March 2019 - The Pastor's Wallet

What Is The Difference Between Seminary Loans And Undergraduate Student Loans?

by Amy Monday, March 25, 2019

A student loan is a student loan, right? Well, not really. There are a lot of different kinds of student loans; subsidized, unsubsidized, undergraduate, graduate, federal, private, parent, etc.

Each type of loan has unique features, both advantages and disadvantages, so it’s important to understand the differences. Many seminary students take out loans not realizing that they are any different than their undergraduate loans. That can be a costly mistake. So, today we are going to discuss the difference between graduate (what you use for seminary) and undergraduate student loans.

The Government Treats You Like An Adult

When you filled out the FAFSA to apply for government aid for your undergraduate degree, you had to include all of your parents’ financial information. Even if you’re living on your own and supporting yourself, the government sees everyone below a certain age as a dependent.

Now that you’re old enough to go to seminary, the government is ready to treat you as an adult. You don’t have to include your parents’ information when you fill out the FAFSA for graduate school. One advantage of this is that it makes it quicker and easier to apply.

There Isn’t Need-Based Aid

You may think that not including your parents’ information on the FAFSA will improve your chances of getting need-based financial aid. Unfortunately, there isn’t much of that available for graduate students.

Pell grants, which are gifts that do not have to be paid back, are not usually available for graduate students the way they are for undergraduates. So, even if the government helped you pay for your undergraduate degree, don’t expect the same help this time around.

Seminary Loans Have Higher Interest Rates

I was just listening to a podcast for financial advisors about student loans. One of the student loan specialists (yes, they do exist) said something that, frankly, shocked me. She said that grad plus loans are a cash cow for the US government. Cash cow is a business term for something that earns you a lot of money with very little effort.

I always thought the government was in the student loan business to help people get an education. Apparently, though, they make a lot of money off of it. The student loan experts were saying that graduate loans have much higher rates so that they can subsidize the undergraduate loans.

For this school year that we’re about to wrap up, the rate for undergraduate federal loans was 5.05% while the rate for Direct PLUS loans for graduates was 7.6%. If you borrow $10,000 and pay it back over a 10-year schedule, that is a difference of $1,550 dollars in interest. The graduate student pays over one and a half times as much interest as the undergraduate student.

Interest Starts Accruing Immediately

Not only do you pay more interest for your seminary loans than undergraduate loans, but the interest starts accruing immediately. If you had subsidized government loans for your undergraduate studies, then they didn’t start accruing interest until you graduated and started to pay them back.

That’s not the case for seminary loans. The government does not offer subsidized loans for graduate school. That means interest starts accruing the moment you take out the loans, no matter how long you stay in school. If you were to borrow $10,000 at the current PLUS loan rates, in 3 years when you finally have your MDiv your loan balance will have ballooned to $12,457. That’s almost 25% more than you originally borrowed.

Should You Take Out Loans For Seminary?

You see, there are some very important differences between student loans for graduate and undergraduate studies. Even though you can borrow more for seminary, it will also cost you more.

If you’ve already gone through seminary and are struggling to pay off your loans, I hope this helps you understand why your balances have grown larger than you expected. If you’re planning on starting seminary in the fall and considering taking out loans, I hope you consider this information very seriously.

No one blinks an eye at someone taking out $50,000 in student loans to go to medical school. The minute that person graduates they’ll be earning at least three times that amount, often even more.

The 2018 salary poll of the Southern Baptist Convention found that full-time senior pastors age 35 and below earn an average of less than $60,000. Full-time ministerial staff of the same age earns an average of less than $50,000. Those are averages, not minimums. Also, that is just the Southern Baptists. Your denomination may pay more or less.

It is important for you to consider how it will affect your life, family, and ministry before you take out seminary loans. Will you be able to follow your call to church planting or the mission field with debt hanging around your neck? Will you feel pressured to postpone having children so your wife can keep working longer to help pay down the balances? What happens if you can’t find a church that will pay you enough to meet your obligations?

Personally, I’m not a fan of debt. I would rather go to a cheaper school or go part-time so that I could pay as I go instead of taking out loans. However, this is your life and your decision. I only ask that you think through your options and consider the consequences of each, and I hope this information helps you do just that.

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Seventh Circuit Court Of Appeals Rules Clergy Housing Allowance To Be Constitutional

by Amy Tuesday, March 19, 2019

Though it took five months, the Seventh Circuit Court of Appeals has finally ruled in favor of the clergy cash rental housing allowance (the parsonage allowance was not at issue), declaring it to be constitutional. Here at Pastor’s Wallet, we have been following this story for over a year.

