There was a lot of student loan news recently that impacts nearly every student loan borrower:
- The Supreme Court blocked the mass loan forgiveness of $10,000/$20,000 of student loan cancellation.
- The President will try again via a different route, but I expect it will end up with the same result.
- A new repayment plan called "Saving on a Valuable Education" (SAVE) was announced, which will replace the already existing REPAYE plan. Here are the most important points of this repayment plan:
- The SAVE plan increases the income exemption from 1.5x to 2.25x the federal poverty line, which means you will likely pay much less money towards your loans.
- You can file your taxes separately and only include your income! If you file separately, your spouse will not be considered part of your family size.
- You will not have to pay additional unpaid interest. AKA, your loan balance won't increase from interest!!!
- REPAYE / SAVE remains at 25 years until forgiveness for borrowers with grad or parent plus loans. PAYE and New IBR stay at 20 years. SAVE also has no payment cap, while the other plans do. So there's a big calculation on which makes more sense.
- PAYE will be unavailable for new borrowers as of July 1, 2024. If you're already on PAYE, you're safe to stay on it.
- If you are in REPAYE currently, you don't need to do anything to get into SAVE. It's automatic.
- This new repayment plan will allow many more borrowers to get student loan forgiveness so schedule a meeting to see how it impacts you.
- Congress is closing the Double Consolidation loophole on Parent Plus loans on July 1, 2025.
- The biggest disappointment in the new IDR rules was a random provision where the double consolidation loophole will be ended for Parent PLUS borrowers who have not already completed the process before July 2025. At least we have 2 years to help as many borrowers as possible access this.
- If you complete that double consolidation process before that date, you can stay on your new PAYE or REPAYE plan.
- If you have Parent PLUS and we haven't done a Student Loan Report, you must schedule an appointment to review your situation.
- After 3.5 years, Student Loan repayments will finally start in October.
- There will be a 12-month on-ramp period. During this time, you won't be penalized (or go into default) if you don't pay your loans, but your interest will be accumulating. This on-ramp period will not count toward loan forgiveness.
- There can be some serious planning work done around this. For example, you might be filed as married filing jointly on your 2022 taxes, but you can save a ton of money by filing separately. No problem, wait to pay until you get your taxes done next March!
- The IDR waiver is still going until December 31, 2023.
- This waiver gives people who consolidate their loans the longest repayment history of any individual loan.
- No one should have FFEL Loans anymore, as they should all be consolidated.
- If you have been paying on a student loan for 20 to 25 years, you could get your loans forgiven immediately.
- If you have older student loans and we still need to do a Student Loan Report, you must schedule an appointment to review your situation.
Depending on when you borrowed, some specific borrowers will want to take action ASAP.
- If you first borrowed before 2007
- Anyone with loans before 2007 needs to decide if they should update their income, switch plans, or stick to what they have.
- Remember that because of the last time payments were certified, someone could be sitting on a $100-a-month IBR payment and make a big mistake by switching.
- Alternatively, you should switch if it means big interest subsidies because you plan to pay off your loans.
- If you borrowed after 2007 but before 2014
- If you borrowed before July 2014 but after October 2007, you are not eligible for New IBR, but you do have a limited window where you can sign up for PAYE (Pay As You Earn).
- In the next several months, you need to decide whether you want to sign up for PAYE or give it up forever. Remember, if you're already on PAYE, you get to stay on it.
- The Biden administration will say that the SAVE plan is the best for everyone. The math says that's not true. For example, a dentist pursuing forgiveness might pay $100 a month more on PAYE but eliminate 5 years of income-based payments in the prime of their earning years, saving tens of thousands or more by staying on PAYE for quicker forgiveness. This opportunity will be gone after July 2024, so if you borrowed between 2007 and 2014, you need to figure this out asap.
- If you borrowed after 2014
- You will keep access to the New IBR plan, which has the same benefits as PAYE.
- You may have more time than other groups to decide, but you could save thousands or tens of thousands of dollars by switching to the REPAYE / SAVE plan early.
- That could also be a big mistake if you have to recertify and jump your payment.
Schedule a meeting below if you have any questions or want to review your situation.
Jeff Wilhelms, MBA, CSLP®, CRES
Investment Adviser Representative
5016 S. Ash Ave, Ste. 103 | Tempe, AZ 85282
877.469.7377 | Fax 877-469-7377 |Text 480-999-9415
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