the ADU concept because it can provide affordable housing options without the negative effects of large-scale residential developments.

In California, some state and local officials have even taken steps to ease restrictions on ADUs. For example, Placer County regulators voted earlier this year to decrease the minimum lot size for accessory units from 10,000 square feet to 5,000 square feet. And State Sen. Bob Wieckowski recently sponsored legislation that includes the elimination of certain fees.

Just like the cost of an ADU, the regulatory landscape can vary by location. Contact your city’s zoning department, or its equivalent, to learn about the requirements in your community.

Protecting your investment

The prep work doesn’t end with blueprints and building permits. You should also make a plan to insure your ADU so that the property and people have adequate protection.

Coverage options may vary by provider and policy, which makes it important to consult with your home insurance agent about questions, such as:

  • Will this unit need its own insurance or will your existing homeowners policy cover it?
  • What are the liability implications of adding an ADU to your home?
  • If you’re renting out the unit, will you need to get landlord insurance?
  • Should you require tenants to have renters insurance to help protect their belongings?

Consider the answers carefully, because they could directly influence your decision.

Don’t forget the due diligence

“Mother-in-law apartment” may have some snarky undertones, but a well-planned and well-executed ADU could seriously improve quality of life for you and your family.

Just make sure that you do your homework — exploring the costs, regulations and insurance requirements — before you start working on your home.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published May 3, 2016.

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Stimulus Check Warning: IRS Can Reduce Your Recovery Rebate Credit for Child Support or Other Debts Owed

Your first- or second-round stimulus check couldn’t be taken away to pay back taxes or other government debts you owe. Second-round stimulus checks couldn’t be garnished to pay child support arrears or money owed to private creditors or debt collectors, either. But what if you didn’t receive a stimulus check – or didn’t receive the full amount – and you’re expecting to get the stimulus money your entitled to by claiming the Recovery Rebate credit on your 2020 tax return?

Unfortunately, thanks to a little-known provision in the COVID-relief law passed in December, most of those protections don’t apply to Recovery Rebate credits. So, if you get a refund on your 2020 tax return because of the credit, the IRS can take it away to pay any child support, state taxes, or other government debts you owe. Banks and other creditors and debt collectors may be able to snatch your refund, too.

The IRS is aware of this situation and has provided some limited relief (i.e., it won’t reduce refunds to pay federal taxes owed by people who claimed the Recovery Rebate credit on their 2020 tax return). Congress could step in and change the law, too. But for now, garnishment of any tax refund you get this year is possible – even if the refund is entirely based on the Recovery Rebate credit.

[Stay on top of all the new stimulus relief developments – Sign up for the Kiplinger Today E-Newsletter. It’s FREE!]

Stimulus Checks vs. Recovery Rebate Credits

Stimulus checks are actually just advance payments of the Recovery Rebate tax credit. As a result, when you calculate the credit amount on your 2020 tax return, you’ll have to subtract the combined total of your first- and second-round stimulus checks (assuming you got them). If you still have a credit left after subtracting out these stimulus payments, it will lower your tax bill, trigger a tax refund, or make your refund bigger. If the amount of your stimulus checks equal or exceed the amount of the credit, you don’t have to repay the difference.

The amount of each stimulus check and the amount of your Recovery Rebate credit are generally calculated in the same way. However, the IRS relies on different sources of information to determine the amount of each – that’s one of the reasons why the two amounts could be different. For first- and second-round stimulus checks, the IRS mainly looked at your 2019 tax return. If you didn’t file a 2019 return, they looked for a 2018 return to calculate first-round payments. If you didn’t file a 2018 or 2019 return, the IRS may have gotten the information it needed from a special online portal for non-filers or from a government agency that pays you benefits, such as the Social Security Administration or Department of Veterans Affairs.

There are other reasons why the combined total of your first- and second-round stimulus checks and your 2020 Recovery Rebate credit are not equal. For instance, if you had a child in 2020, the extra $500 or $600 amount added to first- and second- round stimulus checks for qualifying children wouldn’t have shown up in your stimulus payments, but the extra amounts will be tacked on to your Recovery Rebate credit. Some Americans had their stimulus checks reduced because of their 2019 income, but because of lost income in 2020 their Recovery Rebate credit won’t be lowered. Many people didn’t receive one or both of their first two stimulus checks simply because the IRS didn’t have enough information to process a payment for them. Prison inmates were unlawfully denied their first-round payments, but the correct amount will be included in their tax credit. There are many other situations that could trigger a positive Recovery Rebate credit on your 2020 return, including that the IRS simply messed up and sent you a stimulus check for the wrong amount.

Are Recovery Rebate Credit Garnishments Unfair?

Because of the tax-law change made in December, “the rug is being pulled out from under eligible individuals with outstanding debts,” said Erin Collins, National Taxpayer Advocate, in a January 28 blog post. “Since the spring, the IRS reassured these taxpayers that if they claim the [recovery rebate credit] when they file their 2020 returns, they will get the full amount of stimulus money they are eligible for and be made whole. Now that reassurance turns out to be inaccurate based upon the law change.”

Here’s the situation, according to Collins:

  • People with certain outstanding debts who received the full amount of their stimulus checks didn’t have their payments subject to garnishment (except for past-due child support for first-round payments), but
  • People with similar outstanding debts who didn’t receive the full amount of their stimulus checks will receive a reduced Recovery Rebate credit or nothing at all when they claim it on their 2020 tax return.

“This disparate result undermines public confidence in the fairness of the tax system,” said Collins. “Financially struggling taxpayers who were entitled to receive the full amount of the [stimulus check] last year but did not have effectively been harmed once. It is unfair to harm some of these taxpayers a second time by seizing some, or all, of their stimulus payments.”

Possible Solutions

In a March 15 blog post, Collins said the IRS won’t reduce Recovery Rebate credits to satisfy federal tax debts. That will help, but it won’t stop refund reductions to pay for other debts. Plus, there’s still the question of what to do about people who filed their 2020 tax return and had their refund reduced or taken before the IRS implements this new policy.

A better solution for taxpayers is for Congress to reverse the December change so that all the garnishment protections allowed for stimulus checks are made applicable to the Recovery Rebate credit as well. This adjustment wasn’t included as part of President Biden’s $1.9 trillion American Rescue Plan, but perhaps it will be addressed in future legislation.


Credit Karma: Get Your Credit Score For Free

The Fair Credit Reporting Act was legislation that put in place consumer friendly credit practices, including allowing consumers to obtain one free copy of their credit report each year from each of the three major reporting agencies.  The three agencies include TransUnion, Equifax and Experian.

While you get your credit report for free, getting your actual credit score used by companies in determining your creditworthiness would usually cost you a little bit more. 

For example, when you order your free credit reports from, you can also get your credit scores, but there is a small additional fee.  

Now there is a free way to get at least one of your credit scores – and you don’t need to use a credit card or anything along those lines. It’s a site called Credit Karma.

Credit Karma Review - Website Homepage

Free Credit Score From Credit Karma

I’ve been using Credit Karma for quite a while, almost since they were launched back in March 2008.

I believe I was part of a beta test having gotten a code to sign up through another personal finance site. I’ve been using the site since then, but I just now realized that I had never written a full and comprehensive review of the site.

Credit Karma review

Back in 2008 when the site was still new I believe they were giving users who signed up an Equifax credit score free of charge. How was the site supported? By advertising and by giving users offers to sign up for savings accounts, credit cards, loans, and other financial products.

The site is now in partnership with TransUnion and Equifax.  So when you sign up you’ll be given a TransUnion and Equifax credit score – free of charge. 

There are other ways to get your credit score for free, but none as easy as far as I’m concerned. (NOTE: Getting a free FICO score is a bit more difficult, but these ones are from TransUnion and Equifax)

When you sign up you will need to provide name, address, date of birth, and email address. You’ll also need to provide a driver’s license number and social security number as a requirement of the credit bureau to verify your identity. 

If you’re uncomfortable giving your information to a third party to get your credit score, you can probably stop right here. But having used the site for several years now I can tell you I’m not concerned and I’m confident my information is safe. They use secure connections, and it has multiple security certificates to prove it.

Credit Karma free credit scores from Transunion and Equifax

Once you sign up and sign in, you’ll be asked to approve them asking for your free credit score. Once you do your dashboard will update and you’ll see your credit score. Here’s what my dashboard looks like, up above.

In looking back at the years of credit score history it’s interesting to see that my score has stayed relatively constant. The only dips I’ve really seen were a couple of times when we were looking to refinance. At the time we had a bunch of inquiries to our credit report by mortgage companies, and our credit score dropped by 10-12 points or so.  No big deal. But you can definitely see when things were happening.

Credit Karma credit score history

Reasons To Love Credit Karma

There are a lot of reasons to like Credit Karma.

  • The cost. It’s Free! While you can get your credit score elsewhere, this is the only place I know of that you can get it for free without giving up your credit card, signing up for a free trial, or some other sneaky
  • Check your score whenever you want: With other sites where you pay and sign up to see your credit score, you’ll have to pay every time you check it. With Credit Karma, you can check it however often you want.  I check it monthly as it probably won’t update any more often than that.
  • Identity theft protection: In this day and age we all need to be on guard against having our identities stolen, and Credit Karma can be a part of your identity theft protection plan. Since it costs nothing you can check your score monthly, and if your score goes down and you haven’t done anything to cause it to, there may be something there that needs to be checked out.  Of course, this will only help if the thief goes through a company that requests the TransUnion or Equifax score. So Credit Karma should only be a part of your safeguard. I would also check your credit report once every four months – one from each agency through Credit Karma can be just that added an extra layer of checking.
  • Check out how your score is affected using the Credit Simulator:  Ever wonder how opening a credit card or closing your oldest credit account will affect your credit?  Try the credit simulator to see what might happen to your score.
  • Figure out how to improve your credit:  Check your “credit report” in Credit Karma and it will tell you how to improve your score. For me about the only thing I can do is to open more accounts and actually use them. I only have one credit card and it is rarely used.
  • Compare rates and save: Credit Karma also has tools to allow you to compare the rates you have on your current mortgages, credit cards, and other credit accounts, and see if you can save by moving them elsewhere. For example, I was shown that I could save by moving my mortgage to one of several other companies, one of which we reviewed a week or so ago.

In addition to your TransUnion and Equifax credit score Credit Karma will also give you a couple of other scores in the credit center to show you how you’re doing.

  • Auto Insurance Score: Your TransUnion Auto Insurance Risk Score represents whether you are more or less likely to file a claim that will result in losses for the insurance company. This score is calculated using the information found in your TransUnion credit report
  • VantageScore: VantageScore is a new credit scoring model created by America’s three major credit reporting agencies to support a truly consistent and accurate approach to credit scoring.  It will show you your VantageScore.

Sign Up For Your FREE No Obligation Credit Karma Account

So with all that said, have any of you used Credit Karma?  If so, what do you think of the site, and how do you use it? Do you find it useful?

Credit Karma: Get Your Credit Score For Free