If you have a kid heading to college, you have probably half-watched two years of student loan headlines. Forgiveness on, forgiveness off, repayment plans launched and then struck down. Most of it was easy to tune out.

But if you're now sitting down to figure out how to pay next year's bill, you'll discover one of those changes matters a great deal. The Parent PLUS program, the loan most families counted on to cover whatever grants, savings and student loans left behind, now has a limit.

The change comes from the One Big Beautiful Bill Act, which became law in July 2025. For the first time, Parent PLUS borrowing is capped.

If you take out your first PLUS loan for a child starting a program on or after July 1, 2026, you can borrow $20,000 a year per student, up to $65,000 in total.

The cap follows the student, not the parent, so if both parents want to borrow for the same child, they share a single $20,000 a year.

That detail surprises people, but the bigger shift is what the cap replaces. PLUS used to have no ceiling at all. A parent who passed a basic credit check could borrow right up to a school's full cost of attendance, however high that number climbed. Families leaned on it.

For a lot of households, it was less a loan they chose than a gap-filler they assumed would always be there.

Why $65,000 falls short fast

Sixty-five thousand dollars sounds like plenty until you hold it against a real tuition bill. At an in-state public university, it might stretch across all four years. At a private college running $80,000 or $90,000 a year, it barely dents the gap PLUS used to close.

The old program rose with the price of the school. The new one ignores it. A family sending a child to a $25,000 school and a family sending one to a $90,000 school get the same $65,000, which means the households that stretched hardest for an expensive school are the first to hit the wall.

Before you stew over this in the abstract, put numbers to it. Add up four years of cost, then subtract grants and scholarships, the federal loans your student can take out, and what you can realistically pay from income and savings.

What is left is the slice PLUS used to absorb. A college cost and net-price estimator turns that from a vague worry into a figure you can plan around.

What actually changes on July 1, 2026

A few specifics decide who this hits and who it skips.

• New Parent PLUS borrowers are capped at $20,000 a year and $65,000 total per student
• The caps apply to your first PLUS loan for a program that starts on or after July 1, 2026
• If your PLUS loans went out before that date, you can keep borrowing under the old, uncapped rules, but only for three more years or until your child finishes, whichever comes first

That last line is worth sitting with. A parent already borrowing for a current student is in a completely different spot from one whose first PLUS loan lands for a freshman in fall 2026. Same school, same major, very different ceiling, all because of timing.

Graduate and professional students get squeezed harder

This is not only an undergraduate story. The same law ends Grad PLUS loans for new borrowers on July 1, 2026. Graduate students will be limited to $20,500 a year and $100,000 total, and professional students in fields like medicine, dentistry and law will be limited to $50,000 a year and $200,000 total, all under a federal lifetime cap of $257,500.

For professional school, those ceilings fall short of reality. A year of medical school often runs past $50,000 once you count living costs, and Grad PLUS used to make up the difference up to the full cost.

Now a gap opens, and it lands on the students least able to absorb a surprise, the ones still years away from the income their training will eventually produce.

Readers of my previous articles will know the refrain: The steeper your climb to a high salary, the less room you have for a financing mistake along the way.

What to do before the rules change

None of this calls for panic borrowing, and it certainly does not mean piling on debt to beat a deadline. It means trading the old assumption — that PLUS will cover it — for a plan. Start here.

Run the gap first. Before loans enter the picture, set the full four-year cost against everything you will not borrow: Grants, scholarships, 529 money and what you can pay from income. The number left over is the one that matters, and a borrowing-gap planner keeps you from guessing at it.

Use the student's federal loans before the parent loans. Loans in the student's name carry protections and income-driven repayment options that Parent PLUS and private loans do not. Parent borrowing should fill whatever gap remains, not lead.

Know your grandfather window. If you already hold PLUS loans, you may have three more years of uncapped borrowing. Find out when it ends so a junior-year tuition bill does not catch you flat.

Do not build the whole plan on PLUS. For an expensive school, the money above $65,000 has to come from somewhere: Savings, a cheaper school, more scholarships or private loans you take on knowing exactly what you are trading away.

None of those choices gets easier if you push it to the August before senior year. Look hard at repayment options and what each loan type costs over time while you build the plan, not after the money is gone.

The bigger picture

Parent PLUS was never meant to be the whole strategy. It became one because it had no limit, and a backstop with no limit is an easy thing to lean on. The caps do not make college cost more. They take away the cushion that let families avoid looking the price straight in the eye.

That is uncomfortable. It is also a nudge in the right direction. The parents who come through this in good shape will not be the ones who rushed to borrow before the deadline.

They will be the ones who ran the numbers early, picked schools that fit those numbers, and treated borrowing as one piece of a plan instead of the thing that swallowed whatever the plan left behind. The ceiling is here. Better to measure your distance from it now than to find it the hard way.

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• Here's Why You Can Afford to Ignore College Sticker Prices
• Started Pulling in the Big Bucks? If You Refinance Your Student Loan Now, Here's What You'll Miss

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many professionals pursue law or business school with a clear goal: Higher income and greater financial security.

What often comes with it, however, is a six-figure salary paired with significant debt.

Law school graduates carry an average of about $130,000 in debt, often paid over the course of 20 to 25 years, while MBA graduates average close to $80,000.

These payments may feel manageable early, but they can quickly become a source of stress if your circumstances change, whether due to job loss, career shifts or burnout.

In one study, 75% of young lawyers who borrowed reported that debt altered the career plans they had when they entered law school.

Paying down this debt is often framed as a financial decision. But I encourage you to think about it another way: An investment in stress reduction.

Eliminating or significantly reducing that burden early can open options later, and the first five years of your career offer a unique opportunity to do that. Rather than stretching repayment over decades, a focused, intentional approach can dramatically accelerate progress.

This approach requires discipline, especially after years of living on a student budget. But the trade-off is greater financial control, reduced long-term pressure and the ability to make career decisions without being constrained by debt.

The framework is similar across professions, but how it's applied can vary. Here's how it works, with some special call-outs for MBA graduates and for attorneys.

A five-year framework for accelerated debt repayment

Set your spending framework. The foundation is simple: Live on 80% (or less) of your gross income for the first five years. The remaining 20% or more can be directed toward accelerated loan repayment.

This is a temporary, intentional decision designed to create momentum early in your career. By anchoring your lifestyle below your means from the start, you avoid building fixed expenses that are difficult to unwind later.

Lock in financial priorities first. Maximize contributions to your employer-sponsored retirement plan, particularly if there is a company match. These contributions not only build long-term wealth but also reduce taxable income.

If eligible, contribute annually to a health savings account (HSA), which is available to those enrolled in a high-deductible health plan. HSAs offer a triple tax advantage:

• Tax-deductible contributions
• Tax-free growth
• Tax-free withdrawals for qualified medical expenses

After age 65, funds can also be used for non-medical expenses without penalty (though subject to ordinary income tax).

Establishing these habits early ensures that accelerated debt repayment doesn't come at the expense of long-term financial progress — all while bringing down your taxable income.

Accelerate your loan repayment. Target 20% to 30% of gross income toward student loans. Using a percentage rather than a fixed dollar amount allows your payments to scale with your income, keeping you on an accelerated path as your earnings grow.

Refinancing might also be worth considering if it meaningfully reduces the total cost of the loan.

However, evaluate the full impact carefully, particularly if it involves giving up federal protections such as income-driven repayment plans or temporary payment relief during periods of financial hardship.

Use bonuses strategically. Bonuses provide one of the most powerful opportunities to accelerate repayment.

Rather than using them to inflate your lifestyle, direct 50% to 70% of each bonus toward loan principal. The remainder can be used for investing or planned spending.

This approach allows you to make significant progress without increasing fixed monthly obligations — one of the most effective ways to accelerate repayment.

Protect your plan with liquidity. Maintain a cash reserve of at least three to nine months of expenses.

This buffer allows you to continue executing your strategy even if your income fluctuates or unexpected expenses arise. Without it, there's a risk that progress made on debt reduction could be undone by short-term disruptions.

How this plays out for MBA graduates

MBA graduates typically leave school with less debt and enter careers that offer greater flexibility in compensation, geography and career path. This combination creates a significant opportunity to eliminate student loans quickly.

With lower overall balances, the same disciplined framework can lead to full repayment within a relatively short period, especially when bonuses are used strategically.

In addition, MBA graduates often have greater career flexibility, with the ability to move across roles and industries — such as consulting, finance, private equity or corporate leadership — allowing them to adjust income, workload or career trajectory more easily than in more structured paths.

The primary risk for MBA graduates is lifestyle creep. Early increases in income can make it tempting to upgrade housing, travel or discretionary spending too quickly. Maintaining discipline during the first few years is what allows the accelerated debt repayment strategy to work.

How this plays out for attorneys

For attorneys, the framework is just as effective — but the constraints are different.

Debt levels are typically higher, and early-career paths tend to be more rigid and demanding. Long hours and high expectations can make it easier to justify increased spending, particularly on housing or convenience.

This makes controlling fixed expenses especially important. If you're working 70 to 80 hours a week, your home might primarily serve as a place to sleep. Keeping those costs in check creates a meaningful opportunity to redirect income toward debt reduction.

Liquidity also plays a larger role. Given the demands of legal careers and the potential for shifts — whether through lateral moves, transitions to in-house roles or changes in firm structure — maintaining a larger cash reserve (closer to nine to 12 months) provides important flexibility.

Finally, attorneys should remain adaptable. Partnership opportunities, buy-ins or career changes might require adjustments to your repayment strategy. Avoid locking yourself into a plan that depends on consistently high income without room for change.

What the accelerated debt repayment strategy gets you

Whether you pursue this approach as an MBA graduate or an attorney, the outcome is beneficial: a significantly reduced — or eliminated — loan balance on an accelerated timeline, alongside a strong foundation for retirement savings and long-term wealth.

Beyond law and business, these principles apply broadly to high earners with significant debt. A focused, time-bound approach, combined with disciplined spending and strategic use of income, can dramatically change your financial trajectory.

The impact goes beyond the numbers. Clients who take this approach often find that once debt is reduced or eliminated, their financial lives feel fundamentally different.

Major expenses can be paid in cash, and progress to long-term goals accelerates, but most important, there is a noticeable shift in overall well-being.

The absence of debt creates a sense of stability and confidence that carries into all areas of life — giving you the freedom to make career and life decisions on your own terms.

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• This Is How You Can Guide Your Heirs Through the Great Wealth Transfer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: Our grandson just graduated from college with $45,000 in debt. I want to pay off his student loans, but my husband says we can't afford it. We're 73-year-old retirees with $2.1 million and $4,000 a month in Social Security that covers most of our bills. Who's right?

Answer: You'll often hear that college graduates are drowning in debt. That might not be true for everyone, but the average student loan debt, including private loans, could be as high as $42,673 today, reports the Education Data Initiative.

A balance that large could be difficult to shake for recent grads who aren't diving into instantly lucrative careers. If you're a retired couple who's financially comfortable and have a grandson who just walked away with a $45,000 pile of student loan debt after wrapping up his studies, you might be inclined to help.

If you're sitting on a $2.1 million nest and your $4,000 monthly Social Security check mostly covers your bills, it's clear that you have some wiggle room in your budget. But your husband might not be as convinced.

Here's how to figure out how to lend a hand in a manner that doesn't compromise your financial security or convey the wrong message.

