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August 25, 2022 at 02:43 PM
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:
