How To Navigate Your Student Debt Relief Options

There are three major parts to Biden’s plan to help those dealing with student loan debt.

Over the past 12 months, the Department of Education under the Biden-Harris administration has championed a metric ton of program revisions and policy changes to the federal student loan system. The most recent Student Loan Debt Relief Plan, announced on Aug. 24, expands the October 2021 announcement of the Public Service Loan Forgiveness (PSLF) waiver and Income-Driven Repayment (IDR) Plan Reform publicized in April of this year.

The recent policy changes finally acknowledge that student loan debt is a systemic, structural problem. And despite the seemingly endless supply of opinions and rhetoric, the buzz about student loans has served as a catalyst for conversations around destigmatizing debt. These developments could be the first steps toward addressing the problems deeply embedded in today’s postsecondary education system (read: painfully high tuition costs. We’ll leave that can of worms for another article).

That said, fiduciary financial planners can (and should) only provide best-interest recommendations based on facts and current law, rather than speculate about unknowns. In the spirit of practicing that principle, here are the facts of the Student Loan Debt Relief Plan, a timeline of important dates and action items, as well as answers to the most common questions sent to our Education Planning Resource team at Buckingham Strategic Wealth.

Part 1: Final Extension of the Payment Pause

The Biden-Harris administration extended the federal student loan payment, interest and default pause for a final time, through Dec. 31, 2022. The extension will occur automatically. The additional months will continue to count nonpayment toward PSLF and maximum repayment terms under IDR plans. Regular payments will resume in January 2023.

Part 2: One-Time Student Loan Debt Relief

Borrowers are eligible for one-time student loan debt relief if their 2021 or 2020 adjusted gross income (AGI) was below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household). During a recent White House briefing, senior administration officials confirmed that borrowers would qualify for relief if their income met the criteria in either 2021 or 2020.

According to the Department of Education’s website, borrowers will receive the following amounts of relief if their AGI is below the income threshold:

  • Up to $20,000: If a borrower received a Pell Grant in college
  • Up to $10,000: If a borrower did not receive a Pell Grant in college

Direct Loan (including Parent PLUS), Perkins, Defaulted, and Federal Family Education Loan (FFEL) Program loans held by the Department of Education or in default at a guaranty agency with an outstanding balance as of June 30, 2022, are eligible for relief. If the outstanding loan balance is less than the maximum amount of debt relief a borrower is eligible for, the borrower will receive relief only up to the loan balance.

Relief will be awarded federal income tax-free potential for state income tax liability, depending on the state. Eligibility for debt relief is based on each borrower’s situation.

Part 3: The Creation of a New IDR Plan

The Biden-Harris administration also proposed creating a new IDR plan that substantially reduces future monthly payments for low- and middle-income borrowers.

The plan would:

  • Require borrowers to pay no more than 5% (10% or 15% currently) of their discretionary income monthly on undergraduate loans.
  • Raise the poverty-limit exemption to 225% (excluding more income from the discretionary income and payment calculation).
  • Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with loan balances of $12,000 or less.
  • Cover borrowers’ unpaid monthly interest as long as they make their monthly payments—even when that monthly payment is $0.

The Department of Education had initially proposed a new IDR plan that excluded graduate student loan borrowers. Since then, it appears that officials have softened on a total exclusion of graduate student loan borrowers. Instead, borrowers with both undergraduate and graduate loans will pay a weighted average rate.

While the details of the proposed new IDR plan look promising for many borrowers, the Department of Education has not yet released formal regulations governing the program, and many questions remain unanswered.

How will the new Student Loan Debt Relief plan benefit me?

The final extension of the federal student loan payment, interest and default pause benefits all borrowers with Direct Student Loans. The additional four months of nonpayment mean extra cash in borrowers’ budgets and a bit more time to create a plan once required payments start again in January.

Borrowers with federal student loans have two options to dispose of their loans. Borrowers can pursue loan forgiveness through the PSLF (or a similar program), or they can pursue forgiveness after paying the maximum IDR plan terms or by paying the loan off in full. (There are also some exceptions, such as borrower death or permanent disability.)

