With the ever-growing concerns surrounding the affordability of a college education, 2024 brings forth critical changes that demand the attention of financial advisors. On February 27th it was announced that 4.3 million federal borrowers will have a $0 payment. In this blog, we’ll explore those changes and introduce a powerful new tool, Finology Software, designed to empower advisors in providing scalable, effective, personalized advice to address their clients’ college financing and debt repayment needs.
Important Considerations for 2024:
The SAVE Plan:
The U.S. Department of Education will continue its rollout of the Saving on a Valuable Education (SAVE) Plan, replacing the Revised Pay As You Earn (REPAYE) Plan. SAVE, an income-driven repayment (IDR) plan, offers unique new benefits, particularly lower payments based on a smaller portion of an individual’s adjusted gross income. This means significant relief for many borrowers, especially those with undergraduate loans. Find out more about the new SAVE Plan here.
Considerations for High- and Low-Earners:
While most borrowers will benefit from SAVE, it may not be the best option for all borrowers. High-earners may face steeper repayment requirements compared with REPAYE. Terms contained in PAYE that help low-earners also disappear with SAVE, including a payment cap of 10% of discretionary income divided by 12 and a repayment limit equal to the amount that would otherwise be due under a 10-year standard repayment plan. Advisors may wish to inform clients of the July 1, 2024, deadline if they wish to remain in the PAYE or REPAYE programs.
IDR Waiver:
In 2024, borrowers enrolled in an IDR plan will automatically receive a one-time adjustment, called the IDR Account Adjustment, to assign the full time they have already accrued in repayment — including many periods of forbearance or deferment — toward 10-year Public Service Loan Forgiveness and 20- or 25-Year IDR Forgiveness programs. In the past, similar programs applied only to public service professionals, but now all IDR plan participants are eligible. Importantly, borrowers with commercially held debt with the Federal Family Education Loan program (FFEL) must consolidate to qualify, and the deadline for consolidation to take advantage of these benefits is April 30, 2024.
Double Consolidation:
Parent PLUS student loan borrowers have an opportunity in 2024 to reduce their payments through a strategy that involves consolidating the Parent PLUS loans and then consolidating them again through an IDR or Income-Contingent Repayment (ICR) plan. By doing so, borrowers can potentially reduce their monthly payments by more than 50%, making the loan more manageable. However, this strategy has certain eligibility criteria and potential drawbacks, such as increased overall interest costs. It’s crucial that borrowers understand the implications and seek professional advice before pursuing this approach to manage their Parent PLUS student loans. Learn more here.
Tax-Filing Considerations for Graduating Students:
Those graduating in 2024 who had no-to-minimal income in 2022 and 2023, and who filed a tax return in 2023, could avoid paying up to three years’ worth of interest on their federal student loans by taking advantage of a loophole → see more below:
- File a tax return for the previous year than your graduation, even if you earned $0
- If you earn less than $34,000, your payment is $0/month, and your interest is 100% subsidized by the SAVE plan
- Give the IRS permission to access your income and to share the data with the Dept. of Education
- For the second year after graduation, apply for an extension to file your taxes in October rather than April
- Since the IRS doesn’t have your updated tax return, they will calculate your income-driven repayment plan based on your first filing after graduation — and you will qualify for another year of $0/monthly payments and 100% interest subsidy
- (You’re not misrepresenting anything, since you gave the IRS access to your income).
- Third year after graduation: file again for an extension
- The IRS will calculate your income-driven repayment plan based on your tax return from two years prior, the year that you graduated
- Since you were likely still in school for most of that year, you likely didn’t make much more money when you did start working than the minimum $34,000 threshold at which you’d be responsible to start paying back your loans
- This qualifies you for a payment that is either $0 or not much more, and all the remaining interest would be subsidized by the SAVE plan for a third year after graduation, regardless of how much income you’re earning by that point
Impact of Deferred Payments:
Despite the expiration last September of the Education Department’s COVID-19 relief for federal student loans, tens of millions of borrowers are yet to resume payments. The Biden Administration has decided not to report missed payments to credit-reporting agencies until Fall 2024; however, millions of Americans could see their credit scores negatively impacted if they fail to resume payments, including interest that continues to accrue during the grace period, by the September 30, 2024, deadline.
Finology Software: Your Solution
In the ever-evolving landscape of college financing, staying informed and equipped is crucial for financial advisors seeking a competitive edge and new ways to attract high-potential, early-career clients.
With Finology Software, advisors can access an innovative set of tools to help streamline the client loan data onboarding process, create automated analytics, simulate federal income-driven repayment plans, and track progress towards completing specialized programs like Public Service Loan Forgiveness (PSLF).
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