Paying off the loan probably won't change your lifestyle

A $2.1 million nest egg is not the same thing as unlimited financial resources. But if you're mostly able to live on Social Security and that $2.1 million is just your "extra" cash, a $45,000 withdrawal might have a minimal impact, says Deon Strickland, Ph.D. financial adviser at Scholar Advising.

"If you’re looking at the couple, 73 years old, about $2 million in retirement assets, and $4,000 a month in Social Security, you’re probably talking about somewhere around $100,000 a year, give or take, available to spend after tax," he says. "They’re in a position where this decision is not going to dramatically change their lifestyle."

That doesn't mean you should just write a check without thinking things through, though.

As Strickland says, "This really comes down more to the relationship with the grandson and what they’re trying to accomplish. If the grandson has been responsible, appreciates the opportunities he’s had, then maybe there’s a way to help. But it doesn't necessarily have to be just writing a check."

Strickland says you shouldn't feel obligated to pay your grandson's debt in its entirety.

"It could be structured," he explains. "It could be something like, 'If you pay the first $5,000, we’ll match it.' Something that reinforces good behavior rather than replaces it."

Consider your goals carefully

A $45,000 gift to repay student loans might be a small chunk of a $2.1 million pool of money. But for your grandson, it's huge.

Strickland says that if you're looking to make that gift, it's important to tell the right story.

"It’s more about what they want to pass on, not just financially, but in terms of values," he says. "While $45,000 is not going to be a huge shock to their overall financial picture, it is an opportunity to demonstrate how to make good financial decisions."

In other words, if you're going to give your grandson the money, set some expectations and help him realize what that gift represents. It could be the thing that allows him to build savings early on or get a head start on accumulating his own retirement nest egg so that he might one day be in a position to help a grandchild pay off their student debt.

Figure out the path that's best for your cash flow

Even though you can probably afford to pay off your grandson's $45,000 debt without blinking, that doesn't mean you shouldn't try to do so strategically. Brandon Agamennone, CRPC and wealth management adviser at Victory Private Wealth, says you have several options for handling that bill.

"It depends on what you need for your income," he says. But one option is to use dividends or interest from your portfolio to pay off the loan over a few years. Another option is for each of you to give your grandson a $19,000 gift this year, for a total of $38,000, to stay within the gift tax limit. You can then tackle the remaining loan balance the year after.

Another option? "If you have RMDs on a portion of your investment portfolio," Agamennone says, "you could take those and then gift some or all of that amount to your grandson to pay off the student loan."

Make sure your grandson knows what repayment options he has

A $45,000 student loan bill might seem overwhelming to a new college graduate. But before you rush to come to the rescue, you could want to walk your grandson through his options for repaying that debt, either on his own or with assistance.

"I would have the grandson understand college loan consolidation options," says Brian Safdari, founder of College Planning Experts. "Maybe the [grandson] can get some student loan interest deductions while working."

Safdari thinks it's important that borrowers realize that there are different ways to tackle college loans. With federal loans, for example, there are income-based repayment plans that can be more affordable.

"Start with a strategy and a plan first," he says. "Then execute the best plan that provides the family the best outcome."

That plan could involve having you foot some or all the bill, but it's important to dole out that money in the context of a broad plan everyone involved is on board with.

Next Steps to Help Your Grandchild Afford College

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Refinancing student loans is often treated as a milestone: Your income goes up, your rate goes down, and you move on.

For high earners, especially physicians and other professionals early in their careers, that moment tends to come quickly. And that's exactly where the mistake happens. Most borrowers don't refinance at the wrong rate.

They refinance at the wrong time.

The appeal is obvious, and that's the problem

Once your income crosses a certain threshold, refinancing feels like a straightforward upgrade. You qualify easily. The rate looks better. The math works. But that framing assumes your financial situation is already settled.

For many high earners, it isn't. Early attending physicians, newly promoted professionals and anyone on a steep income ramp can move from constrained to comfortable very quickly. That shift creates pressure to "optimize" right away, starting with student loans. Lowering your rate feels like progress. But timing still matters.

What you're trading away

Refinancing federal loans isn't just a financial adjustment; it's a structural decision.

You're giving up:

• Income-driven repayment flexibility
• Federal forbearance and deferment options
• Any future path to forgiveness

In exchange, you get a lower rate and a more predictable repayment structure.

For high earners, that trade can make sense, but it should be intentional. Once you refinance, there's no way back into the federal system.

High income doesn't mean stability yet

This is where many borrowers misread their position. A high salary, especially after years of training or career progression, can be a permanent step up. But early in that phase, income is often still evolving.

Take physicians, for example:

• Compensation structures may shift in the first few years of practice
• Bonuses and production-based income can vary
• Geographic or role changes are still common

The same applies to other high-income fields where compensation includes variable components or where career mobility is still high.

Refinancing works best when your income is not just high, but predictable and durable. So the question isn't, "Can I refinance?" but, "Is this the right time to give up flexibility?"

A few signals that the timing is right:

• Your income has stabilized beyond the initial ramp-up
• You have a meaningful emergency fund (at least several months of expenses)
• You're no longer relying on federal protections even as a fallback
• Your financial priorities are shifting toward efficiency and simplification

If those aren't fully in place yet, waiting is not a missed opportunity. It's a way to preserve optionality while your financial picture settles.

Why timing can improve outcomes

Refinancing is not a one-time window. It's a decision you can make and revisit over time. Even just waiting 12 to 24 months can change the equation:

• A longer track record of income can strengthen your application
• Credit consistency can lead to more competitive offers
• A stronger balance sheet reduces the need for federal safety nets

None of this guarantees a better rate. But it does put you in a position to refinance with greater certainty and fewer trade-offs.

Understanding what drives your rate

While rates vary across lenders, a few factors consistently matter:

• Stability of income (not just total compensation)
• Debt-to-income ratio
• Credit history and repayment consistency

This is why two borrowers with similar salaries can receive different offers and why initial rate quotes don't always match final terms. The strongest profile isn't simply the highest earner. It's the most stable one.

The bottom line

For high-income borrowers, refinancing student loans is often the right move. But it's frequently done too early, before income stabilizes, before financial reserves are built, and before the value of flexibility has fully diminished.

The goal isn't just to lower your interest rate. It's to make that decision at a point where you no longer need what you're giving up. If your income is steady, your finances are well established, and you're comfortable stepping away from federal protections, refinancing can be a clean and efficient step.

If not, waiting isn't hesitation. It's discipline. Exercising patience now preserves your options and reinforces your control over your financial future.

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• 6 Practical Steps to Help Keep Your Student Focused on College Rather Than the Financial Strain

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The financial professionals who contribute to Kiplinger's Adviser Intel are always here to make sure you have the information you need to make critical decisions about your retirement planning, estate planning and tax planning.

In the past week, they've written about the misconceptions many people have about annuities, how Baby Boomers are facing a very different retirement reality than their parents did and the OBBB's impact on federal student loan programs. One also wrote about how families can prepare heirs for their financial legacy to avoid the "third-generation curse."

This quiz is designed to test what you've learned from them. Let's see what you know! (And don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.)

Related Content From Adviser Intel

These are the Kiplinger stories featured in this quiz:

• I'm a Financial Adviser: Don't Believe These Five Myths About Annuities
• Student Loan Shake-Up: What the OBBB Means for Parent PLUS Borrowers, From a Financial Aid Expert
• Boomer Retirement Reality Check: The Numbers Look Bleak, But Here's What You Can Do About That
• I'm a Wealth Adviser: This Is How to Prevent Your Heirs From Frittering Away the Family Fortune

With the passage of the One Big Beautiful Bill (OBBB), drastic changes are coming to federal student loan programs. One major change is the new loan limits for Parent PLUS Loans beginning July 1, 2026.

These Direct PLUS Loans, part of the federal student loan program, have been a lifeline for parents helping their children cover the costs of college.

If you have a child who'll be college-bound in the next few years, these changes could directly impact your college financing plans — and could require you to look for other methods to cover financial aid gaps.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Understanding the Parent PLUS Loan changes

The Direct PLUS Loan program has offered parents the ability to borrow federal student loans to help cover the cost of college when financial aid comes up short.

Last academic year, we saw the average Parent PLUS Loan recipient receive about $20,000 per year.

However, with no annual loan limit, this average can be deceiving, as parents borrowing a PLUS Loan to help them cover the costs of college have been able to borrow up to the student's cost of attendance minus other financial aid received.

Without strict loan limits, and with the current costs of college, parents could be borrowing a small amount or tens of thousands per year, with minimum credit requirements when compared with other types of private debt.

This accessibility has come with consequences. Many parents found themselves carrying substantial debt well into retirement, with the outstanding federal student loan balance for borrowers age 62 and older totaling about $132 billion.

About 480,000 borrowers in this age group carry balances exceeding $80,000, and more than 100,000 of these borrowers owe more than $200,000.

The New Parent PLUS Loan limits

For any student beginning a new program on or after July 1, 2026, Parent PLUS Loans will be capped at $20,000 annually, and a student can receive no more than $65,000.

This is a significant change from the previous unlimited borrowing structure. Students who started programs before July 1, 2026, and parents who have already borrowed Parent PLUS Loans will be grandfathered into the current terms until the student completes their program or for an additional three years.

It's important to note, that these limits are tied to the recipient — the student. While this doesn't necessarily prevent parents from overborrowing, as a parent can borrow these amounts for each dependent undergraduate student seeking an undergraduate degree or credential, it will affect financial planning for the student and their family going forward.

What these limits mean for your family

There are some considerations parents should take — including a mathematical challenge for students attending four-year programs.

If you need to borrow the full $20,000 limit for your child in the first year, you'll use most of the aggregate limit by the time the student completes their third year.

This could leave a significant funding gap for the student's final year of college if other plans aren't put into place.

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Consider this scenario: Your child attends a private four-year university with a total annual cost of $60,000. After grants, scholarships and student loans are offered, the student has a $25,000 gap. It's expected that a gap of this size, if not larger, will continue for all four years.

Under the new rules, you could borrow $20,000 in a Direct PLUS loan as a parent, and you would still need to find a way to cover the remaining $5,000.

By your child's junior year, you would have already borrowed $60,000 of the $65,000 total limit, leaving only $5,000 for your child's senior year.

In addition, you might face tuition increases, which average 5% to 8% annually. If you were feeling a financial strain during freshman year, it might get worse each year — which is why it's crucial to assess affordability from the start of your child's college career.

Protecting your child's educational success

If your child hits a financial barrier they can't mitigate, they can face serious risks. Chances are, if you're borrowing a parent student loan — federal or private — your child is likely to also be borrowing student loans.

Colleges have strict deadlines for when tuition is due, and any delays in payment might result in your child being dropped from classes until the issue is resolved, or the student might be forced to leave the school entirely.

Typically, this leaves families scrambling to find ways to cover the tuition bill — which could lead to high-interest emergency funding.

Even if the issue is resolved, the student could be left with the stress of financial uncertainty, which can impact academic performance.

Unfortunately, if the student did borrow funds and is forced to drop out, that immediately puts them at an elevated risk of default on their loans.

To prevent these outcomes, it's important to have an honest conversation with your child about college affordability.

If your dream school requires borrowing significant debt, consider more affordable alternatives that won't jeopardize degree completion and the financial stability of the family.

Creating your financial action plan

Don't wait until acceptance letters arrive to address affordability. Start these conversations during your child's sophomore or junior year of high school, when there's still time to create savings plans, adjust college lists and explore scholarship opportunities.

Use tools such as Edvisors' financial aid gap calculator to run estimates or use your financial aid offers to determine your financial aid gap. (Note: I am the director of corporate communications for Edvisors.)

1. Establish a college budget

Take some time to look at your own resources, and create a realistic budget for how much you and your child can afford.

It's helpful to calculate realistic annual education costs from each prospective school, including tuition, room, board and other living expenses.

Factor in increases to tuition each year. This will give you a baseline of affordability for you and your child.

2. Develop a loan strategy

Set limits on how much you're willing to borrow. Keeping this open-ended can create issues further down the line.

In addition, look at all your options, such as the Direct PLUS Loan, as well as private student loans.

If you plan to borrow a Parent PLUS Loan, keep the new limits in mind. If you can keep your borrowing to $15,000 or less each year, you can help cover the costs of a four-year program.

3. Explore alternative financing options

Private student loans might fill gaps left by federal loan limits, but they typically need stronger credit qualifications and offer fewer protections than federal loans.

Many times, borrowers might see lower interest rate options with private student loans, but only borrowers with strong credit will qualify for the lower rates.

4. Start saving now

Even if your child is starting college next year, it's not too late to start saving for college.

If your child is in a four-year program, and you find yourself with a financial aid gap, it might be worth it to set money aside while they're in their first and second year to use toward their junior and/or senior year.

Even modest monthly contributions to either a 529 plan or a high-yield savings account can reduce your borrowing needs in the future, which can reduce your need to borrow.

The end of unlimited Parent PLUS borrowing marks a significant shift in college financing. It's hard to say if this is the protection parents need from overborrowing, but it does offer an opportunity to organize and create a plan.

By understanding the changes, creating realistic budgets and exploring all funding options, you can help ensure your child's educational success without compromising your financial future.

Related Content

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• How to Budget for College Expenses Beyond Tuition
• Going to College? How to Navigate the Financial Planning
• You Should Be Investing in a 529 Now for Your Kids' or Grandkids' Tuition
• Nearing Retirement With Student Loan Debt? What You Can Do

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Big changes are coming to the federal student loan program, and if you're a current borrower, a parent planning for college or someone considering graduate school, it's important to know what's ahead.

The One Big Beautiful Bill (OBBB), which became law in July, represents one of the most significant shifts in student lending in recent memory.

The sweeping budget reconciliation law reshapes how families borrow and repay for higher education. The new rules take effect on July 1, 2026, though some programs will phase out gradually.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

While the updates are significant, there's no reason to panic. With the right information and a clear plan, borrowers can make smart choices that minimize costs and protect their financial well-being.

How federal student loan rules are about to change

The OBBB brings the most substantial changes to federal student lending in more than a decade. There are material changes across undergraduate borrowing, graduate borrowing and repayment options.

For undergraduates, federal Direct Subsidized and Unsubsidized Loans, formerly known as Stafford Loans, remain unchanged.

However, Parent PLUS Loans now come with new limits for the first time: a cap of $20,000 per year and $65,000 in total per student.

Historically, Parent PLUS loans have represented roughly one-third of total federal undergraduate borrowing annually, so these new limits represent a significant shift.

While the caps are relatively generous, the average Parent PLUS loan size was about $21,000 in 2024, meaning families who borrow for all four years of a bachelor's degree, particularly those with multiple children or higher-cost programs, could hit the ceiling and might need to explore additional funding options.

Graduate students face the most notable changes, as the Grad PLUS Loan program will be phased out starting July 1, 2026.

Students who have already taken out a Grad PLUS loan for a specific course of study before that date will be exempt and can continue borrowing under current rules to complete their degree or for up to three years (whichever comes first).

This will impact a decent number of borrowers, as Grad PLUS loans have historically also accounted for roughly one-third of total federal graduate borrowing annually.

To help offset the gap, borrowing limits for federal Direct Subsidized and Direct Unsubsidized Loans will increase by roughly 14% to 23%, depending on the type of graduate loan.

However, even with these increases, many graduate borrowers might need to turn to the private lending market to cover the gap between their cost of attendance and available savings, aid or federal loans.

Finally, repayment options will be simplified starting July 1, 2028. Instead of navigating a complex menu of plans, borrowers will choose between just two:

• A standard repayment plan, with repayment periods of 10, 15, 20 or 25 years based on total debt
• The new Repayment Assistance Plan, an income-driven repayment option in which monthly payments are tied to household income, starting as low as 1% and capped at 10%.

The phasing out of some of the current repayment plans will likely mean higher payments for some borrowers.

Already borrowing with PLUS Loans? Here's what you need to know

If you've taken out a Parent PLUS or Grad PLUS loan, or plan to do so before July 1, 2026, you're in a good position.

You'll be exempt from the new rules and can continue borrowing under the current program structure for up to three academic years or until your degree is complete, whichever comes first.

Even so, this is an ideal time to reassess your borrowing approach. PLUS loans are priced annually, and rates reset each May, so comparing PLUS costs with private loan options could uncover opportunities to save.

Many private lenders allow you to check potential rates using a soft credit pull, which won't impact your credit score.

Before considering PLUS or private loans, make sure you've maxed out federal Direct Subsidized and Unsubsidized Loans, which generally offer the most competitive rates and the most borrower-friendly repayment protections.

All borrowers should explore free funding options such as scholarships, grants and institutional aid — tools such as the Citizens Scholarship Search can help you identify opportunities that reduce the need for additional borrowing.

Planning for college? How to borrow smarter under the new rules

For families just beginning the college planning process, these changes make it more important than ever to understand the net price — what you'll actually pay after scholarships and grants — before committing to a school.

Sticker prices can be misleading, and with new borrowing caps on Parent PLUS loans and the elimination of Grad PLUS loans, it's critical to identify programs that are a good fit both academically and financially.

Tools such as Citizens' College Match can help you compare schools by cost, potential aid and overall affordability (the "net price"), giving you a clearer picture of what's realistic before you apply.

If you anticipate needing to borrow beyond Federal Direct Loans, start rate-shopping early. A soft-pull rate quote from private lenders can show you whether you qualify and at what rate, without impacting your credit.

If your credit profile needs work, this gives you time to improve it or line up a qualified co-signer who could help you secure better terms.

Repaying your loans? How to navigate the new plans

If you're already repaying student loans, there's no immediate action required. You can remain on your current repayment plan until at least July 1, 2028, when you'll need to choose between the Standard Repayment Plan and the Repayment Assistance Plan (RAP).

When deciding, look beyond the monthly payment. Compare how each plan affects your total interest cost, time to repayment and overall financial flexibility.

For some borrowers, refinancing federal loans into a private loan might also make sense, especially if you can secure a lower rate or shorter repayment term.

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Many lenders offer flexible refinancing options with terms ranging from five to 20 years, allowing you to customize a repayment plan that fits your budget.

However, refinancing federal loans means giving up access to such protections as income-driven repayment and potential future loan forgiveness programs, so weigh your options carefully before making a decision.

Plan ahead, borrow smarter

While the changes might feel overwhelming, they also create an opportunity for families to take a more strategic, informed approach to borrowing.

The most important steps you can take right now are to understand your options, compare rates and repayment plans and use available tools to chart the best possible path forward.

With proactive planning, you can navigate these changes with confidence and make choices that support both your educational goals and long-term financial health.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In 2008, the U.S. economy nearly collapsed under the weight of subprime mortgages — a crisis built on easy credit, government guarantees, a near-religious confidence in ever-rising home prices and a reckless belief that everyone should and could own a home, regardless of their ability to pay.

We learned, painfully, that good intentions can mutate into monsters, and the result was a decade-long financial and social catastrophe.

Fast-forward to 2025, and we're watching an eerily similar pattern repeat itself. This time, the toxic asset isn't a house — it's a college degree.

The Kiplinger Building Wealth program, which will soon be renamed Adviser Intel (with all the same expert content), handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

An unfolding crisis

Since 1980, college tuition has surged nearly 1,300%, according to Bureau of Labor Statistics data. That's not inflation — that's a crisis. The culprit? The same toxic ingredient that fueled the last financial disaster: easy money.

Just as banks handed out mortgages to virtually anyone with a pulse (remember NINJA loans? No Income, No Job, No Assets), the federal government handed out student loans with virtually no underwriting, no assessment of ability to repay and no accountability from schools that benefit regardless of student outcomes.

The parallels to the mortgage crisis are striking: Inflated demand fueled by easy money led to prices far beyond fundamentals until the whole thing collapsed like a house of cards. The same is happening now in higher education.

Students are encouraged to borrow tens or even hundreds of thousands of dollars without understanding the financial consequences.

But here's the truth — a $250,000 degree in sociology from a midtier university is not an asset — it's a subprime loan in disguise. The borrower might be sincere, the intent might be noble — everyone deserves a college education — but the economics are broken.

We've created an education bubble based on subprime degrees and have flooded the system with artificial purchasing power while expecting no consequences.

Student loan defaults have begun

According to the U.S. Department of Education, more than 5 million borrowers have defaulted on their federal student loans, and that number could rise to 10 million by year's end.

That would put one in four borrowers in default, a level that should terrify policymakers and taxpayers alike. When the government finally stops deferring reality, it'll resort to wage garnishment, seized tax refunds and even stripped retirement benefits from defaulted borrowers.

Policymakers are finally waking up to the crisis. A new law, effective in July 2026, the One Big Beautiful Bill Act, will cap lifetime federal borrowing at $257,500, eliminate the Grad PLUS loan program and impose limits on Parent PLUS loans.

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These are steps in the right direction, but they're too little, too late. The student loan pipeline has already created $1.8 trillion of student debt with little connection to labor market outcomes, per the Education Data Initiative.

The new Repayment Assistance Plan (RAP), while more income-driven, still stretches forgiveness to 30 years and offers limited relief in the face of stagnant wages and inflated tuition.

Who are the most affected?

The tragedy is that just as with subprime mortgages, the most vulnerable will suffer. First-generation students, minorities and low-income families who were lured into debt traps under the illusion of upward mobility could graduate (if at all) into stagnant wages and a mountain of unpayable loans.

The architects of this mess — universities, policymakers and bureaucrats — face no consequences. In addition, government accounting shows federal loans are costly. The Congressional Budget Office projects a 19-cent loss for every $1 lent under federal student loan programs. That's basically a subsidized insolvency.

The housing crisis ended with foreclosures, lost homes, broken families and a decimated middle class. Are we going to wait until the student loan bubble bursts with the same force?

The only path forward is to turn off the faucet. End the era of government-backed lending, and let private markets bring discipline back into the system.

Private lenders operate on one simple principle: Lending should be based on repayment capacity. They underwrite loans based on the value of the degree, the historical outcomes of the institution and the borrower's likely earnings. Lending is done with care.

What we can do

In a world where real capital is on the line, not all degrees get funded. In the private market, money has memory, and prices — whether of homes or tuition — are grounded in economic reality, not fantasy. That's not elitist; that's rational.

• Let students evaluate a college degree by asking a simple question: "Is this worth the cost?"
• Let schools be held accountable for the return on investment (ROI) of their degrees.
• Let policymakers provide legal clarity for income-contingent private loans.
• Let's stop pretending that unlimited government debt is a substitute for sustainable opportunity.

We've seen what happens when we ignore the warning signs. If we don't act now, the next financial collapse won't come from Wall Street, it'll come from college campuses.

However, we have a fighting chance to act before America's next debt bomb explodes. Let's not waste it.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Sweeping changes are coming to student loans, courtesy of President Trump’s so-called "big beautiful bill." Almost everyone with a federal loan for higher education will be affected — including the more than 9 million Americans older than age 50 with student loans — as well as families who will need to borrow in the future to cover college costs.

The new rules, which kick in next July, reduce the number of payment plans available to families to repay college loans to a single option for parents and two for students, based on loan size or income.

The amount families can borrow will be sharply limited, too. And while many provisions affect future borrowers only, some families who are already repaying loans will be forced to switch plans as well.

The net effect? “The bill simplifies the student loan repayment process, since currently there are a lot of similar plans that cause borrowers confusion,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “But it will also cause many borrowers’ payments to go up fairly significantly, and its limitations on the amounts that parents and students can borrow will reduce access to college and choice of schools for many families.”

Whether you’re currently paying off education loans, you’re helping a child manage student debt, or you will need to borrow for future college bills, the new law will likely shake up your plans. Here’s what you need to know about the changes to come.

If you are repaying parent loans now

Some 3.6 million Americans are currently paying back a loan — an average of $31,750, according to the Department of Education — taken out under the federal Parent PLUS program to help their child get a college degree.

Under the present system, you have a few options for repaying the loan. They include the standard plan, with fixed monthly payments for 10 years and, for borrowers who owe more than $30,000, a plan that stretches fixed payments over 25 years.

Parents who consolidate PLUS loans from different school years into one federal loan are also eligible for an income-based plan that can lower payments. Any remaining balance is forgiven after 25 years — or as little as 10 years if you qualify for public service loan forgiveness as a government or nonprofit employee.

All that is due to change. Starting in July 2026, there will be only one repayment plan for new parent borrowers, with fixed monthly payments spread over 10 to 25 years, depending on how much you owe. You will also no longer be able to switch to an income-based plan by consolidating loans or have access to public service loan forgiveness.

What to do

If you’re paying back a PLUS loan under a standard repayment plan and the monthly amount is manageable, you don’t have to do anything. But if you’d benefit, now or in the future, from lower monthly payments — say, if you’re likely to retire while you’re still repaying the loan — or if you might qualify for public service loan forgiveness, your best bet is to consolidate your PLUS loans into a single federal loan, then enroll in an income-based repayment plan before the new law shuts down this strategy.

“The drawbacks to consolidation are few and doing so now will preserve your access to an income-driven plan if you need it in the future,” says student loan expert Mark Kantrowitz.

One caveat: Income-Contingent Repayment (ICR), the only income-based plan available to parents now, could result in a higher monthly payment than a standard 10-year plan. Once the law takes effect, though, borrowers will move to the lower-cost Income-Based Repayment plan (IBR), with payments likely capped at 15% of discretionary income, Kantrowitz says.

If you are helping a child with student debt

If you’re looking to advise a child who is currently paying off federal student loans, or you’re among the millions of older adults still repaying debt for your own education, prepare for steeper monthly payments soon.

That’s because the new law eliminates three of the four income-based repayment plans now available to student borrowers — including the popular SAVE (Saving on a Valuable Education) and PAYE (Pay As You Earn) options, which cap monthly payments at 5% to 10% of discretionary income and typically result in the lowest monthly payments. Anyone enrolled in those plans, as well as the ICR plan, will need to switch to IBR, the sole remaining income-based plan, by June 30, 2028. Anyone now on an IBR plan can stay on it.

Current borrowers could also move to the law’s new income-based option called the Repayment Assistance Plan (RAP). Under RAP, monthly payments range from 1% to 10% of a borrower’s income, with a minimum payment of $10. The government will waive any interest that the payment doesn’t cover and provide a subsidy to ensure the principal is reduced by at least $50 a month. Any balance remaining after 30 years will be forgiven, versus 20 or 25 years under existing IBR plans.

What to do

For a student with a typical debt load (about $38,000 in 2024) who earns between $30,000 and $80,000 a year, RAP will generally result in a lower monthly payment, according to the Student Borrower Protection Center. But at higher incomes, the existing IBR option looks better on a monthly cost basis and also gets you debt-free five to 10 years sooner.

“If your child decides to move to RAP, they must be certain it’s their best option, as they may be unable to leave the plan once enrolled,” warns Fred Amrein, founder of PayForED, a software platform that helps borrowers navigate student loans.

If you are planning for college costs

The new law puts a cap on parent and graduate student borrowing, limiting the amount and kinds of financing families can use to pay future education costs.

While current rules allow you to borrow enough with a Parent PLUS loan to cover the full cost of attendance, minus any financial aid your child receives, the lifetime federal loan limit under the new law is $65,000 per student.

The new legislation also limits graduate students to $100,000 in loans, or $200,000 for professional programs such as law or medical school.

What to do

If your child is already in college, don’t stress too much about the new loan limits.

There’s an exception in the law that allows current PLUS borrowers to take out loans under the old limits for the time it takes to earn the degree or three years, whichever is less. To avoid borrowing more than you can comfortably afford, though, exhaust other forms of financial assistance first, and limit PLUS loans for all your children to no more than the equivalent of your annual income, Kantrowitz says.

Have an incoming college freshman this year? Be aware that the new limits may impact financing for senior year, because the exception expires on July 1, 2028, says Amrein.

For parents of younger children, affordability should become an even greater focus when choosing a college, Amrein says. So will strategies to cut costs, says Mayotte, such as attending a lower-priced school for the first two years, then transferring into the desired college, or commuting to school rather than living on campus.

Says Kantrowitz, “Students and families need to be much more price sensitive because they can’t count on Parent PLUS loans to pick up the slack.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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More than 43 million Americans carry student loan debt, and recent grads aren't the only ones feeling the pinch. Data show that many borrowers are in their 40s, 50s, and even 60s, still paying off their own loans or shouldering education debt for their children.

Now, under Trump’s sweeping tax plan — known by some as the “big beautiful bill” — student loan forgiveness, repayment rules, and related taxes are in the news again.

Not long ago, the Trump administration began moving forward with new proposed rules for the Public Service Loan Forgiveness (PSLF) program. Those rules would essentially bar organizations from qualifying that are involved in activities deemed to have a “substantial illegal purpose.”

The administration says these include illegal immigration, terrorism, or specific medical treatments for minors.

The changes would give the Education Secretary, Linda McMahon, broad discretion to decide which employers no longer qualify for the PSLF program. That could, potentially, force many borrowers to find new jobs or lose their chance at forgiveness.

PSLF, established in 2007, was designed to encourage public service by forgiving federal student loans for borrowers who make 10 years of qualifying payments while working full-time for government or nonprofit employers.

In an executive order calling for program changes, the Trump administration wrote: “Instead of alleviating worker shortages in necessary occupations, the PSLF Program has misdirected tax dollars into activist organizations that not only fail to serve the public interest but actually harm our national security and American values, sometimes through criminal means.”

These proposed sweeping changes are raising questions and concerns about the future of federal student loans and forgiveness. Here’s more of what you need to know.

Student loans forgiveness eligibility: What’s happening?

The Trump administration’s March executive order and new Department of Education rules, if implemented as proposed, will significantly impact PSLF eligibility.

As mentioned, the rules would allow the Department to disqualify organizations from PSLF eligibility if the Trump administration determines that they have a “substantial illegal purpose,” like violations of federal immigration law or anti-discrimination statutes.

Advocacy groups warn that these changes could be used to exclude supposedly controversial nonprofits, depending on how the rules are enforced.

For example, the nonprofit Institute for College Access & Success told Newsweek in a statement that it urges "the Department to reverse course and ensure that PSLF eligibility is never subject to a political judgment by the Executive Branch alone."

In contrast, during President Biden’s term, the Department of Education worked to expand PSLF.

• For example, the administration introduced a temporary waiver that relaxed some strict program requirements, allowing borrowers to count previously ineligible payments and a broader range of public service jobs toward forgiveness.
• Administrative fixes also addressed long-standing issues, like miscounted qualifying payments and forbearance errors, which had prevented many from receiving relief.
• Data show those efforts led to an increase in approvals: more than 1 million borrowers reportedly received PSLF forgiveness under Biden, compared to just 7,000 who qualified before his administration.

At the time, the Biden administration framed the changes as a way to fulfill the original intent of PSLF and offer relief to teachers, nurses, and other public service workers.

Meanwhile, recent reports suggest the Trump administration’s Department of Education, which he has called for eliminating, has halted the tracking and updating of qualifying payment counts for PSLF borrowers.

Borrowers have reported being unable to see updated progress toward forgiveness in their accounts, and new payment counts seem not to be being processed or displayed.

The reason for the disruption is unclear.

Student loan repayment, borrowing limits, and garnishment changes

Adding to the situation, Trump’s so-called big beautiful bill, enacted July 4, 2025, also brings major changes to repayment options and borrowing limits.

• Starting in July 2026, new borrowers will have only two main federal repayment options: a Standard Repayment Plan with fixed payments and a Repayment Assistance Plan (RAP), which ties payments to income but requires up to 30 years of payments before forgiveness.
• Existing income-driven plans will be phased out, and borrowers will need to transition to the new system in 2028.
• Graduate and professional students face new borrowing caps — a $ 100,000-lifetime maximum for many graduate students — and the Grad PLUS program, which allowed borrowing up to the full cost of attendance, is slated for elimination.

Update: In late July, the Department of Education indicated that the Repayment Assistance Program (RAP) will allow for Public Service Loan Forgiveness after ten years of qualifying payments for those workers in public service or nonprofit sectors. That program wouldn't begin until January 1, 2026.

Still, the various changes could push more students toward private loans, which lack federal protections and flexible repayment options.

It's worth noting that despite the sweeping changes, the federal tax deduction for student loan interest remains in place.

Borrowers can still deduct up to $2,500 in student loan interest paid each year, subject to income limits.

But Congress didn’t increase the deduction in the new legislation, even as repayment terms grow longer and forgiveness becomes harder to access.

Also, the Trump tax bill still allows employers to offer up to $5,250 a year in tax-free student loan repayment assistance.

Meanwhile, the Trump administration has signaled a willingness to resume and potentially expand wage garnishment for borrowers who default on their federal student loans.

As a result, borrowers could again see their wages, tax refunds, or Social Security benefits garnished to repay federal student debt.

Interest restart on SAVE program for student loans

Just recently, the Trump administration announced that as of August 1, 2025, interest would resume on federal student loans for nearly 8 million borrowers enrolled in the SAVE plan.

This follows a federal court injunction blocking the SAVE program, with the Department of Education estimating borrowers could see an average of $3,500 in additional annual costs.

In an official press release, Secretary McMahon stated the following:

“For years, the Biden Administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful. Since day one of the Trump Administration, we’ve focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers.”

Student loan forgiveness and taxes?

There's more. A key tax angle is notable now because, while the pandemic-era American Rescue Plan Act (ARPA) excluded forgiven student loan amounts from federal taxable income through 2025, the Trump/GOP tax and spending bill doesn't extend that exclusion.

That means, unless Congress acts, student loan debt forgiven after December 31, 2025, will once again be considered taxable income at the federal level.

That could leave borrowers who were counting on PSLF or other forgiveness programs facing an unexpected tax bill.

Though, as mentioned, under the Trump administration's proposed changes, the number of borrowers who benefit from loan forgiveness could shrink.

Note: While most states have followed federal law regarding taxes on forgiven student debt, some already tax forgiven student debt. More might opt to do so if the federal exemption lapses.

Trump student loans changes: What borrowers can do

With the student loan landscape shifting, here are some practical steps you can take.

Review your repayment plan: If you’re in an income-driven plan, check how and when you’ll need to transition to a new plan under the new Trump tax law.

Understand your state tax liability: Check whether your state will tax forgiven student debt, and plan accordingly.

Monitor communications: Read updates from your loan servicer, the Department of Education, and advocacy groups.

Seek guidance: Consult with a tax advisor or financial planner to prepare for possible tax liabilities or garnishment if you’re at risk of default.

Related

This story has been updated to include new information about the RAP program.

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Millions of Americans who thought student loan relief would last long-term are now facing a hard reality. When loan collections resumed in May, missed payments began to hit credit reports again.

While much of the focus has been on recent graduates, parents and grandparents who cosigned private loans or hold Parent PLUS loans are also at serious risk of credit-score damage.

If you’re in that group, it’s important to understand how student loans can affect your credit score, how a past due loan can hurt your credit and what steps you can take to stay ahead and protect your score.

What borrowers and cosigners should know

Parent PLUS loans allow parents (and sometimes grandparents) to borrow directly for a student’s education, but the catch is that the debt sits squarely on the cosigner’s credit report.

There are nearly 3.8 million Parent PLUS borrowers, with outstanding balances soaring over $110 billion in recent years. If the student misses payments or if you co-signed a private student loan, your own credit score can plummet just as quickly either way.

A recent analysis from VantageScore shows that resuming student loan reporting led to credit drops of up to 129 points for delinquent borrowers, which can translate to serious financial setbacks for anyone depending on good credit for mortgages, refinances or a new loan.

How delinquencies impact credit scores

When a payment is 30 days past due, servicers may report the late status. Once it reaches 60 or 90 days, the hit becomes more severe. The New York Fed estimated more than nine million borrowers would see significant drops in the first half of 2025 when reporting resumed.

For older borrowers with established credit histories_, a sudden 100+ point drop can disrupt plans like refinancing a mortgage, securing a home equity line or locking in favorable auto loan rates.

You might think, “I’ve managed credit responsibly for decades, surely a blip won’t matter.”

But, credit score shifts can trigger higher interest rates, additional fees or even outright loan denials. For example, a drop from near-800 territory into the mid-600s could increase mortgage refinance rates by a percentage point or more, potentially adding thousands in interest over the life of a loan.

Auto loans, insurance premiums and credit card approvals similarly hinge on credit tiers. Even if you’re financially comfortable, unexpected credit damage complicates reverse mortgages or big-ticket purchases. And since Parent PLUS balances often exceed $30,000 on average, the stakes are high if payments slip.

The importance of monitoring your credit regularly

The best defense is knowing in real time when your credit changes. Sign up for credit-monitoring services that alert you to score shifts or new negative entries.

Check your credit reports from the three bureaus at least once a year and ideally more often now that student loan reporting has resumed.

Many services also notify you if there’s a new inquiry or if a payment status changes. If you see any odd activity like a suddenly past-due status you don’t recognize, contact the loan servicer immediately to clarify or correct errors.

Repayment options and credit implications

Parent PLUS loans offer consolidation into a Direct Consolidation Loan, unlocking Income-Contingent Repayment (ICR), which can lower monthly payments based on income. But keep in mind that this option may extend repayment length and total interest paid.

Private loans vary by lender but sometimes allow refinancing if your credit is still strong and your income is steady. Although refinancing removes federal protections and forgiveness options.

If you anticipate you or the borrower you cosigned for having a tight cash flow, explore deferment or forbearance, but be aware these may pause payments temporarily while accruing interest and still risk credit impact when re-entering the repayment process.

Always weigh short-term relief against long-term credit health.

Communication and coordination with everyone involved

Open dialogue is key: set up a repayment plan where the student contributes if possible or at least commits to alerting you before a missed payment. You can also automate payments via autopay to avoid oversight.

Use shared calendars or notifications to track due dates. If you co-signed a private loan, consider asking the student to refinance into their own name once they have credit established, relieving you of risk.

The simple act of clear communication can prevent surprises that lead to delinquencies.

Steps to take if a payment will be missed

If you suspect a payment may be missed due to budget constraints or miscommunication, contact the servicer immediately. Discuss temporary options like short-term forbearance, but request clarity on how it will be reported to credit bureaus.

If possible, arrange a small one-time payment or extension to avoid passing the 30-day delinquency threshold. Understanding these options early can prevent a small hiccup from ballooning into a major credit event.

For Parent PLUS borrowers, consider consolidation into ICR as noted, or, if applicable, Public Service Loan Forgiveness (PSLF) after consolidation and qualifying employment. If private loans are part of the picture, refinancing should be tackled before credit slips too far.

Some families choose to make a lump-sum payment from savings or gift arrangements to bring accounts current. You can also review your options and brainstorm some next steps with a financial advisor as well for more help and clarity.

Bottom line

If you’ve cosigned a student loan or hold Parent PLUS debt, the return of credit reporting in May 2025 could put your credit at risk. Staying vigilant, communicating clearly and understanding your repayment options can help you protect your credit and avoid surprises.

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College planning is inherently stressful, a series of crucial choices for both students and their families. However, potential federal changes have introduced additional uncertainty, further amplifying likely anxieties.

While the full implications for Federal Student Aid — the department within the Department of Education responsible for programs including Pell Grants and federal student loans — are still unclear, the Trump administration's proposed restructuring of the Department of Education is causing many families nationwide to brace for potentially significant adjustments to their college planning process.

While trying to stay abreast of potential changes at the federal level — along with the usual college-selection considerations of academic rigor, extracurricular options, cultural and social opportunities, location and chance of admission — another factor looms large. Is the college or university a “financial fit”?

When considering finances, families are faced with two seemingly simple yet complex questions:

• How much will each college program cost?
• How will we pay for it?

Determining your net price

The first step in preparing for the college journey is getting a clear view of how much a program will actually cost, also known as the “net price.” The net price is the total cost of attendance minus scholarships and grants a student may receive.

Start by filling out a Free Application for Federal Student Aid (FAFSA), which will generate a financial profile that includes the Student Aid Index (SAI) — this is the number used by financial aid professionals to determine your eligibility for aid.

However, completing the FAFSA is only one part of the puzzle. Without a financial aid offer letter in hand, it can be difficult to determine other elements of net price, as it may be difficult to discern what financial support is automatically offered based on family income and other eligibility factors.

The college application system can trap families in a costly paradox. You need to apply to learn the true price, but most families can't afford to apply blindly. With application fees soaring, not to mention the time and effort it takes to apply to college, the desire for upfront net price transparency is more than reasonable — it's essential.

The stress of hidden college costs can be overwhelming, but thankfully, solutions exist. Tools like College Raptor's College Match, provide much-needed relief.

In addition to helping identify the right academic fit for college, the tool uses machine learning to offer accurate estimates of attendance costs and potential aid packages.

These tools compile extensive data, giving families a realistic financial preview, eliminating the need to apply blindly and offering clarity before any official forms are submitted.

Other sites, such as the U.S. Department of Education’s Net Price Calculator and The College Board's Net Price Calculator, can also help you determine costs for individual schools.

Net price evaluating tools may also open new horizons into what is financially possible. That dream private college that costs $90,000 and seems out of reach — don’t rule it out. With the right tools, you might discover unexpected financial aid opportunities that bridge the gap.

And the net price evaluating tools should be used at the beginning of the college search process to narrow your application list by providing perspective on both academic and financial fit.

Crafting your paying-for-college game plan

Often, when families think about paying for college, their minds immediately jump to loans, but it is not advisable to treat them as the only option as you figure out how to afford that net price.

Prospective students and families should consider the cost of education over the entire four years. If a family knows that they need to borrow, they should consider Federal Direct Subsidized or Unsubsidized Loans — informally known as Stafford Loans (more on them in the next section) — from the start as the amount available to borrow is capped both per year and in aggregate.

After considering Federal Direct Subsidized or Unsubsidized Loans, consider exhausting all savings, such as a 529 plan, which is a state-sponsored investment plan for education expenses.

In the event that the degree is not completed, it is preferable to avoid taking on additional debt. While the tax-advantaged 529 education savings account has new options to move leftover money into a retirement account, there are limits.

Potential penalties for non-education withdrawals remain, meaning if your student forgoes further schooling, accessing those funds may incur tax consequences, but they will still be accessible.

In addition, strategically delaying taking on student loan debt can offer financial advantages. By postponing borrowing, you minimize accrued interest, reducing the overall cost.

For example, waiting until your sophomore year to take on loans shaves off a year of interest, resulting in long-term savings.

After you have utilized Federal Direct Subsidized or Unsubsidized Loans and/or savings, consider work-study options. Federal work-study programs and/or non-sponsored part- or full-time jobs can help students generate income to directly pay their tuition each semester.

These programs can be a great way to earn money while also enriching your college experience, particularly if you find work that is enjoyable or helps to advance your studies or career goals.

Weighing loan options and benefits

If loans are unavoidable, prioritize Federal Direct Subsidized or Unsubsidized Loans. These loans, aka Stafford Loans, are your best bet. Stafford Loans typically feature highly competitive interest rates and the most borrower-friendly terms, particularly with respect to repayment options and potential forgiveness.

While not everyone will qualify for a subsidized loan, the key advantage of the subsidized loan is that the government pays the interest while the student is in school and during authorized deferment periods, making it a very cost-effective borrowing option.

But if you don’t qualify for the subsidized loan, the unsubsidized counterpart is typically a good deal and has the same interest rate as the subsidized loan.

How much you can borrow with Federal Direct Subsidized or Unsubsidized Loans is capped — both annually and in aggregate. So, if you still have a gap to fund college after these loans, you’ll be left to choose between Federal PLUS or private loans.

This is where doing proper research is crucial. PLUS Loans do not carry the same pricing or benefits as Federal Direct Subsidized and Unsubsidized Loans and are often less competitive than private student loans.

When compared to PLUS Loans, private loans often provide better value and have unique features like multiyear approval and soft credit pulls, which don’t affect your credit score.

Banks that offer private loans can often offer lower rates and better terms for borrowers than PLUS.

However, not all borrowers who would qualify for a PLUS Loan would typically qualify for a private loan or receive a better rate, so you should research the availability of different private options to compare to PLUS.

You should also keep in mind that PLUS Loans have an origination fee, currently over 4%, which is typically not charged by private lenders.

Some banks, including Citizens, where I am the head of Student Lending, will use soft credit pulls that don’t impact your credit score to pre-approve you and provide a rate quote.

It is advisable to look at the rate, but also other features of the loan including borrowing limits, cosigner requirements, repayment options and loan modifications and forbearance policies in the unlikely case you run into a hardship.

It’s also important that you trust the organization from which you are getting your loan, as you are typically entering into a multiyear relationship.

Begin planning as soon as yesterday

In the face of shifting federal policies and ever-rising costs of higher education, proactive planning and informed decision-making are critical.

Families should leverage available tools to demystify net prices, strategically utilize savings and work-study options and carefully weigh loan choices.

This will enable families to navigate the complexities of the college journey with greater confidence, ensuring that the pursuit of higher education remains an attainable and financially sound investment.

Related Content

• 529s: No Longer the Ho-Hum Investing Device for College
• Direct Tuition Payments: A Tax-Efficient Way to Pay for School
• Coverdell Education Savings Accounts: A Deep Dive
• How an Irrevocable Trust Could Pay for Education
• Sending a Child to College? 10 Money-Saving Tips and Tricks

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many people were caught off guard when inflation surged in 2021 and 2022. And though things have cooled substantially since then, the impact was (and still is) painful for some.

It’s hard to prepare for such a significant surge in prices across such a wide spectrum — from gas and groceries to utilities and housing costs. (And, let’s face it, we had gotten used to the inflation rate hovering around 2% for several years before it spiked to 9.1% in June 2022.)

But the reality is inflation should always be a factor when it comes to planning your finances.

Even when inflation is low, you can expect the cost of goods and services to rise over time and affect your purchasing power.

This is why it’s essential to have a financial plan that helps you keep pace with inflation — whether you’re a young professional working and saving for your future or a retiree trying to get the most from your savings.

Here’s a look at how inflation can affect both your pocketbook and your portfolio, along with practical strategies to help you stay financially resilient.

Erosion of purchasing power

One of the most immediate effects of inflation is the reduction of purchasing power. As prices rise, the same amount of money buys less. That can put a financial strain on just about everyone, especially low- or moderate-income workers and retirees on a fixed income.

Both younger workers as well as retirees and soon-to-be retirees can benefit from thoughtful budgeting, cutting out unnecessary expenses and carefully weighing their priorities before making major purchases.

Younger workers may also want to focus on increasing their earning potential through skill development, career growth and strategic investing.

Impact on investments and savings

Inflation can erode the real value of savings, which makes it crucial to invest in assets that have the potential to outpace rising prices. Market volatility can make “safe” investments (CDs, savings accounts, etc.) seem more appealing to investors of all ages.

But you may actually be losing money if those investments can’t keep up with inflation. A carefully planned portfolio mix that aligns with your time horizon and risk tolerance can help you stay secure while also earning enough to combat rising costs.

For example, investing in diversified and long-term growth assets, including equities and real estate, can help younger workers grow their money for the future.

Signing up for your workplace retirement plan also is an easy way to make investing automatic — and you can take advantage of your employer’s matching contributions to accelerate your savings.

Contributing or converting to a Roth IRA can also be a smart way to mitigate both tax and inflation risk in retirement.

Meanwhile, retirees and soon-to-be-retirees should consider a diversified portfolio that might include dividend-paying stocks, Treasury inflation-protected securities (TIPS) and other income-generating assets designed to keep pace with inflation.

Effects on the broader economy

Although the effects of inflation may feel very personal when you’re paying for your groceries or checking your bank balance, inflation also influences the economy as a whole.

When inflation rises, central banks often respond by increasing interest rates to slow down excessive price growth. Higher interest rates can make borrowing more expensive for businesses and individuals.

This is why, when possible, younger workers should comparison-shop for the best loan offers and lock in lower interest rates. This can help with the cost of buying a home or car or starting and growing a business. Keeping your credit in good standing can help you score the lowest rates.

Retirees and soon-to-be retirees should build a balanced portfolio that can withstand changes in interest rates and inflation. A financial professional can help stress-test your portfolio to determine if you’re prepared for retirement risks like market volatility and inflation.

Dealing with debt in an inflationary environment

While inflation increases the cost of goods and services, it can also reduce the burden of certain types of long-term debt. Those with fixed-rate mortgages and student loans may benefit, for example, but retirees need to be cautious about taking on new debt.

Younger workers with too much debt may want to prioritize paying off high-interest credit card debt while maximizing the long-term benefits of low-interest, fixed-rate loans.

Retirees and soon-to-be retirees can also benefit from managing their expenses and keeping credit card balances low, as well as avoiding excessive borrowing that could strain their retirement income.

Inflation-proofing your plan for the long haul

Investing and saving wisely, managing debt strategically and building a reliable income stream you can live on now and in the future can help ensure long-term financial security.

If you don’t know where to start, a financial adviser can assist you with creating or assessing your overall financial plan. They can also help you identify and implement appropriate inflation-fighting strategies.

Inflation is a natural part of the economic cycle, but it doesn’t have to derail your financial goals. By taking proactive steps to mitigate its effects, both retirees and those who are still working to build their wealth can navigate inflationary periods with confidence.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• How Inflation Is Impacting Retirees in 2025
• 10 Cities Hardest Hit By Inflation: Did Yours Make the List?
• How to Help Shield Your Retirement From Inflation

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a controversial move, President Donald Trump is taking steps to fulfill one of his campaign promises: dismantling the U.S. Department of Education. Trump just signed an executive order designed to significantly reduce the federal government's role in education.

In a recent interview, Trump reportedly said of the department: "I expect it will [be shut down entirely]. You'll have a few people left just to make sure [the states are] teaching English, you know, you say reading, writing and arithmetic."

When signing the order at the White House on March 20, the President added, "We're going to eliminate it, and everybody knows it's right."

It’s important to note that the President cannot immediately eliminate the Education Department due to its establishment by Congress. And recent surveys show a majority (58% and more in various voter surveys) of people don't want to abolish the Department of Education.

However, the initiative reflects Trump's vision of decentralizing education policy. Here’s more of what you need to know.

Education Department executive order

Trump’s order directs newly confirmed Education Secretary Linda McMahon to begin the complex process of winding down the department's operations. The goal is to redistribute its functions to transfer educational responsibilities to state and local governments.

Here are some key elements:

• Decreased funding for specific federal education initiatives, particularly in areas of diversity, equity, and inclusion (DEI) and "gender ideology"
• Development of a strategy to redirect federal education funds to states, local governments, and individual students
• Maintenance of federal support for students with disabilities and underprivileged schools
• Continuation of federal student loan programs

The Trump administration has already significantly reduced the department's workforce by approximately 50% through layoffs and voluntary departures.

While supporters hail this move as a step toward educational freedom and local control, some critics argue that it could lead to inconsistent educational standards across the country and potentially reduce resources for disadvantaged students.

So, as President Trump works to dismantle the Department of Education, many questions are emerging not only about the future of education policy but also key education-related tax benefits.

Are education tax credits at risk under Trump?

As Kiplinger has reported, Republican lawmakers recently circulated proposals for significant changes to the tax code, some of which target popular tax credits.

Among proposals reportedly under consideration are modifications to or eliminating significant federal tax breaks like the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

The AOTC currently provides up to $2,500 a year for eligible higher education expenses during a student's first four years of college. The LLC offers a 20% credit on up to $10,000 in annual education expenses with no limit on years claimed.

Those potential reforms, which haven't yet been set in stone, are part of broader tax policy discussions as the administration seeks to make tax cuts from Trump's first term permanent. According to proposals under consideration by House Republicans, eliminating the AOTC and the LLC is estimated to save the government $85 billion over 10 years.

Will scholarships be taxable?

Republican lawmakers are also said to be exploring changes to education-related tax policies, with one proposal targeting the tax-exempt status of scholarships. If embraced, that potential shift could have far-reaching implications for students and families.

• Currently, scholarships and fellowships used for qualified educational expenses are not subject to federal income tax.
• However, a proposed system could introduce tax on various forms of educational financial assistance, possibly including some state-sponsored programs.

That could significantly affect college affordability, particularly for families who depend on scholarships to fund higher education.

Under the potential new approach, scholarship funds that are currently tax-free when applied to tuition and required course materials might be reclassified as taxable income for students.

According to proposals being floated by the House Budget Committee, Republicans estimate that they can save $54 billion over 10 years by eliminating the exclusion of scholarship and fellowship income from taxation.

What happens if Trump closes the Department of Education?

The potential closure of the Department of Education under President Trump's administration has sparked widespread concern about the future of crucial educational programs and services in the United States.

One pressing issue is the fate of the federal student loan program, which manages a vast amount of student debt affecting millions in the United States.

What happens to student loans?

• If the Education Department is effectively shuttered, the administration of these loans would likely shift to another federal agency. This could possibly be the U.S. Treasury Department, though Trump has now said student loans will be handled by the U.S. Small Business Administration.
• This transition could substantially change loan servicing, repayment plans, and forgiveness programs.
• Borrowers would still have to repay their loans but would face significant uncertainty and chaos regarding their existing loans and future financial aid.

The impact on students with disabilities is another major area of concern.

The Department of Education plays a crucial role in enforcing federal laws that protect the rights of students with disabilities and ensure they receive appropriate accommodations and services in schools.

With the department's workforce significantly reduced, there are worries about how effectively these protections can be maintained and enforced nationwide.

• The potential weakening of federal oversight could result in inconsistent implementation of disability rights across different states, potentially leaving students without adequate support.
• The allocation and management of federal funding for special education programs is another critical issue.
• The federal government provides substantial funding to states for special education services. If the Department of Education is eliminated, it's unclear how this vital funding would be distributed and overseen.

It's also worth noting that many states are already struggling to fully fund special education services. So, any disruption in federal support could exacerbate these challenges, potentially leading to reduced services for students.

National Education Association (NEA) president, Becky Pringle stated the following in a release:

"If successful, Trump’s continued actions will hurt all students by sending class sizes soaring, cutting job training programs, making higher education more expensive and out of reach for middle class families, taking away special education services for students with disabilities, and gutting student civil rights protections."

As this situation unfolds, educators, parents, and students are unfortunately left with many unanswered questions about the future of federal education policy and financial support and, yes — tax policy as well.

Related

• Education Tax Credits and Deductions
• What is the American Opportunity Tax Credit
• Tax Breaks for Parents of Children With Disabilities
• Are Scholarships Tax-Free?

President-elect Donald Trump proposed a number of personal finance initiatives during the presidential campaign, many of which could have a direct effect on your savings and investments. Here’s a look at what you can expect from the new administration.

Trump's effect on income taxes

Trump has pledged to extend the individual income and estate tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA), and with the House of Representatives and Senate in Republican control, that effort is expected to succeed. Those provisions, which are set to expire at the end of 2025, doubled the standard deduction, lowered income tax rates and increased the estate tax exemption to a level that makes federal estate taxes a nonissue for the vast majority of taxpayers. In 2025, estates of up to $13.99 million will be excluded from federal estate taxes, or up to $27.98 million for a married couple.

The TCJA also doubled the child tax credit from $1,000 to $2,000 per child, and Trump has said he wants to make the increase permanent. The credit phases out for single parents with $200,000 or more in income and married couples who file jointly and have $400,000 or more in income. Vice President-elect J.D. Vance has said he would like to increase the child tax credit to as much as $5,000 per child and extend it to all families regardless of income. However, such a tax break would be enormously expensive and face opposition from Republican lawmakers.

During the presidential campaign, Trump said he supported eliminating the $10,000 cap on the deduction for state and local taxes (SALT), a move supported by lawmakers from high-tax states. However, scrapping the SALT cap would increase the cost of extending the TCJA tax cuts, which would already add $3.9 trillion to the federal deficit through 2035, or $4.5 trillion with interest, according to the Committee for a Responsible Federal Budget, a nonpartisan nonprofit organization.

