In case you hadn’t seen the news, the Biden Administration announced a student loan cancellation plan and also continued the pause on federal student loan repayments, interest and collections through December 31, 2022. Read on to gain insights from our team about how this may apply to you, and what to do next.

All three of our kids are out of high school now and two have student loans, so this information caught my attention. I reached out to my colleagues at Aspyre to learn more. Our Chief Wealth Officer, Jessi Chadd, CFP® CeFT®, pulled together these notes within a few hours of the plan being announced.

  • The pause on federal student loan repayments means interest will resume and payments will begin again on federally-held student loans in January 2023.
  • Here’s a breakdown of the cancellation plan.
  1. You will receive federal student debt cancellation of $10,000 If:
    • You’re single and have taxable income of less than $125,000; OR
    • You are married and have household taxable income of less than $250,000.
  2. You will receive federal student debt cancellation of $20,000 If you received a Pell Grant for college and:
    • You’re single and have taxable income of less than $125,000; OR
    • You are married and have household taxable income of less than $250,000.
  • ​The Administration also announced that there will be a new Income-Driven Repayment plan, though it has not been formally presented or finalized.

PUBLIC SERVICE LOAN FORGIVENESS WAIVER


Student Loan Forgiveness: On October 6, 2021, the U.S. Department of Education (ED) announced a temporary expansion of the Public Service Loan Forgiveness (PSLF) program Now, until October 31, 2022, borrowers may receive credit for past periods of repayment that would otherwise not qualify for PSLF.

Under the new, temporary rules, any prior period of repayment will count towards the 120 payments needed for PSLF even if those payments were made on a FFEL or Perkins Loan.

So long as you were employed by a qualifying employer and currently have a Direct Loan, the expansion will apply to loans taken for your education (Parent PLUS Loans aren’t included in the expanded rules).

To take advantage of the expanded PSLF rules, you must file the required application by October 31, 2022.

More helpful information and next steps

This morning when I asked our Lead Financial Planner, Jamie A. Bosse, CFP®, RFC, CCFC, she offered additional insights and what steps to take if the plan applies to you. Jamie is a Certified College Financial Consultant, CCFC. Here’s what she said.

The forgiven amount is NOT taxable. (That was something I hadn’t even considered. Good news there.)

Another colleague, Melissa Ryan, Director of Financial Planning at Aspyre, shared an insight I also hadn’t considered: Do NOT consolidate or refinance student loans to a private loan. She saw an advertisement today encouraging people to check their rates and refinance because, the ad says, once the December date passes rates will be increasing. That might sound tempting, however, If people refinance to a private loan they will not be eligible for the forgiveness!

New Income-Driven Repayment Plan

Jamie did some research and said the new income-driven repayment plan caps monthly payments for undergraduate loans at 5% (used to be 10%) of your monthly income. That was welcome information, too. She also shared insights about what to do next. The tips below may be helpful for others to know as well. Please feel welcome to forward this article to your friends and family members. Here’s what she told me:

 

Things to do now

  • Make sure your contact information is updated with your loan servicer
  • An application will be coming out in the coming weeks to clarify your income information to the Department of Education.
  • Be on the lookout from any emails or mailers from your loan servicer.

What to do with the money you won’t be spending on student loans?

If some of your loan will be forgiven and the rest of the payments are on hold until January 2023, you might be asking what should you do with the money you were setting aside to pay those loans? Here’s what Jamie says:

  • Don’t just spend the amount that you used to pay to student loans each month.  Redirect that payment to fund other goals or pay off debts.
    • Use it to build your emergency fund.
    • Redirect the payment to other high interest debts.
  • Keep that payment in your budget so that things don’t feel tight when the payment restarts in January.

 

Still Have questions?  You are not alone.

  • Legislators have promised to share more details soon.  Hopefully, that will include some clarity on whether the $10,000 of forgiveness will apply directly to principal balances or also cover outstanding interest, and if the borrower can choose which loans to apply it to (ideally, it would pay off the ones with the higher interest), and so on.
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Jessi Chadd is Chief Wealth Officer at Aspyre Wealth Partners®., specializing in life transitions. For help with your specific situation contact Jessi at jchadd@aspyrewealth.com (913) 345-1881 or visit our website at AspyreWealth.com

Jamie Bosse is Lead Financial Planner with Aspyre Wealth Partners®.  You can schedule a free consultation with Jamie by clicking this calendar link: https://go.oncehub.com/JamieBosse

Aspyre Wealth Partners® is a Fee Only financial services company located in Overland Park, Kansas. We are fiduciaries with a focus on: Financial PlanningInvestment ManagementCareer Coaching, and Life Transitions. We update our blog frequently – click here for additional insights. Find out how well your money is serving you by taking our complimentary, 3-minute Return on Life (ROL) Assessment.

 

 

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