Background

The drama actually began back in 2013 when the leaders of the Freedom from Religion Foundation (FFRF) sued the US government because they believed the ministerial housing allowance to be a violation of the separation of church and state. The judge agreed with them, but it didn’t last long.

An appeals court found that the FFRF lacked standing in the case. Basically, they had no right to sue because they had not been harmed by the clergy housing allowance.

Determined as ever, the FFRF leaders tried to claim a ministerial housing allowance. As expected, they were denied. However, that denial gave them standing to take the issue to court. And so they did.

In October of 2017, the FFRF brought their case back to court and it was tried by the exact same judge. To no one’s surprise, the judge again ruled in favor of the FFRF, declaring the housing allowance to be unconstitutional.

Once again, it was appealed. A three-judge panel of the US Court of Appeals for the Seventh Circuit in Chicago heard the arguments last October, and they have just now issued a ruling. Their decision: the clergy housing allowance does not violate the US constitution.

How The Clergy Housing Allowance Is Constitutional

Our American legal system relies heavily on precedent and case law. That means that not everything is spelled out exactly in our laws. Rather, judges look at previous cases and rulings to guide them on how to decide matters. There were two different Supreme Court cases that they really focused their attention on in coming to a decision regarding whether the cash housing allowance violates the Establishment Clause, or the separation of church and state, as FFRF claimed.

The first case was Lemon v. Kurtzman, which provides three tests to see if something violates the First Amendment’s separation of church and state. The first test is that the law must maintain a secular legislative purpose. The court noted that other non-religious workers also receive employer-provided housing exempt from federal income taxation. Also, the cash allowance is designed to ensure equal treatment among ministers, regardless of where their housing comes from. They found that the way the cash housing allowance is set up in the tax code avoids “excessive entanglement with religion” for the government. The Treasury Department argued that all three of those constitute secular legislative purposes, and the judges agreed.

The second test is that its principal or primary effect cannot advance or inhibit religion. The judges cited a Supreme Court ruling that a tax exemption based on a housing allowance is not a government subsidy. Based on this, the housing allowance passed the second test.

The third test is that the law cannot foster an excessive government entanglement with religion. The Court of Appeals stated that applying housing exemptions to ministers the same way they do for secular employers and employees would, in fact, cause excessive entanglement. The current clergy housing allowance rules do not, and therefore they should remain.

The other past court case addressed is Town of Greece v. Galloway. This case establishes that the Constitution’s separation of church and state must be interpreted by reference to historical significance. The court recognized a lengthy tradition of tax exemptions for religion (even Joseph established one in Egypt back in Genesis!), especially in regard to church-owned property. Such exemptions have never been seen as an establishment of religion and so the appeals judges didn’t see them as such either.

The Future Of The Clergy Housing Allowance

While this is a great victory for pastors everywhere, it does not mean that the war on the housing allowance is completely over. The FFRF can still take the case to the Supreme Court. Even if they try, though, there is no guarantee that the Supreme Court will hear the case, as they only hear about 1% of the cases presented to them each year.

The FFRF has also indicated that they may lobby members of Congress to repeal the clergy housing allowance. As a counter-measure, you could write to your congressional representatives in support of the housing allowance and encourage your friends and family to do the same.

In light of everything that is going on, this is my advice to you regarding the pastoral housing allowance:

Enjoy it while you have it.
Pray that you can keep it.
Come up with a Plan B in case it all goes away.

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What Kinds Of Student Loans Are Available For Seminary?

by Amy Monday, March 18, 2019

Picture of a seminary student studying on a couch with a textbook and computer with blog post title: What kinds of student loans are available for seminary?

As you look forward to starting seminary in the fall, perhaps the biggest thing on your mind is how in the world am I going to pay for it? If you’re like 69% of college students, you’re probably planning on taking out student loans.

Even if you used loans to pay for your undergraduate degree, things are different once you get your Bachelor’s. Your options have changed. So that you can make an educated decision, here are the loan options available to help you pay for seminary:

Direct Unsubsidized Loans

The federal government offers direct unsubsidized loans to both graduate and undergraduate students. These are not need-based, so all you need is to be enrolled at least part-time in a participating school to qualify.

To apply for these loans, you have to submit the Free Application For Federal Student Aid (FAFSA). The seminary will use the information from the FAFSA to determine how much aid (loans) to award you. The annual limit for direct unsubsidized loans is $20,500 and the aggregate limit, including undergraduate loans, is $138,500.

The current interest rate (until July 1, 2019) for these loans is 6.6% and there is also a 1.062% loan fee. Once you graduate, leave school, or drop below half-time enrollment, you will have a six-month grace period before you have to start paying back your loan. However, interest will accrue while you are in school.

Direct PLUS Loans

If your direct unsubsidized loans are not enough to cover the cost of seminary, you can take out a Direct PLUS loan from the government. These loans do require a credit check. Because of this, you are not guaranteed eligibility, though they are more lenient than most private lenders. Eligibility also includes being enrolled at least half-time.

The borrowing limit is the cost of seminary attendance (as determined by the school) less any other financial aid you have received. So, you should be able to cover all of your costs with a grad PLUS loan. The current interest rate (until July 1, 2019) is 7.6% and there is a 4.248% loan fee. As with the unsubsidized government loan, interest begins accruing immediately. However, you do have a six-month grace period after leaving school before you are required to begin making payments.

Private Loans

While the government loans above have some unique benefits, like flexible repayment options and the potential for loan forgiveness, you may also want to consider private student loans. Private loans are issued directly by banks and credit unions, not the government.

As such, they have different rules for eligibility that may be more flexible than the government rules. Also, some private loans do not have origination fees like the government loans. While direct unsubsidized loans usually have the lowest interest rates, well-qualified borrowers may be able to get lower rates with private loans than PLUS loans.

It’s important to note something that is not on this list- subsidized government loans. Those are the loans that do not accrue interest while you are in school. Unfortunately, those are only available for undergraduate students, so they are not an option for seminary.

Even if you’re very familiar with student loans from your undergraduate days, don’t assume you know everything you need to. Come back next week as we discuss the differences between undergraduate and seminary loans. You owe it to yourself, your family, and your future ministry to make sure you know what you’re getting yourself into before taking out seminary loans.

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What Is Dual Status Taxation & Why Does It Matter For Pastors?

by Amy Monday, March 11, 2019

If you’re a pastor, hopefully you’ve been told that you are subject to dual status taxation. If not, I’m really glad you’ve found this post!

What Is Dual Status Taxation?

Dual status taxation simply means that you are taxed two different ways in the same tax year. My husband was subject to dual status taxation back in 2011 when he became a US citizen. For the first part of the year, he was taxed as a resident alien and the second part of the year he was taxed as a citizen. Dual status just means that he had two different statuses during the year.

My husband was only subject to dual status taxation for one year, but pastors aren’t so lucky. You are subject to permanent dual status taxation. That means that every single year you are going to be taxed in two different ways. It isn’t something you can avoid, it’s simply something that comes along with being a pastor.

Why Are Pastors Subject To Dual Status Taxation?

I wish I could tell you why pastors are always subject to dual status taxation. Unfortunately, as with many government policies and procedures, it’s hard to find the why behind it. Though I can’t tell you why things are the way they are, I can at least tell you how it all works.

For federal income tax purposes, pastors are considered common-law employees and taxed as employees. For Social Security and Medicare taxes, also called payroll taxes, pastors are taxed as if they were self-employed. Of course, if you’ve opted out of Social Security, you aren’t subject to these taxes at all. So, in review:

Federal Income Tax: Pastor = Employee

Social Security/Medicare Tax: Pastor = Self-Employed

What Does Dual Status Taxation Look Like For Pastors?

What does it mean to be taxed as an employee or as self-employed?

For your federal income taxes, you get Form W-2 from your church and you enter the wages they paid you on line 1 of Form 1040. Just like any other employee of a company would do. You don’t have to fill out Schedule C like self-employed people (unless you have income paid to you by someone other than the church, such as fees paid directly to you for performing weddings).

Even though you feel and act like an employee and you file Form 1040 like an employee, the IRS does not consider you one for your payroll taxes. Employees only have to pay 6.2% of their wages (on up to $132,900 of wages in 2019) for Social Security and 1.45% of their wages for Medicare (0.9% more when your wages exceed $200,000). That’s what employees pay and their employer matches it for a total of 15.3% of wages paid to the government.

As a pastor, the double portion falls on you. But you don’t want it the way Elisha did. You get to file as a self-employed person and pay BOTH the employee and employer portion of your payroll taxes.

Why? Boy, do I wish I knew! If you know, please tell me!

What I do know is that pastors have to pay the full 15.3% and it’s actually against the law for churches to try to pay payroll taxes for pastors. Strange, huh?

