Moving forward with federal student loan forgiveness – what’s next?


By Jerry Inglet

How to get the student debt relief you’re entitled to while tackling other goals like retirement savings or debt repayment

Imagine a line of 43 million people looking for $10,000 to $20,000. Is there anyone out there who wants to be at the end of this waiting process? Probably not, but it could be for those eligible to apply for loan forgiveness.

An estimated 43 million borrowers will qualify for some form of federal student loan relief, and 20 of those 43 will have their federal loan balances wiped out entirely. Although the U.S. Department of Education’s student debt relief plan is broad, it will not cancel all debt and will leave an estimated 25 million people with federal student loan balances on a repayment break that is expected to end on December 31, 2022, and where payments will resume in January 2023.

Read: Here are 4 things you can do to increase college aid if inflation and a looming recession hit your family hard

With the number of people affected, there are steps all borrowers should take to find out if they are eligible for the debt relief outlined by the Biden administration and to minimize delays:

For those who will have forgiven funds and will have extra money in their pocket each month, this is a great opportunity to use those same funds to start tackling other debts or building up a recovery fund. retirement. Americans saw a $46 billion increase in credit card balances for the second quarter of 2022 and face a $7 trillion retirement savings shortfall. Here are some tips for filtering that monthly loan payment into other possibilities:

Whether you find favor or advantage with debt relief legislation, there are still options available that can help optimize finances around the pursuit and completion of higher education.

Read: Have your student loans been forgiven? Here’s where to put some of that extra cash now

One tactic is to look at the interest rates of all existing private student loans (even if you’re still enrolled in college) and determine if your existing lender (or other lenders) can provide a better product through the through refinancing.

Additionally, for families who have saved up for the full cost of an undergraduate degree, students can secure federal loans in their own name during their four-year journey. If the loan forgiveness does not recur (or for some reason the student does not qualify), the Secure Act of 2019 allows 529 products of up to $10,000 to pay off student loan debt. Parents can use federal loans in the student’s name as leverage (or incentive) to encourage the student to graduate within a certain amount of time or maintain a certain GPA before 529 proceeds are released for repay federal student loans. Check with your tax advisor to see if there will be a state tax clawback if you use your 529 funds for this purpose.

Another possibility for parents with 529 funds is the bill proposed by Senators Richard Burr (R-NC) and Bob Casey (D-PA) – the College Savings Recovery Act. This is designed to allow owners of 529 accounts with remaining funds to transfer those proceeds into a Roth IRA, another form of retirement savings.

Jerry Inglet, Ed.D., CFT-I, is a family heirloom advisor at the Wilmington Trust.

This material is provided for informational purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for any specific investor. Investors should seek financial advice regarding the suitability of any investment strategy for the investor’s particular objectives, financial situation and needs.

This document is not designed or intended to provide financial, tax, legal, accounting or other professional advice, as such advice always requires consideration of individual circumstances. There can be no assurance that any investment, financial or estate planning strategy will be successful.

Wilmington Trust is not authorized to and does not provide legal or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own lawyer, tax advisor or other professional adviser.

This information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions, estimates and projections constitute the judgment of Wilmington Trust and are subject to change without notice.

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-Jerry Inglet

 

(END) Dow Jones Newswire

10-10-22 2009ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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