Borrowers often struggle choosing between taxable forgiveness through an IDR plan or paying down their entire loan balance. If applicable, PSLF should be considered the top choice. If not, borrowers whose total federal loan balance is less than their current annual income should consider paying their loans in full with a standard 10-year repayment plan. Borrowers whose total federal loan balance is higher than their annual income should consider taxable forgiveness through an IDR plan.

For borrowers who plan to pay down their loans in full or have made payments to pay off their loans since March 2020, one-time forgiveness will be beneficial, because it will decrease the overall balance of their total federal student loan debt. The Biden-Harris administration encourages borrowers to apply by Nov. 15 if they want relief by Dec. 31, 2022.

Borrowers with undergraduate loans aiming for IDR plan forgiveness should benefit from the initial information regarding the new IDR plan. If eligible, IDR plan borrowers should still apply for one-time forgiveness because it may slightly lower their tax bill in the year of forgiveness since their overall loan balance will likely be smaller.

How do I know what type of loan and repayment plan I have? How can I check if I received a Pell Grant?

Qualification for nearly all changes to student loan debt repayment plans, cancellation, forgiveness and relief depends on the loan program type.

To confirm your loan program type and/or repayment plan, use your FSA ID to sign into your account at Studentaid.gov. Click on the “My Aid” tab and download your .txt document report. To verify if you were a Pell Grant recipient, click on the “Grants” tab. If you received a Pell Grant, take a screenshot, or print out the document confirming that fact for your records.

I have multiple loans and/or multiple loan program types. How will the government apply my relief if I qualify?

For borrowers with multiple loans, the Department of Education announced it will apply relief in the following order:

  • Defaulted loans held by the ED; then
  • Defaulted commercial FFEL Program loans; then
  • Non-defaulted Direct Loan Program loans and FFEL Program loans held by the ED; then
  • Perkins Loans held by the ED.

If you have multiple loans in a program type (e.g., multiple Direct Loans), the Department of Education will apply the relief in the following order:

  • Loans with the highest statutory interest rate.
  • If interest rates are the same: unsubsidized loans before subsidized loans.
  • If interest rate and subsidy status are the same: most recent loan.
  • If interest rate, subsidy status and disbursement date are the same: loan with the lowest combined principal and interest balance.

I have made payments toward my loans since March 2020 or even paid off my loans during the pandemic. How can I request a refund for my payments?

According to the Federal Student Aid Data Center, approximately 9.1 million borrowers made at least one payment between April 2020 and March 2022. This includes about 1.9 million borrowers who paid off their accounts entirely.

All borrowers can request a refund for any payment (including auto-debit payments) made during the payment pause (beginning March 13, 2020) on qualifying loans. This gives borrowers the ability to claim back money they spent paying student loans during the pandemic. Borrowers must request a refund before applying for debt relief.

Borrowers pursuing PSLF with confirmed employment certification and payment count should strongly consider requesting a refund to allocate funds toward other financial goals or future payments. Requesting a refund will not affect their payment count.

Individuals who made voluntary payments and paid off their loans entirely or paid their balances down to an amount lower than what they believe will be forgiven should consider asking for a refund. Any amount refunded above their relief amount will still need to be paid off in the future.

For borrowers who still have a loan balance, it is not clear whether refunds will be automatically included in the relief amount or if they must request a refund. A refund must be requested for borrowers who paid off their balance. All eligible borrowers are encouraged to call and request the appropriate amount to be refunded to ensure it is received.