Trump's second term may impact EV tax credits

Under the 2022 Inflation Reduction Act, eligible buyers can claim a tax credit of up to $7,500 for a new electric vehicle, or $4,000 for a used one, at the point of sale, either as a rebate or as a reduction in the cost of the vehicle. Members of Trump’s transition team reportedly want to scrap the EV tax credit as part of broader tax reform legislation. Elon Musk, founder of EV manufacturer Tesla (TSLA) and a close adviser to Trump, opposes the tax credit, which he says primarily benefits Tesla competitors.

The EV tax credit probably won’t disappear overnight. Congress would need to amend the Inflation Reduction Act or enact a new law to eliminate it. And any effort to get rid of the tax credit faces opposition from U.S. automakers. Still, given the uncertainty surrounding the credit, it’s probably wise to buy soon if you’ve had your eye on an eligible EV. You can research makes and models that are eligible for the credit at www.fueleconomy.gov.

Trump's take on health insurance

During his first term, President Trump tried unsuccessfully to torpedo the Affordable Care Act, aka Obamacare. During the 2024 campaign, Trump said he would preserve the ACA but make changes to the law that could affect the cost of ACA insurance.

One of the most likely scenarios doesn’t require any action by the White House or Congress. ACA subsidies enacted in 2021 in response to the COVID pandemic and extended by the Inflation Reduction Act are scheduled to expire at the end of 2025. If Congress doesn’t extend the subsidies, premiums for individuals who currently receive the subsidies will rise significantly, more than doubling in some states, according to an analysis by health policy research organization KFF (formerly the Kaiser Family Foundation). KFF provides a calculator you can use to estimate eligibility for subsidies in 2025.

Trump's effect on student loans

Trump has made no secret of his opposition to student loan forgiveness, and lawsuits filed by Republican governors blocked some of the Biden administration’s debt-relief initiatives.

While the Trump administration’s position raises questions about the future of loan-relief programs, it won’t affect loans that have already been forgiven, says Mark Kantrowitz, a financial aid expert and author of How to Appeal for More College Financial Aid. Once the federal government discharges a borrower’s debt and the borrower has received notification, “the forgiveness is permanent and final,” Kantrowitz said in an analysis on The College Investor, a website that helps families manage college savings and debt.

For updated information on student loan forgiveness and repayment programs, go to the federal student aid website studentaid.gov.

Trump's effect on credit card late fees

The Trump administration is likely to roll back many of the regulations proposed by the Consumer Financial Protection Bureau, including one that would cap credit card late fees at $8. That proposal has been on hold following a court challenge by the banking industry, and the hold will likely become permanent under the new administration.

However, during the presidential campaign, Trump said he supported capping credit card interest rates at 10%. Such a cap would almost certainly be challenged by the banking industry and is unlikely to pass muster in Congress.

Given that major changes to current credit card late fees and interest rates are unlikely, your best bet is to try to pay off your balance every month and make payments on time. Experian provides a calculator you can use to estimate how long it will take to pay off your credit card balance.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Editor’s note: This is the third article in a six-part series focused on paying for education using smart financial and estate planning. Other articles focus on direct tuition payments, 529 plans, Uniform Transfer to Minor Accounts (UTMAs), education trusts and family loans. See below for links to the other articles.

It’s never too soon to start planning for the education expenses of a child, grandchild or someone you wish to support. With the cost of schooling on the rise — affecting everything from independent day schools to higher education — the need for strategic financial planning is more crucial than ever.

Fortunately, smart financial planning and estate planning can help manage these costs effectively.

If you are planning ahead and weighing your options, you may want to consider opening a Coverdell education savings account. This tax-advantaged savings account, often compared to a 529 plan, offers greater flexibility in setup. Unlike a 529 plan, which is managed by the state where it’s based, a Coverdell can be established through banks, brokerage firms or mutual fund companies. Depending on the financial institution, you may find a greater variety of investment options than with a state-sponsored 529 plan.

Similar to a 529 plan, you contribute after-tax dollars to a Coverdell and invest inside the account, allowing the earnings on your investments to grow tax-free. Assets in a Coverdell are not included in the estate of the person who set it up. Withdrawals for qualified educational expenses (QEEs) are also tax-free. A significant advantage of a Coverdell over a 529 plan is that it can be used for unlimited expenses related to preschool, K-12 education or higher education, including fees, books, technology, certain room and board expenses and even academic tutoring. As is the case with a 529, any amount withdrawn for a non-QEE will be subject to income tax and a 10% penalty tax.

Contributing to a Coverdell

Compared to a 529 plan, there are significant limitations related to Coverdell contributions. The annual contribution per beneficiary is capped at $2,000 a year, regardless of who makes the contribution. Because each student is allowed to be the named beneficiary of multiple accounts, recordkeeping and communication become especially important. For example, if parents and grandparents both contribute $2,000 to different accounts for the same beneficiary in the same year, a penalty may be imposed on the beneficiary.

Additionally, there is an income limitation on those who can contribute to a Coverdell account. To qualify for the maximum contribution of $2,000, your annual modified adjusted gross income cannot exceed $95,000 for single filers or $190,000 for joint filers. This places a natural cap on who is eligible to open a Coverdell, whereas there is no income limit for a 529 plan.

Generally, the treatment of a Coverdell for financial aid is the same as it is for a 529 plan, meaning that if it is owned by the student or parent, it typically would be included as an asset on a student’s FAFSA (Free Application for Federal Student Aid) and thus may reduce the amount of aid given. However, a plan not owned by the parent or student may be treated differently.

Finally, you can contribute to a Coverdell account only for beneficiaries who are under the age of 18. When the beneficiary reaches the age of majority, typically 18 or 21, depending on the state, the beneficiary gains control over the account, and the Coverdell owner no longer has control over how the funds are used.

A Coverdell must be fully withdrawn by the time the beneficiary turns 30, providing a somewhat limited runway for use of the account. This could prove tricky for a student who defers graduate school or wishes to continue their education well into adulthood.

Rolling over a Coverdell account

To mitigate the limitations of a Coverdell, you can consider completing a rollover. One option is to roll over an existing Coverdell account into a different Coverdell account for another qualifying member of the family. For instance, if one child is turning 30, you can roll over the older child’s account into a Coverdell for a younger sibling who is still completing their education.

Alternatively, you may consider rolling a Coverdell into a 529 plan. Distributions from a Coverdell into a 529 plan are considered a qualified expense as long as both accounts have the same beneficiary. This may make sense if the beneficiary is approaching age 30 and is likely to use the funds at a later point in life. This option may also make sense if you are moving into a higher income tax bracket that will preclude you from making further Coverdell contributions, or if you (in conjunction with other family members) wish to contribute more than $2,000 to the beneficiary each year.

Once you have completed the rollover to a 529 plan, you have more flexibility to change the beneficiary to another family member without age limitations.

Benefits of a Coverdell:

• Tax-free asset growth within the account
• Greater flexibility related to qualified education expenses, especially for pre-college education
• May be rolled over into a 529 plan or to another qualifying family member
• Potentially more investment options through the sponsoring bank’s platform

Considerations to keep in mind:

• $2,000 annual contribution limits
• Income limitation for donors ($95,000 for single filers or $190,000 for joint filers)
• The beneficiary gains control of the Coverdell at the age of majority (18 or 21)
• Contributions are subject to federal gift tax laws and limitations
• Contributions will be treated as gifts for federal gift tax purposes (but should not trigger the payment of gift taxes by the donor unless the total that the beneficiary received from the donor including gifts outside of the Coverdell account exceeds $18,000 in the year of contribution)
• May reduce financial aid (student- or parent-owned Coverdells are included in FAFSA calculation)
  

Planning for education expenses requires thoughtful consideration and early action. Evaluating the benefits of a Coverdell alongside your other options can help you discover the most effective savings strategy for your family. With its flexibility to cover a wide range of educational costs and tax-free growth, a Coverdell offers notable advantages despite its contribution limits and income restrictions. Its suitability for pre-college expenses and the possibility of rolling over funds into a 529 plan enhance its appeal. By assessing these factors, you can craft a savings plan that aligns with your goals and secures a strong financial future for your child's education.

My next article will explore the educational savings benefits of Uniform Transfer to Minor Accounts (UTMAs).

Other Articles in This Series

• Part one: Direct Tuition Payments: A Tax-Efficient Way to Pay for School
• Part two: 529 Plans: A Powerful Way to Tackle Rising Education Costs
• Part four: UTMA: A Flexible Alternative for Education Expenses and More
• Part five: How an Irrevocable Trust Could Pay for Education
• Part six: How Intrafamily Loans Can Bridge the Education Funding Gap

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As the 2024 presidential election nears, the fate of student loan forgiveness is at the forefront of many borrowers' minds, particularly as Vice President Harris and former President Trump have such wildly differing viewpoints. In the first half of this year, federal student loan debt increased by $17.9 billion, bringing total student loan debt in the United States to over $1.75 trillion.

Approximately 43 million Americans have student loan debt as of 2023, with borrowers owing $37,853 on average in federal student loans, according to the Education Data Initiative. And college is only getting more expensive. Between 2000 and 2021, average tuition and fees jumped by 65%, to $14,307 per year from $8,661, according to BestColleges.com. Not to mention the impact of rising interest rates on student loans — 6.53% for the 2024–2025 academic year, the highest rate since 2007–2008.

Student loan forgiveness has become an increasingly hot topic over the last several years as legal battles over debt relief initiatives leave millions of borrowers in limbo. 

In 2023, Biden’s plan for widespread student loan forgiveness, which would forgive up to $10,000 of student loan debt for eligible borrowers, was struck down by the Supreme Court. In August 2024, the court temporarily blocked the administration’s Saving on a Valuable Education (SAVE) repayment plan.

In September, U.S. District Judge James Randal Hall issued an order blocking the Biden administration’s latest student loan forgiveness plan, which would have provided debt relief to over 30 million Americans. And just one day after Hall decided to let the restraining order expire, Biden's forgiveness plan was temporarily blocked again by a Missouri judge. 

One study from Bankrate found that nearly 1 in 5 Americans say student loan debt will have a major influence on their vote in the 2024 presidential election. Considering each candidate has very different ideas on how student loans should be handled, many borrowers are anxious to learn how the election will impact them.

Here’s a closer look at each candidate’s plans regarding student loan debt.

Harris on student loans

The Biden-Harris Administration has implemented several aid programs that have contributed to total debt relief, despite strong opposition. And if Kamala Harris becomes president, she will build on these policies, working to provide widespread student debt relief for millions of borrowers by expanding programs like income-driven repayment plans and Public Service Loan Forgiveness.

“We see a future where every student has the support and the resources they need to thrive,” Harris stated in a speech made in July. “And a future where no teacher has to struggle with the burden of student loan debt.” She noted that the Biden-Harris administration has forgiven student loan debt for nearly five million Americans. Nearly $160 billion in federal student loan debt has been forgiven since Biden took office, according to the U.S. Department of Education.

The administration's efforts have been focused on targeting areas for forgiveness for borrowers who are most in need, Stacey MacPhetres, senior director of education finance for EdAssist by Bright Horizons told Kiplinger. Borrowers most in need have included those facing financial hardship, holding balances greater than the initial amount borrowed due to accrued interest, those who are eligible for forgiveness but have not yet applied, those who have been in repayment for 20 years and borrowers who attended institutions that show low financial value. 

Here’s a closer look at various loan forgiveness programs Harris will likely continue expanding if she takes office.

