A Guide to Federal Student Loan Forgiveness

The past six months have brought about some interesting, exciting and unexpected changes to student loan repayment. In partnership with the U.S. Department of Education (ED), the Biden Administration has completely overhauled the very fabric of federal student loan forgiveness with two critical announcements: the Public Service Loan Forgiveness (PSLF) Waiver and the recent changes to income-driven repayment (IDR) forgiveness. Considering the underwhelming lack of solutions proposed in past years, these relatively complex and piecemeal measures ought to be welcomed as a sign of positive change.

Many borrowers were both shocked and elated after the Department of Education announced the sixth extension of the student loan payment freeze in April. Even still, the same borrowers might be asking some very important questions: what exactly are these forgiveness programs, how do they impact me and what steps need to be taken to secure the full benefit of such proposals? If you’re ready for some answers, let’s dive in.

Part One: The PSLF Waiver

The U.S. Department of Education has become well-acquainted with the relentless (yet warranted) criticism from borrowers, advocacy groups and lawmakers on its failure to adequately manage and administer the PSLF program. To make amends for past misgivings, they announced on October 6, 2021, a limited PSLF waiver. This temporarily credits borrowers for past periods of repayment that would otherwise not qualify for PSLF. Boasting the change placed over 550,000 public service workers closer to loan forgiveness, the ED will temporarily count additional qualifying payments once excluded based on the type of loan (FFEL or Perkins) or disqualifying payment plan (standard, extended, etc.) towards the required 120 total qualifying payments.

Borrowers should note that the qualifying employment requirement has not changed and should confirm their employer’s qualifying status by completing the PSLF form with the PSLF Help Tool.

The Nitty-Gritty Details

Previously ineligible loan types and amounts are temporarily allowable:

  • The limited waiver allows for all payments made on all federal loan types while working for qualifying employers to count, e.g., Federal Family Education Loans (FFEL), Perkins or other federal student loans. Payments will count for disbursements made towards previously consolidated ineligible loans (with the exception of jointly owned FFEL loans).
  • Any payment made while working for a qualifying employer will count, even late payments. The only periods that don’t count are periods of deferment (of less than 12 months), forbearance or default.
  • Grad Plus and Parent Plus loans are also included in the waiver.
  • Borrowers who have already completed 120 payments under the limited waiver are not required to continue to work in the public interest while awaiting loan forgiveness.

All repayment plans count:

  • The limited waiver provides credit to borrowers for payments made under any repayment plan, provided the borrower was working full-time (30 hours/week) for a qualifying employer.
  • This waiver applies whether a borrower repaid federal loans through graduated repayment, extended repayment, consolidated repayment, standard repayment or any of the other plethora of options.

Action Items to Note

Consolidate ineligible loans:

  • Federal loans that are ineligible for PSLF must be consolidated into a Direct Loan by October 31, 2022, to receive credit under the limited waiver. FFEL, Perkins or other previously ineligible federal loans must be included in a direct consolidation to get credit.
  • Borrowers can complete a direct consolidation of one ineligible loan to a Direct Loan. You do not have to combine two loans for the consolidation to count.

Submit an employment certification form (ECF) or PSLF form:

If you currently or at any point worked for a qualifying employer but did not certify your employment either due to ineligible loan types or an ineligible repayment plan, you must then submit a PSLF form to FedLoan Servicing for all periods of qualifying employment.

  • You are a part of this group if you have only Direct Loans but are not assigned to FedLoan Servicing or if you are assigned to FedLoan Servicing and have never submitted a form for the PSLF Program. You can’t get credit under these flexible rules unless you file a PSLF form by October 31, 2022.

Verify your PSLF count:

  • If you have only Direct Loans and all of them are assigned to FedLoan Servicing, you’ve most likely submitted an Employment Certification or a PSLF form. Automatic credit will be granted only if the employer listed on your form was determined to be a qualifying employer.
  • If you worked full time for a qualifying employer from 2008–2010 but did not submit a form because you had not yet consolidated your loans, you’ll still need to submit a PSLF form to get credit for those payments.
  • If you’re not sure why your prior payments were denied, check your account details online at or fill out a new PSLF form. You can also request a written payment history from FedLoan if your eligible or qualified payment count is incorrect.

Part Two: Income-Driven Repayment Plan Reform and a One-Time Adjustment Towards Forgiveness

The Biden administration announced a massive IDR waiver program on April 19, 2022, similar to the PSLF waiver program. The ED estimates that this action will result in automatic debt cancellation for at least 40,000 borrowers under PSLF and several thousand borrowers under IDR. More than 3.6 million borrowers will receive at least three years of additional credit toward forgiveness under IDR.

Most importantly, all forgiveness granted between now and January 1, 2026, will be forgiven income tax-free, whereas the total loan amount forgiven under IDR would have otherwise been included in a borrower’s adjusted gross income. This means that an estimated 10-15% of all current loan holders will be granted either immediate or eventual tax-free forgiveness under the revised guidelines for IDR plan forgiveness.

The Nitty-Gritty Details

The changes announced by the ED are aimed to bring borrowers closer to forgiveness under income-driven repayment (IDR) plans after either 20 or 25 years of repayment. It applies to borrowers pursuing 20 and 25-year IDR programs as well as those pursuing PSLF. Whether a borrower qualifies for this forgiveness depends on their current Income-driven repayment plan.

They will also count payments made before a consolidation. Additional loan counts will also benefit holders of Parent PLUS Loans and FFEL once consolidated. Consolidations need to take place before January 1, 2023.

One-time payment count revision for eligible IDR borrowers:

  • As part of this initiative, ED will conduct a one-time revision of IDR-qualifying payments for all Federal Direct Loan Program and federally managed FFEL program loans.
  • ED will conduct a one-time account adjustment to borrower accounts that will count time toward IDR forgiveness, including:
    • Any months in which a borrower had time in a repayment status, regardless of the payments made, loan type or repayment plan.
    • Twelve or more months of consecutive forbearance or 36 or more months of cumulative forbearance toward IDR and PSLF forgiveness.
    • Months spent in deferment (with the exception of in-school deferment) prior to 2013.
    • Any time in repayment prior to consolidation on consolidated loans.
  • Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if they are not currently on an IDR plan.
  • If a borrower made qualifying payments that exceed forgiveness thresholds of 20 or 25 years, they will receive a refund for their overpayment.
  • Borrowers who were steered into shorter-term forbearances will be able to seek account review by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.

Permanent fixes to IDR payment counting:

  • In addition to issuing new guidance to student loan servicers to ensure accurate and uniform payment counting practices, ED will track payment counts in their own modernized data systems.
  • In 2023, FSA will begin displaying IDR payment counts on StudentAid.gov so borrowers can view their progress after logging into their accounts.

Effects on PSLF applicants:

  • If a borrower has applied or will apply for PSLF, these changes may have an impact by increasing their qualifying payment count.
  • If a borrower has 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance, they will receive PSLF credit for those periods of time if they certify qualifying employment.

Action Items to Note

While no immediate action is needed at this time (due to a lack of clarifying information from the ED), additional steps could be needed by borrowers soon. If borrowers do not want to wait until 2023 for FSA to display their payment count, they can request a written payment history from the loan servicer. Depending on the loan servicer, borrowers might be able to see most of their history already displayed online.

If you are working toward IDR plan forgiveness or already have accumulated 20 or 25 years of student loan payments, take a moment to celebrate this rather unprecedented but good news.

Knowledge is Power

By taking a piecemeal approach, the Biden administration has expanded existing loan forgiveness programs two-fold. Borrowers can empower themselves and their student loan forgiveness strategy by staying informed, being vigilant and taking action. However, there are many intricacies in this new legislation. If you have questions about your student loans, Buckingham would love to help! Schedule a short consultation with us today.

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. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. The opinions expressed by featured authors are their own and may not accurately reflect those of the Buckingham Strategic Partners®. IRN-22-3744

© 2022 Buckingham Strategic Partners®

This commentary originally appeared May 12, 2022 on thestreet.com.

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Prepare Your Portfolio for Midterm Elections

Prepare Your Portfolio for Midterm Elections

Midterm elections are just a few months away. This can mean only one thing … a flurry of political ads interrupting your favorite television shows.

All jokes aside, you can also expect to see plenty of platforms built around the President’s handling of the pandemic, the response to Russia’s invasion of Ukraine and our current economic landscape. With inflation at a 40-year high and the expectation that the Federal Reserve will aggressively raise their key short term lending rate by the end of the year, voters will likely be tuned into how each party plans to handle the precarious position of our economy.

No one has a crystal ball to see how the election will turn out. But I have learned one thing throughout the years: the financial media will be quick to pick apart both party’s suggested policies and their potential impact to different areas of the stock market. You’ll hear statistics over the next few months conjecturing that a change in congressional control will create investment opportunities. Many of those articles will go on to suggest that you should reposition your portfolio to take advantage of the changing agenda in Washington. However, one of my favorite sayings is that there’s nothing new in investing, just investment history we don’t yet know. Before you make any changes to your portfolio, consider what we can learn from history.

Change in Seats - Midterm Elections

Graph 1: Change in number of seats controlled by the president’s party in both the House of Representatives and the Senate during the midterm elections since 1934. Election changes highlighted in yellow indicate a change in control of the respective part of Congress. Source: The American Presidency Project.