So, even though your Form 1040 looks like you’re an employee, you will have to fill out Schedule SE to pay your Social Security and Medicare taxes as a self-employed person. The only good thing is that half of those taxes are deductible. (You’ll have to file the new Schedule 1 in order to do so.)

How Does The Housing Allowance Fit In?

One thing that you need to be aware of in all of this is your clergy housing allowance. It, as well, is treated differently for the different taxes.

What the housing allowance is is an exemption from federal income taxation. That means you don’t have to pay taxes on that amount and it won’t appear on your form 1040. So, for federal income tax purposes, the housing allowance is tax-free free money.

Sadly, the housing allowance is not exempt from Social Security and Medicare taxation. On Schedule SE, where you calculate your self-employment taxes, you will have to add your housing allowance back into the wages shown on your W-2 to arrive at your total taxable income.

This doesn’t just apply to the cash or rental housing allowance, either. It applies to the parsonage allowance as well. Even though you never saw any actual money, the fair rental value of your church-provided home must be included in your income on Schedule SE.

So, you have to pay 15.3% of all of the cash you received, even if it was used for housing expenses. And, if you live in a parsonage, your bill will be even more than 15.3% of the cash that you have received since the value of your home is calculated as if you had received it in cash. In summary:

Federal Income Tax: Housing Allowance = Tax-Free

Social Security/Medicare Tax: Housing Allowance = Taxable

And that is what it means for pastors to be subject to dual status taxation. Click here for more articles that will help you file your taxes this year.

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The Female Pastor’s Wallet: Financial Tips For Single Women In Ministry

by Amy Monday, March 4, 2019

In honor of International Women’s Day on March 8, here is a piece for single women in ministry. I know you are the minority, but you matter and you are some of my best friends!

Picture of Michal Slate from michalslate.com

Though geared towards women in ministry and their unique challenges, everyone can benefit from what guest writer Michal Slate has to say. A Certified Financial Planner™ with a master’s degree in business leadership from Colorado Christian University, she has more than 13 years experience working with individuals on a personal level to help them discover the best course of action for their finances. Michal is passionate about both Jesus and helping Christian women master their finances. You can learn more about her and what she does here.

What are your financial goals?

Are they funding the day-to-day work you do in the inner city or poverty-stricken countries? Or is your financial goal to run a mega ministry that partners with other ministries to bring in millions in donations to feed the hungry, clothe the naked and counsel the broken? Is your financial goal somewhere in between?

Is your goal or dream to make a difference big or small as a lover of Jesus? Do you desire to leave a mark on this world that isn’t your name but the name of Jesus Christ? I am so overjoyed to assist! Your calling to work as a shepherd is one that I respect and admire. I want to see you succeed in your finances and as a leader in your calling to serve our Lord and Savior.

I am excited to share with you some tips for personal financial management as a woman in leadership… wait, a Christian woman in leadership, or a Christian woman pastor, or a single Christian woman pastor…

No matter how specific we get in your role as pastor/leader/shepherd, we can absolutely learn to navigate the world of financial planning as it relates to you: The Christian Woman Leader. I am humbled to advise in this area.

Women Belong In Leadership

The call for women in leadership is ringing from the rooftops in every industry. I work in business and finance and I can see it everywhere.

Even in the church, God is raising up a generation of powerful female leaders. It can be especially challenging in the church, though. Many in the Christian community recite 1 Timothy 2:12 until they are blue in the face while ignoring Biblical figures such as Deborah, Priscilla, Lydia, and Mary of Magdalene. Where would the church of Corinth be if Priscilla had been afraid to teach Apollos?

I admire you for following God’s call on your life in spite of the challenges.

I know how it feels. Personally, I used to doubt myself because of some well-meaning people who made me feel less than qualified due to my age, gender, or lack of pedigree upbringing. But, with God’s help, I overcame that and here I am. I am one of only a few Christian women with 2 Master’s degrees, the prestigious Certified Financial Planner™ designation, and I’m also pursuing a doctoral degree. On top of that, I’ve got a pretty successful career as a financial advisor.

I am highly passionate about educating and empowering women, especially Christian women, in all things financial so that they know how to navigate the world we live in and won’t get taken advantage of. Thank God for the Holy Spirit and discernment that assists us when we don’t know which direction to go; however, practical insight from someone who knows this industry inside and out can be of great importance.

How We Learn Personal Finance

In an ideal world, we would begin our financial education as children, under our parents. As little girls, our parents would meet all of our needs and we would be oblivious to any financial stress. Getting older, a wise parent would show us how the bills are paid and how the job or business brings in financial resources so that the bills can get paid, vacations can be taken, and items can be purchased.

As a little girl you would be taught to divide your money into 3 jars: Spend, Save, and Give. Your parents would show you the value of each, both in word and deed. You would be allowed the freedom to make mistakes with your money, like overspending or over giving, and face the consequences in a safe and secure environment.

Eventually, you would get your own bank account and an after-school job. Then, as a young woman, you would go to college and graduate without debt because of the way you and your parents worked and saved. After college, you marry and live happily ever after with a well-functioning husband who understands the money world as well as you do. You raise your children to do the same.

Unfortunately, most of us did not grow up this way. If you did, I am so happy for you because you are well ahead of most when it comes to understanding personal finance.

Even if your parents loved you and provided for you, that doesn’t mean they had the knowledge or experience to teach you all about personal financial management. And, while some schools value financial education, most do not offer it. For many of us, our greatest financial lessons came from making mistakes and getting hurt, ripped off, or manipulated. I know, because that’s how I learned.

Today, I want to save you some pain and suffering.

The Most Important Thing You Can Do For Your Finances

My number one piece of advice may sound cliche, but you know how powerful it is: PRAY. Bring all of your needs to God and ask him for guidance, wisdom, and resources. Follow God’s direction and TRUST Him to keep his promises when things don’t make sense.

As Christians who live and breath to serve Jesus, we can’t always horde our savings for a proverbial retirement plan. We can’t always save for goals when we see the need to give and feel the call so strong on our hearts. We can’t do many things that the world tells us to do, so we need to hear and obey what God tells us to do. As his stewards, though we can’t do everything that may sound good, we can be wise and operate our finances with our eyes open so that we can see how God might use us to benefit the Kingdom around us.

Seven Steps To Financial Success For Christian Women

In addition to seeking God’s wisdom and direction, here are some other things that will help you be successful with money:

1. Track Your Earnings

Keep track of everything that you earn. This should be everything that you receive, even if it doesn’t come in a traditional form like a paycheck.

2. Spend, Save, & Give

Allocate your earnings into three categories: spending, saving, and giving. Pray and allow God to direct you in what percentage of your income should go towards each category. It can also help to work with a professional to determine the appropriate level of spending and giving in relation to your unique circumstances.

3. Make A Plan

Plan out on paper or on a computer what you expect your financial situation to look like in the foreseeable future. Determine your goals and plan out action steps that align with them. When you have to make a difficult decision, you can refer back to this plan for guidance, knowing that you will be moving in the right direction.

4. Stay True To God’s Call

Never compromise the calling on your heart for financial gain. The world will try to tempt you, but stay true to God’s call. Also, don’t hesitate to alter your plan when God speaks something different to your heart.

5. Treat It Like A Business

In order to be a good steward, you should treat your ministry as a business. Be as careful as a business owner fighting to stay in business. When you’re in need of additional information before making an important decision, work with someone who has business, non-profit, and Biblical know-how.

6. Lead By Example

Work to bless others in all you do, leading by example. The way you manage the financial resources you are given is an example for those who work with you and look up to you.

7. Don’t Worry

Remember Matthew chapter 6 as the guide for how to be successful. The whole chapter is essential, but the key is in the final verse that Jesus leaves us with, “Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.” (Matthew 6:34, NIV)

I hope you find these tips helpful. Finally, thank you so much for your ministry! You are an important part of God’s Kingdom and you have no idea how what you are doing right now will impact eternity.

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Monthly Archives March 2019

What Is The Difference Between Seminary Loans And Undergraduate Student Loans?

The Government Treats You Like An Adult

There Isn’t Need-Based Aid

Seminary Loans Have Higher Interest Rates

Interest Starts Accruing Immediately

Should You Take Out Loans For Seminary?

Seventh Circuit Court Of Appeals Rules Clergy Housing Allowance To Be Constitutional

Background

How The Clergy Housing Allowance Is Constitutional

The Future Of The Clergy Housing Allowance

What Kinds Of Student Loans Are Available For Seminary?

Direct Unsubsidized Loans

Direct PLUS Loans

Private Loans

What Is Dual Status Taxation & Why Does It Matter For Pastors?

What Is Dual Status Taxation?

Why Are Pastors Subject To Dual Status Taxation?

What Does Dual Status Taxation Look Like For Pastors?

How Does The Housing Allowance Fit In?

The Female Pastor’s Wallet: Financial Tips For Single Women In Ministry

Women Belong In Leadership

How We Learn Personal Finance

The Most Important Thing You Can Do For Your Finances