Important Upcoming Deadlines and Updates

Early October 2022 – Student loan debt relief application to be released

Actions to take:

  • Determine your eligibility and amount (based on your 2020 or 2021 AGI and Pell Grant awards).
  • For borrowers intending to request a refund for payments made during the pandemic, refunds must be requested before they apply for debt relief. Borrowers are encouraged to call their student loan servicer as soon as possible. Some servicers will request the dates and amount of each payment to refund.
  • The Application for Student Loan Debt Relief is Live. You can apply now (but no later than Dec. 31, 2023). https://studentaid.gov/debt-relief/application
  • “As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans. Borrowers with FFEL Program loans and Perkins Loans not held by ED and who applied to consolidate into the Direct Loan Program prior to Sept. 29, 2022, are eligible for one-time debt relief through the Direct Loan Program.” https://studentaid.gov/manage-loans/forgiveness-cancellation/debt-relief-info#eligible-loans

Oct. 31, 2022 – Deadline to submit the PSLF waiver and consolidate FFEL loans for qualification

Actions to take:

  • Details and instructions on submitting your PSLF waiver or consolidating FFEL loans can be found in this article.
  • Unlike the most recent debt relief plan, PSLF eligibility is determined by past employment history. There are no maximum income thresholds to be eligible for PSLF.
  • All PSLF recipients receive income-tax-free forgiveness regardless of their annual income amount.

Dec. 31, 2022 – End of student loan moratorium

Actions to take:

  • Plan to resume required payments in January 2023.
  • This is also the preliminary deadline to apply for student loan debt relief.

Jan. 1, 2023 – One-time payment count revision for eligible IDR borrowers

Actions to take:

  • Per the recent IDR Plan Reform, all months a borrower was in repayment, regardless of which plan, will count toward the timeline to forgiveness on an IDR plan under the new One-Time Payment Count Revision.
  • If a borrower has commercially held FFEL loans, they can only benefit from the IDR account adjustment if they consolidate their FFEL loans to Direct Program loans before implementation of these changes, which is estimated to be no sooner than Jan. 1, 2023.

What exactly does the future of student loans look like in an ever-changing policy environment? Although it’s difficult to predict, there are steps both current and future borrowers can take to remain financially engaged and informed based on what we know today.

In a recent New York Times article, Travis Hornsby, founder of the Student Loan Planner, credited access to sound advice and having a plan with a clear path forward as two major factors to student loan repayment success. By becoming more aware of their own financial goals and student loan repayment strategy, borrowers can position themselves to navigate whatever lies ahead.

About the author: Becca Craig

Buckingham Strategic Wealth Associate Wealth Advisor Becca Craig, CFP®, CSLP®, ABA, has a passion for financial education. Championing the role of both financial advocate and advisor, she enjoys making money work for her clients—not against them—so they can focus on the people, endeavors, and causes they care about most. Becca’s specialty in student loan repayment planning provides her clients with a holistic financial framework in which they can build their net worth while simultaneously deploying strategies geared toward full repayment or forgiveness.

This commentary originally appeared October 7 on thestreet.com.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based upon third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Individuals should speak with their qualified financial professional about their unique circumstances to determine if the above is applicable. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners® R-22-4425.

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Should You File for Social Security Early to Capture the Inflation Adjustment?

Social Security benefits will go up 8.7% in 2023, the largest adjustment in four decades. Here’s why you don’t need to rush to file to benefit from the increase.

With all the talk about inflation these days, you may have heard the news that the 2023 cost-of-living adjustment (COLA) for Social Security benefits is 8.7%, the largest in four decades. If you are approaching or over age 62 and haven’t filed for your retirement benefits, you may be wondering if you should file earlier than planned so you do not miss out on the increase.

The reality is that you do not need to file now to benefit from the COLA increase. Starting in the year you turn 62 any COLA will be calculated into your benefit amount, whether you choose to file that year or wait longer (you can file any year from age 62 up to 70).

What is the COLA?

In 1975, the Social Security Administration began adding annual increases to retirement benefits to keep up with rising costs based on the rate of inflation. If there is no inflation, there is no COLA. Although the COLA has been 0% three times, it has never been negative, even in periods of deflation. The COLA, however, does not only affect current benefits. It also applies to all future benefits and even the maximum taxable earnings on which wage earners pay into the system.

How is the COLA calculated?

The timing and methods for calculating COLA have changed over time. Since 1984, the Social Security Administration has based COLA on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W), comparing the average CPI-W from the third quarter of the current year to that of the prior year.

