While student loans are very common, most find it hard to stay on track when paying them back. Refinancing may seem like a good option, but make sure to educate yourself with these 10 must-know facts presented by Michael Baum, CFP®, RICP®.
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While student loans are very common, most find it hard to stay on track when paying them back. Refinancing may seem like a good option, but make sure to educate yourself with these 10 must-know facts presented by Michael Baum, CFP®, RICP®.
- Subscribe to the You and Your Money podcast
- Follow us on Facebook, Instagram, LinkedIn and YouTube
- See how we can help you create a tailored strategy to help you Plan Well, Invest Well and Live Well: whzwealth.com
Welcome to You and Your Money. Empowering you to reach your goals with tips to help you Plan Well, Invest Well and Live Well. Today's episode features Michael Baum, vice president and associate financial advisor at Weiss, Hale and Zahansky Strategic Wealth Advisors. Now on to today's topic. Now on the issue of student loan forgiveness. First of all, walk me through how everything has unfolded with the proposed plan so far. Yes. So the movement to forgive a portion of the skyrocketing student loan debt started over a decade ago, but has accelerated quickly in the last year or so with President Biden's student loan forgiveness plan. During his presidential campaign, President Biden promised to forgive all undergraduate tuition related federal student debt from two and four year public colleges and universities and certain private universities for debt holders earning up to $125,000. And he began working toward that promise after he was inaugurated in January of 2021. And in August of 2022, he announced he would cancel up to 20,000 student loan debt per borrower. That's quite a bit. What exactly are the details of who could have debt canceled as part of this plan and how much? Well, the plan limits the debt forgiveness to Americans who are taking out qualifying federal student loans and who earn under $125,000 per year. If you're a single tax filer or $250,000 per year, if you're a married couple, the relief was capped. That amount of a borrower's outstanding eligible debt. So you're not actually going to be able to apply for reimbursement of debt that you already paid off. You'd have to have outstanding debt and qualify based on the type of loans and your income level. And in terms of how much in debt relief each borrowers eligible for the amount is up to 20,000. For those who are need based Pell Grant recipients and up to 10,000 for all other borrowers who took out a qualifying federal loan. You said you'd need to apply. I'm guessing that means that if you do not reach out to the government, you will not get this forgiveness. They're not going to come to you like perhaps by mail. They don’t notify you about this do they? No, you know that’s a that’s a really good point Wayne If you have outstanding student loan debt, you need to do a few things. You know, you need to make sure it's one of these types of loans that qualify. And you need to make sure that you are taking the proactive steps and doing everything right according to the process that's going to be laid out to actually apply for and receive the forgiveness. In particular which loans would qualify? Yeah, it's really important to understand this is a program for federal student loans. So if you have private student loan debt, this program is not going to help you. You're not going to be able to be eligible for forgiveness. So that means you're going to look for direct subsidized loans, direct unsubsidized loans, direct consolidation loans, direct PLUS loans, or SFEL loans owned by the US Department of Education. Those would be the ones that would qualify for forgiveness. And I just want to quickly point out here also that the plus loans in particular, it's important to take note of their because those are loans that were taken out by parents to pay for their child's tuition and those do qualify. So it's not just students themselves who are eligible for forgiveness. So if you're a parent who took out a plus loan for your child, you also want to make sure to watch what's happening with this issue, because you may be able to apply for debt forgiveness on that loan as well. That's a very important note. Glad you pointed that out. Understand that President Biden announced this plan last August. Then some legal action was taken to stop the plan. Update me on that. Yeah. So in September of last year, six different states sued President Biden and the Department of Education. And in that suit, they claim that Congress had never approved massive student loan cancellation and that the administration improperly used the Heroes Act to enact the plan. And what, again, is the Heroes Act? The Heroes Act is a 2003 law that gives the secretary of education expansive authority to alleviate hardship that federal student loan recipients may suffer as a result of national emergencies. So the student loan forgiveness plan used the language of the Heroes Act to allow debt forgiveness, and it was also used by both Trump and Biden administrations to put a pause on repayment on all federally owned student loans as a result of the pandemic. So where things were that lawsuit and the plan now? Well, applications for debt relief were actually opened in October of last year, even though the lawsuits had been filed. And so it was sort of unclear what was going to come of that. The same month that they opened applications for debt relief, the Supreme Court dismissed the lawsuit saying that it lacked standing. But then right after that, those six states appealed. The Circuit Court of Appeals in Saint Louis gave an emergency order temporarily blocking the forgiveness plan. So there's been back and forth appeals and dismissals through October and November. And then eventually the Department of Education said we're going to stop accepting these student loan forgiveness applications until this is resolved. Along with that, they decided we're also going to continue to extend or until the debt relief program is either implemented or the litigation is successful and its block altogether. Is there a timeline for when the litigation is expected to be completed? Not a definitive date, but the appeal was delivered to the Supreme Court in February, and their decision is widely expected to be delivered by late June. So the plan is allowed to move forward. The Department of Education will likely reopen the student loan forgiveness website and resume accepting and processing applications shortly thereafter. But regardless of whether the plan goes forward or is struck down, the pause on student loan payments will be lifted 60 days after the decision is made or 60 days after June 30th of this year. So whichever comes first. If you have those outstanding student loans and you've been pausing on payments waiting to see what happens, you're going to want to make sure to start making those payments again after June 30th of this year. So hopefully we'll have an answer on this one way or the other fairly soon. It's certainly an issue that could have a huge financial impact on a lot of people. Is there anything they should know or do in the meantime? Yeah, this is really, really important. So if you would qualify for forgiveness, if the plan is allowed to move forward. One thing you definitely do not want to do between now and that expected Supreme Court decision in June is refinance or consolidate your federally owned student loans. And the reason for that is once you refinance or consolidate your loans with a private lender, those loans no longer qualify for the forgiveness. So that could cost you anywhere between ten and $20,000 in debt you otherwise wouldn't have had to pay. So as much as we like to be proactive in improving our financial situation and making progress towards our goals of paying down debt, in this case, the best thing to do is to sit tight and wait for that decision. Because if the plan is allowed to move forward, then you have those qualifying loans. You can apply for forgiveness. And if it's not, well then we want to look at what interest rates are like and what the consolidation or refinancing options would look like and what would make the most sense for you. That's a really important insight and advice. Make that decision is sure to have a big impact on a lot of people. Absolutely. Paying for college is easily one of the biggest financial burdens and considerations that most people face. So regardless of how this decision goes, it's extremely important to have a plan for how you'll pay for education or the education of your children if you're if you're so inclined to help them with that. And that's something that we do frequently for our clients, that lifestyle and behavior as part of our strategic plan. Well, invest well, live well, process balancing education costs against saving for retirement and the many other big financial goals that people often have is no easy feat. So it's extremely helpful to have a comprehensive financial strategy in place that takes into account all of those factors. That's it for today. As always, thanks for listening to you and your money. Find even more episodes, videos and other resources at our website. W h z well dot com Weiss Hanlon's AT&T Strategic Wealth Advisors offers securities and advisory services through Commonwealth Financial Network member Eye on Aura SIPC, a registered investment advisor, fixed insurance products and services offered through CSC Insurance Agency. They practice at 697 Conference Street Poverty Center, Connecticut 06259 and can be reached at 8609282341. Whitehaven's enhanced Strategic Wealth advisors do not provide legal or tax advice. The tenured financial services teams strive to support clients in achieving their financial life goals. For more information regarding wealth management and customize financial planning with Whitehaven's enhanced Strategic Wealth Advisors, please visit. W. W. W. W. H. Z. Wealth. Com.