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Financial Planning > College Planning > Student Loan Debt

How Biden’s Student Debt Plan Affects Advisors’ Clients

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What You Need to Know

  • President Biden has announced plans to forgive up to $10,000 in federal student loan debt per borrower — double that for those who received Pell Grants.
  • The forgiveness is a big deal for many clients, advisor Jeremy Bohne said.
  • Clients who have private loans, are above the earnings threshold or are on track for Public Service Loan Forgiveness won't benefit, advisors say.

Financial advisors expect President Joe Biden’s student debt forgiveness program to offer significant relief for some clients and to make little or no difference for others.

Biden announced plans Wednesday to provide student loan relief to millions of Americans meeting income limits and other requirements. The program will forgive up to $10,000 in Department of Education loans  — and up to $20,000 for borrowers who also received Pell Grants, which go mostly to students from families earning less than $60,000 a year.

To be eligible for the relief, borrowers must earn less than $125,000 a year, or $250,000 for married couples.

As many as 43 million borrowers could receive loan forgiveness if all who are eligible claim relief, with about 20 million potentially seeing their entire remaining balances canceled, according to the administration

Among other moves, the administration also extended the pandemic-prompted pause on student debt repayment through Dec. 31; it had been set to expire on Aug. 31.

‘Hugely Positive’

I expect the student loan forgiveness to be hugely positive for my clients. While it’s not as comprehensive as some might like, being that it only targets federal student loans and only forgives $10,000, it’s still a boon for some of my clients who have significant student loan debt and fall below the income restriction,” Ian Bloom, owner and financial life planner at Open World Financial Life Planning, told ThinkAdvisor. He was one of several advisors to offer their views via email Thursday.

“The principals of their loans being reduced by $10,000 — or $20,000 for Pell Grant recipients — is no small amount of money,” he said. “Some clients will have their remaining loan balances entirely forgiven, while others will see them reduced significantly. Even for the clients who have significant grad school loans, they will appreciate having some balances reduced.”

Jeremy Bohne, financial advisor and founder of Paceline Wealth Management, also cited the program’s benefits.

“This student loan relief program is well designed in that it provides help to people that will actually feel a meaningful benefit from it, rather than providing aid to all borrowers whether they truly need assistance or not,” Bohne said.

“The average student loan balance is $40K, so to remove $10K in loans is a really big deal for a lot of people. Additionally, there are income limits so this is again focused on those who need it most, and for whom the effects will actually be meaningful,” Bohne added.

“For younger borrowers, this will help them start their financial life on more solid footing. Here’s why: In many cases, the student loan burden has reached a point where it’s causing people to delay other life objectives, like starting a family or buying a home,” he said.

Ethan Miller, financial planner and owner at Planning for Progress, works with many clients with student debt and said that “some are going to be helped tremendously,” while others won’t be eligible and some will receive limited forgiveness.

“So much depends on what the client’s overall loan repayment strategy has been,” Miller said.

Miller offered three client examples to illustrate the program’s effects:

“Client A has $70,000 in private student loans and $18,000 in federal student loans from her bachelor’s degree. The federal student loan payment pause has been a great opportunity for her because she has been able to direct extra payments towards her credit card debt and private student loans, making real headway on the credit card debt especially. Since she received Pell Grants in college, she is eligible to have her entire federal student loan balance forgiven, helping her continue to pay down other debt and work towards building financial stability.

“Client B has $300,000 in student loans from multiple graduate degrees. He makes a decent income now (his adjusted gross income was $107,000 in 2021), has been working for a nonprofit organization for three years, and will likely remain in a similar job for many years to come. While he is eligible to have $10,000 taken off his total loan balance, this will not change anything about the way he approaches his loans because his payments are based on his income, and he is working towards building 10 years of loan payments to receive forgiveness under Public Service Loan Forgiveness. However, the proposed new income-based repayment plan may bring down his monthly payments, depending on if he is eligible to enroll in the plan when it is finalized.

“Client C has over $150,000 in student loans from law school, and his partner owes an additional $80,000. While his partner works at a non-profit and is close to being eligible for complete discharge under public service loan forgiveness, Client C makes too much money to be eligible for any forgiveness under the current plan. His plan will be to continue making aggressive payments to lower his total balance, with extra payments targeted to his loans with the highest interest rates.”

Limited Relief for Some

Erik Kroll, a certified financial planner and owner of Student Loans Over 50, sees the debt relief program as a positive development overall for his borrower clients, although a limited one in some cases.

“What I see impacting my clients the most is the extension of the payment and interest pause to 12/31,” he said. “For borrowers pursuing forgiveness, they continue to earn credit without having to pay anything.” 

Kroll also said that if income recertification is pushed back six months from when the pause ends to July 1, 2023 — in line with previous precedent — borrowers with recertification dates before then would get pushed back another 12 months. Hypothetically, someone with a June 2023 recertification date would get pushed back to June 2024, he said. 

“So they would likely be making payments, once they start back up, based on 2019 income,” Kroll said. “This can be really helpful in a lot of circumstances.” 

The program doesn’t cover private or privately financed loans, noted Cecil Staton, CFP, president and wealth advisor at Arch Financial Planning. Many borrowers eligible to benefit from the new relief plan already participate in existing student debt forgiveness programs and may see a modest benefit in some cases or none in others, he said.

The two loan forgiveness programs for federal loans are Public Service Loan Forgiveness (PSLF) and taxable loan forgiveness through income-driven repayment plans, Staton explained.

Assuming a borrower is on track for PSLF, “they see no benefit from cancellation in most cases because their loans are on track to be forgiven without income tax due on the amount forgiven. PSLF is for borrowers employed by qualified 501(c) organizations and government entities. Think teachers, doctors and nurses working in hospitals, military, and government employees,” he told ThinkAdvisor.

“Those on track for taxable loan forgiveness through an income-driven repayment plan see a modest benefit,” Staton added. With this program, student loan borrowers can have their debt forgiven if they meet specific requirements. The amount forgiven is taxable. “They may also accrue less interest on their loans and complete the loan forgiveness requirements with a smaller balance thanks to this forgiveness,” he said. “Ultimately, a smaller balance forgiven means less tax due upon forgiveness.” 

Shifting the Burden

Joseph Weber, founder and president, Integrated Financial Solutions, doesn’t consider the plan beneficial for his clients.

“We feel it’s going to negatively affect clients by essentially forcing them to pay for student loans they didn’t take,” he said in an email. “Clients who may not have gone to college or chose to go to a tech or trade school now have the burden of student loan debt put on taxpayers. Not to mention it unfairly affects those who did take out loans and paid those back responsibly. 

“I also feel it will add to the inflationary cost of attending college, plus just add to our national debt.”


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