Graph 1 shows the change in the number of seats for the president’s party in midterm elections since 1934. Recent history has favored the challenging party, with the president’s party losing an average of 27 seats in the House during 19 of the last 22 midterm elections and losing an average of three Senate seats in 15 of those elections. Note that not every loss of seats meant a loss of control as many of those years saw the presidential party maintain majority in Congress. However, over the last roughly 90 years, the challenging party has retaken some ground in the midterm elections.

So, what does this mean for your portfolio? I’ll offer three points to consider.

First, even if control of Congress changes, remember that this is expected. Many theories exist as to why this happens, including a higher motivation of supporters of the challenging party, lower turn out in the midterms and dipping approval rating of the president. The key takeaway is that history teaches us to expect a loss of seats for the president’s party. Stock prices quickly respond to information and the expected impact to the future profits of companies, so we can reasonably assume this expectation is baked into current stock prices. We can still see the prices of stocks move the day after an election as we move from “what was expected to happen” to “what actually happened”. The bottom line: we shouldn’t expect huge swings if Democrats lose seats in Congress.

Hypothetical Growth of 1000 Through Control of Congress

Graph 2: Hypothetical growth of $1,000 invested in the U.S. Total Stock Market beginning January 1934 and ending December 2021. Periods when the Democratic party controlled Congress are shaded blue, periods when the Republican party controlled Congress are shaded red and times when the House and Senate were controlled by different parties are indicated by the red/blue combo. Source: Ken French Data Library, house.gov and senate.gov. U.S. Market is a value weighted return of all CRSP firms incorporated in the U.S. and listed on the NYSE, AMEX, or NASDAQ. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends and capital gains.

The second key point to remember is that there has been no reliable pattern between a change in the control of Congress or president and the future returns in the market. Graph 2 shows us that a hypothetical $1,000 invested in U.S. stocks at the beginning of 1934 would have grown to over $11 million dollars by the end of 2021. On average, we’ve seen positive returns for U.S. stocks during years when Republicans controlled Congress, positive returns during years when Democrats controlled Congress and positive returns when Congress was split. Elections where we’ve seen a change in power in either part of Congress have been followed by a positive year in the stock market each time it happened. That’s not to say the opposite can’t happen – it just hasn’t happened over the last 90 years. Although I certainly see headwinds to the growth of U.S. stocks over the next few years (like high valuations, rising cost of debt and tighter budgets for consumers), the impact of a change in control of Congress isn’t high on that list.

Watch for Bigger Price Swings Leading Up To Election Day

Graph 3: The average number of trading days in which U.S. stocks moved by more than 1%, split between election years and non-election years. Election years include years with either a midterm or presidential election. Source: Ken French Data Library. U.S. Market is a value weighted return of all CRSP firms incorporated in the U.S. and listed on the NYSE, AMEX, or NASDAQ.

The final point to consider is that markets don’t respond well to uncertainty. The bigger the impact of the event and the more uncertain the outcome, the more swings we should expect in stock prices. Graph 3 shows that since 1934, the average number of trading days where U.S. stocks moved by more than 1%. Election campaigns tend to surface new policies that are at odds with the current administration. Investors must reconcile both the likelihood that the challenging party will take power and the possibility the suggested policies will be implemented with the overall impact to potential growth for companies and our economy. That’s a lot of “ifs”. This added uncertainty has historically translated into more stock price volatility. So don’t be surprised if you see more bumpiness in markets leading up to election day – that’s what has happened historically and should be expected.

Given the three considerations above, the natural question is what should you do with your portfolio? The answer: stick to your plan. Investing should always start with a plan where you define what you hope to accomplish with your money and your investments. Everyone wants to see their portfolio grow, but most investors fail not during times of growth, but by panic selling when their portfolio starts to decline.

So rather than trying to reposition your portfolio to capture slightly better returns, flip the question: what are you concerned about with the next election (or now for that matter)?

  • Are you worried that we’ll see a big selloff in stocks? Then you may want to look at adding high quality fixed income or sensible alternative strategies that can help mitigate the risk of stocks falling.
  • Are you concerned about higher costs of living as you grow older? Consider investment options that respond positively when there’s high unexpected inflation, such as TIPS.
  • Are you concerned that U.S. stocks won’t be able to continue their impressive performance? International stocks offer much more attractive valuations; consider adding more foreign companies to your portfolio.

Investing always involves risk – that’s why we expect positive returns – but you can build a portfolio to weather all types of market environments. When you create a portfolio that is designed around your concerns, you can focus on the candidates’ policies and vote confidently without worrying about how the outcome will impact your portfolio.

No one can predict the future, but we can plan for it. History has shown us that the market will fluctuate in response to changes in Congress and the uncertainty of elections. By staying the course, you can weather the changes that may happen.

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 sources 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. By clicking on any of the third party links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. 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. R-22- 3757

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