Deficit Reduction Hits Home

It's important to know that in addition to the changes created by DRA, there are several rate increases scheduled for existing student loans starting July 1 this year. The rate for new Stafford Loans for students will jump from 4.7% to 6.8%, and the rate on new PLUS loans made to parents will jump from 6.1% to 8.5%. That increase was built into existing legislation.

Current borrowers also will have to deal with the annual adjustments on existing loans. Those are based on the 90-day Treasury bill auction held at the end of May. If those auction rates increase over the previous year, then rates on existing student loans also will go up on July 1. Given the trend in short-term interest rates and recent Fed rate increases, you should immediately start the process of consolidating existing loans.

Medicaid and Long-Term Care

The DRA also makes changes to Medicaid as it applies to long-term care, making it more difficult to qualify for federally paid nursing home care.

The new act is intended to strengthen the Medicaid program in the long run by making it harder for middle-income families to shift assets to their children so the parents can qualify for federally paid nursing home care.

The DRA provides a five-year look back on such transfers and closes abusive loopholes such as certain annuities or "life estates" techniques designed to get countable assets out of the individual's control. This change makes sense; if federal financial aid for long-term nursing care were limited to those truly in need, the program wouldn't be swamped by baby boomers trying to qualify for this benefit.

The bill also includes provisions that make the purchase of long-term care insurance more attractive -- including state partnerships that allow people who have purchased, say, $100,000 in LTC insurance benefits, to exclude that amount from their Medicaid spend-down if they ultimately run out of insurance benefits and need state care.

Many senior advocate groups, including the AARP, which actually has a very good program of LTC insurance for its members, believe this is an attack on seniors instead of a way to preserve Medicaid for needy members of the boomer generation. If boomers don't face up to the need to plan in advance for their future care and instead depend on taxpayer funding, we'll transfer a huge tax burden to our children -- and create generation warfare.

Overall, I personally think it's a shame they tampered with student loan refinancing provisions. But I'm glad Congress is encouraging responsible long-term care planning. And we can only hope that the deficit will actually be reduced, or at least grow at a slower rate. That's the Savage Truth.