What is the 2023 COLA?

The Social Security Administration announced on Oct. 13 that the 2023 COLA increase will be 8.7%, the highest increase since 1981. That means payments will go up by more than $140 per month, on average, starting in January.

If you currently receive benefits, you should receive your COLA notice via your online Social Security account before the end of December, and you will receive your increased benefit amount in January.

If you have not filed for benefits but are curious how the change will affect your payment, you can go to your online account and view your full retirement age benefit amount before the end of the year. Then you can check again in January to see the increase reflected.

Should I file now so I do not miss out on the COLA?

While everyone’s situation is different, generally there are good reasons to delay filing for your Social Security benefits, especially if you have other income sources you can rely on. For example, filing too early might permanently reduce your benefits, it may lead to adverse tax implications, or you may be subject to an earnings test that reduces your current benefits.

Many do not realize that Social Security is protected against inflation, one of the reasons Buckingham advisors view Social Security as a form of longevity insurance. And in fact, even for individuals who plan to file in the future, annual COLAs are still factored into their future benefits from the year they turn 62. So, you do not lose out on this benefit by waiting to file.

If you chose to file earlier than you would have under the assumption you might miss out on the increase, there may be options to consider. For example, you can get a one-time “do-over” by filing a request to withdrawal your application up to 12 months after filing. This will cancel your benefits so you can reapply later, but you will need to repay any benefits that you’ve received. Alternatively, if you are older than full retirement age (66 or 67, depending on your birth year), you can suspend your benefits so that they continue to grow at a rate of 8% per year up to age 70. If you suspend, however, any benefits that family members receive based on your benefit, such as a spousal benefit, will also be suspended. We would recommend consulting with your financial advisor as soon as possible to help determine the right course of action for you.

I’m already receiving benefits. Will the COLA be enough for me?

The short answer is it depends. Perhaps you have other financial resources and don’t have to rely as heavily on Social Security for all your income needs. Also, depending on your spending habits, you may not be as affected by the rate of inflation as others. Interestingly, the CPI-W used to determine the adjustment reflects inflation for a particular subset of workers (urban wage earners and clerical workers) who are paying into Social Security, not those who are retired and actually receiving benefits.

Each person’s situation and spending habits are different, so if you have concerns it may be helpful to review your plan with your advisor.

About the authors: 

Steve Weiss, CFP® joined Buckingham Strategic Wealth in 2012 as a portfolio advisor. Today, as a wealth advisor, he assists clients with making important financial decisions. Prior to that, he was at the firm from Enterprise Bank & Trust where he held such titles as trust operations specialist, paraplanner, and investment and planning specialist. He earned a bachelor’s degree in communication from the University of Michigan and is a CERTIFIED FINANCIAL PLANNERTM professional.

Jim Cornfeld, CFP® joined Buckingham Strategic Wealth in 2006. Prior to that, he was vice president and portfolio manager for First Bank Wealth Management Group. He spent 18 years with Mobil Oil Corporation in its marketing division, representing Mobil globally from its offices in Africa, Australia and New York. Jim is a CERTIFIED FINANCIAL PLANNERTM and chairs the firm’s Advanced Planning Committee.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party information which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Individuals should speak with a qualified financial professional based on their own circumstances. The opinions expressed here are their own and may not accurately reflect those of Buckingham Strategic Partners®. R-22-4562

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The A, B, Cs of Medicare

From Oct. 15 to Dec. 7, 2022, qualified participants can sign up to take part in the federal government’s insurance plan. If you are overwhelmed by the process, definitions and complexities of Medicare, you are not alone. According to the Centers for Medicare &amp Medicaid Services (CMS), almost 64 million Americans were fully enrolled in the Medicare program in October 2021. That’s a lot of medication and doctor visits. For those navigating enrollment this year, these are the key questions clients often ask.

When should I enroll in Medicare?

Most Americans enroll in Medicare when they turn 65. The Initial Enrollment Period (IEP) runs for seven months total – three months prior to your birth month, your birth month and three months after your birth month. For instance, if you were born in April, you are eligible to enroll January through July of the year you turn 65. During this time, you will have guaranteed acceptance for all Medicare plans, meaning you cannot be denied coverage for any reason for any part of Medicare. Once you sign up, your Medicare coverage will begin either on the first day of your birth month or the first of the month after you enroll after your 65th birthday.

Do I have to enroll in Medicare?

If you are still employed or receive health insurance through your employer’s plan, a spouse’s plan or a union group health plan and your employer has 20 or more employees, then you do not need to enroll in Medicare when you turn 65. You can wait until you officially terminate from your group health plan, either through retirement or loss of employment.

Medicare regulations require that anyone covered by a small employer plan with less than 20 employees must enroll in Medicare at age 65 instead of the group plan.

Which elements of Medicare do I need to sign up for?

There are essentially five main components of Medicare, and each serves a specific purpose. Here is a brief explanation of each component and some of the benefits they provide:

Medicare Part A – Hospital Insurance

  • Coverage for inpatient hospital care, hospice care, inpatient skilled nursing facility and limited home health care

Medicare Part B – Physicians and Medical Tests

  • Coverage for physician services, outpatient care, home health and medical services
  • Provides coverage for some preventive health services

Medicare Part C – Medicare Advantage

  • Coverage through a private insurer approved by Medicare
  • Coverage provided through an HMO network
  • Enrollment requires Part A and Part B enrollment

Medicare Part D – Prescription Drug Coverage

  • Prescription drug coverage through a private insurer approved by Medicare
  • Enrollment in Part D requires you to already be enrolled in Part A and Part B

Medicare Supplement/Medigap Plan

  • Coverage through a private insurer approved by Medicare
  • Plan covers the 20% coinsurance “gap” from Part B
  • Eight standardized plan choices regulated by Medicare
  • Enrollment requires Part A and Part B enrollment

While everyone who enrolls in Medicare will sign up for Parts A and B, you will need to make a choice on what other plans you will choose. For full enrollment of Medicare, you will choose one of two paths:

  • Traditional Medicare – Parts A & B, a Part D plan and a Medicare Supplement plan
  • Medicare Advantage – Parts A & B and Medicare Advantage (Part C) plan

How much does Medicare cost?

Your monthly cost for Medicare will vary depending on the type of Medicare coverage you choose, the specific plans you enroll in and your annual income.

The good news is that for most people, Part A costs you nothing. These premiums are covered by the federal payroll taxes we pay. For Part B, the base monthly premium is $170.10 for 2022, and this applies to everyone on Medicare. Around November, new premium amounts will be announced by Social Security.

However, depending on your income, your Part B premium may be higher due to an Income Related Monthly Adjustment Amount (IRMAA). This is determined based on your income reported in your tax returns for the two prior years. If you earned over $91,000 those years and are enrolled in Medicare Part B and/or Part D, there will be a surcharge added to these elements. Social Security reviews your Modified Adjusted Gross Income (MAGI) each year, which is based on your income from the prior year, and reassess how much your Part B premiums will be for the upcoming year.

For couples who are married and file separately, the 2021 income tiers and adjustments are:

Once you have met the qualifications to enroll in Medicare, how do you sign up? The quickest and easiest way is online with the Social Security Administration at www.ssa.gov. You’ll need to create a “my Social Security” account prior to enrollment. You can also enroll by calling Social Security at 800-772-1213 or visiting your local Social Security office.

Your retirement shouldn’t be spent sifting through hours of red tape to receive the medical care you need and deserve. If you have questions about the facets of Medicare, please reach out to your advisor. Cheers to a healthy year!

About the author:

As an Onboarding & Integration Advisor, Scot Colgrove, CFP® enjoys breaking down complex issues to simpler, more easily understood concepts. He and his team lead training on the latest systems, processes and the firm to help new teams acclimate to Buckingham. He serves as an advocate for the joining firms whenever needed. His goal is to make the transition as anxiety free as he can for them.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party information and is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated other otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. 22-4422

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