• Borrower Defense loan discharge: If your college misrepresented details that led you to enroll there, you may have grounds to apply for borrower defense loan discharge. The administration says this has led to the discharge of over $28 billion in debt for 1.6 million borrowers.  
• Income-Driven Repayment plans: These plans base your monthly student loan payment amount on your income and family size. There are four plans:
  • Pay As You Earn (PAYE) 
  • Income-Based Repayment (IBR) 
  • Income-Contingent Repayment (ICR) 
  • Saving on a Valuable Education (SAVE) 
• Public Service Loan Forgiveness (PSLF): This program forgives federal student loans of borrowers employed by the government or certain non-profit organizations after ten years of on-time payments or 120 qualifying monthly payments. These efforts have reportedly led to the forgiveness of over $62 billion in student loan debt.
• Total and Permanent Disability (TPD) discharge: More than half a million borrowers with disabilities have received over $14 billion in relief through the Total and Permanent Disability Discharge program, according to the White House. 

"The Harris campaign would be trying to extend the same types of programs and maybe repackage those in a way that they can get those through either Congress or get them through the court system without being struck down," said Shane Cummings, wealth advisor & director of technology/cybersecurity at Halbert Hargrove.

Trump on student loans

Trump stands firmly in opposition to student loan forgiveness. If he becomes president, his efforts will likely be focused towards getting student loan forgiveness programs enacted by the Biden administration repealed or restricted.

During Trump's presidency, he proposed significant cuts to student aid programs and called for eliminating Public Service Loan Forgiveness (PSLF), Federal Supplemental Educational Opportunity Grant (FSEOG) programs and subsidized federal student loans.

And while Trump has made no statements regarding his specific plans to revoke student loan forgiveness initiatives if elected president, he is very vocal about how he views these initiatives. He has referred to Biden’s plans to cancel student loan debt as "not legal" and “vile.”

"He got rebuked, and then he did it again,” Trump stated at one of his rallies back in June, referring to the Biden administration's 2023 attempt at widespread student loan forgiveness that the Supreme Court shut down. “It’s going to get rebuked again even more so.”

In the September 10th presidential debate with Kamala Harris, Trump stated, as per Politico: "They didn't even come close to getting student loans. They taunted young people and a lot of other people that had loans, they can never get this approved.”

Kimberly Weihbrecht, CSLP®, Senior Associate at Fearless Finance tells Kiplinger that although the Trump administration would likely try to repeal programs like SAVE, PSLF and income-driven repayment, "big rollbacks like this would be difficult to do via regulations for the same reason SAVE is struggling now. Regulation-based programs are more likely to get contested in court and potentially struck down."

Ultimately, whether or not loan relief programs are actually repealed during a Trump presidency could heavily depend on whether or not there is a Republican majority in Congress. A set of conservative policy proposals developed by The Heritage Foundation, called Project 2025, calls for significant changes to how student loans are managed, including the phasing out of existing income-driven repayment (IDR) plans. And while Trump has tried to distance himself from the project, according to Reuters, many of his closest policy advisers and those likely to take high-ranking positions in his administration are heavily involved in the project.

Bottom line

Ultimately, it's still too early to determine exactly how the election will impact student loans. And because of the uncertainty of whether or not loans will be forgiven, it's difficult for many borrowers to make long-term plans concerning their debt, according to Cummings. This is why he advises borrowers to focus on repayment and plan conservatively.

For borrowers who are struggling to meet loan obligations, MacPhetres urges them to communicate with their loan services to review any repayment options or hardship opportunities available.

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Graduating from college is a remarkable achievement, but it often coincides with the pressures of finding a new place to live, securing a first job and managing your first paycheck. Entering the workforce now means you must focus on maximizing your entry-level salary, potentially paying off student loans and planning for a secure financial future.

While these obligations may seem daunting, implementing basic financial habits into your daily routine can help ease the transition into life after college. By tracking expenses, staying on top of any student loan debt and planning out the initial stages of your career path, you can lay the groundwork for a financially secure post-graduation period.

You recently graduated: Now what?

Performing initial research on salary estimates for your major or career choice is crucial. Understanding the differences in pay between different industries, sectors and companies — as well as the cost of living for different cities — can help you structure your career path and identify positions you want to apply for.

Once you land a job, it’s a good idea to create a monthly budget based on your income. Tracking your expenses will not only provide you with a clear idea of where your money is going, but also help you create new habits — enabling you to focus on your priorities and say no to unnecessary spending.

However, creating a budget doesn’t mean cutting out all the fun stuff! Budgets are meant to help you identify items that aren’t essential to your daily needs, like how much you spend on eating out, luxury accessories and subscription services. Removing or cutting back on some of these items will allow for greater flexibility to focus on essential spending.

One required bill for many graduates is their monthly student loan payments. If you have student loan debt, prioritizing these payments is essential to protecting your credit score.

As such, these payments should be factored into your budget. A general rule of thumb is to devote no more than 10% of your monthly gross income to paying your student loan under a standard 10-year repayment plan. If you find yourself paying more than 10%, it might be time to review your budget to see where you can put that extra money to better use.

Planning your career path

While a larger salary can make it easier to balance your budget, recent graduates often place a heavy emphasis on their starting pay, mistakenly equating it to career success.

While a job provides you with money to pay the bills, pursuing a career means gaining experience, building your innate skills and talents, which will allow you to progress toward higher-paying positions with more responsibility and impact.

Seek a career path that aligns with your passions, lifestyle and long-term goals. Take remote work as an example. If you prefer to interact with colleagues face-to-face, then taking a position in which you’re not going into an office — even if it offers a higher salary — will not bring you personal fulfillment.

Additionally, keep in mind that you may move between companies and industries at various times in your career. This is why it’s important to take a long-term approach to planning, taking positions early on that enable you to learn and grow your skills and make yourself more marketable. While this could mean taking a pay cut early on, improving your skill set will pay dividends in the future.

Working with a financial professional

Sometimes, no matter how much effort we put into managing our finances, it’s not enough to cover all the bases in our financial journey. This can be particularly true when you are balancing a new salary, student loans and the responsibilities of rent, utilities and insurance that come with living on your own.

This is where a financial advisor can help you “level up” basic habits to strengthen your financial security and stability. For example, if you are having trouble making loan repayments, an advisor can help you understand your loan obligations in greater detail and help you choose a repayment plan that makes sense for your situation.

A financial advisor’s greatest impact, however, lies in long-term planning. By working together to understand where you are today — and where you would like to be — an advisor can craft a comprehensive financial plan that considers your unique needs and circumstances, as well as your vision for the future.

With an entry-level starting salary, it usually takes time to achieve financial independence. But that doesn’t mean you can’t begin to save for longer-term goals, such as retirement, homeownership, a new car or continuing education. Collaborating with a financial advisor can help you budget for these items and take advantage of your employer’s retirement plan, which often includes matching contributions to your pretax salary deferrals.

Whether you work with an advisor or on your own, it’s important to set professional and financial goals and plan the steps you should take to realize them. The post-graduation period is filled with new responsibilities and important decisions, and financial missteps early in your career can lead to neglected debt payments, a damaged credit score and overall financial stress. However, if you stay committed to your financial plan, maintain responsible spending habits and seek a position that aligns with your passions and skills, you can lay the foundation for a rewarding career and a secure financial future.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Data show more than half of all students in the U.S. graduate with student loan debt, but here’s some good news: You may be able to save for retirement quicker while you pay your student loan. 

The IRS just released new guidance on how some with student loans may be able to receive a retirement match from their employer for every loan payment made. So for example, if you pay $200 a month in student loans, you could get a $200 match from your employer toward your retirement fund.

Employers don't have to participate in the match. But if yours chooses to, here's what the IRS says you need to know to get started. 

What is the SECURE 2.0 Act employer match? 

The new IRS guidance clarifies how those with student loan debt can receive an employer-paid match into their retirement savings account. As mentioned, these matches are made for every qualified loan payment you make. (The IRS essentially allows your employer to treat the student loan payment as a qualifying contribution to your 401(k) or other similar retirement plan.) More on all of that later.

This could be a game-changer for some borrowers. Before the SECURE 2.0 Act, you were only allowed matches based on how much you contributed to your retirement plan since prior law didn’t provide a match for student loans. However, this new-ish law (enacted two years ago) is designed to encourage those with student debt to save more for retirement.  

Studies show that grads with debt are disadvantaged when it comes to retiring. Those with student loans accumulate 50% less retirement wealth by age 30 than their student-debt-free peers. And the burden of those loans isn’t limited to young people. An economic think tank recently found that over 2.2 million Americans over 55 have outstanding student loan debt. 

Under the student loan 401(k) match provision, there is no age limit to participate. 

New 401(k) rules for student loans

Those with student debt who work for a participating employer with a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA can participate in the retirement match.

To qualify, you must be making "Qualified Student Loan Payments (QSLPs)." You should be prepared to provide your employer with the following QSLP information: 

• The amount and date of the loan payment
• Confirmation that you made the payment (and not your friend, for example)
• Confirmation that the loan is a qualified student loan and was used to pay for qualified higher education expenses for yourself, your spouse, or your dependent
• Confirmation that you incurred the loan

“Qualified higher education expenses” for this match mean those expenses associated with the cost of attending school. If you can prove the above eligibility requirements, retirement matches may start right away.  

Note: The IRS says a "qualified student loan" is a loan you took out solely to pay qualified higher education expenses that were: (1) For you, your spouse, or a person who was your dependent when you took out the loan; (2) For education provided during an academic period for an eligible student; and (3) Paid or incurred within a reasonable period of time before or after you took out the loan.

How much is the match and how do I enroll?  

Your student loan contribution match will generally be the same as your plan’s regular match (i.e. same rates, vesting schedules, etc.). Your employer may require that you opt in and have you provide certification of your QSLPs to receive your match.

It's important to inquire with your employer if you are unsure about your retirement plan’s rate, rules, or other details. 

Other ways to save for retirement

Only 40% of older adults rely on Social Security as a sole source of retirement income. And young people seem to know this. Data show that over 50% of adults aged 24 to 35 expect to rely on a retirement plan, such as a 401(k) as their source of income after retirement, not Social Security. 

So what can you do to build your nest egg? Here are some ideas. 

• Be sure you’re taking full advantage of all education tax credits and deductions
• Retirees: Make a tax plan 
• Consider retiring in a tax-friendly state

Also, keep in mind that the IRS is gradually unfurling rules and regulations to fully implement the SECURE 2.0 Act. Currently, the agency is welcoming comments on the student loan match guidance and working on proposed regulations.  

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As the cost of college continues to rise, it’s not unusual for parents to discover that student loans, financial aid and savings won’t cover all their child’s expenses. Parent PLUS loans provide a way to bridge the gap, but rising interest rates have made these loans a costly option. 

The rate for federal parent PLUS loans taken out between July 1, 2024, and June 30, 2025, is 9.08%, a 33-year high. The rate is fixed for the life of the loan, even if overall interest rates decline. Borrowers must also pay a 4.228% origination fee. 

Parents can borrow up to the cost of a child’s college attendance, including tuition, room and board, and textbooks, minus financial aid received by the student. While the absence of a cap may make these loans attractive, it could also encourage parents to borrow more than they can afford to repay, says Mark Kantrowitz, author of How to Appeal for More College Financial Aid. 

The requirements for parent PLUS loans

To qualify for a parent PLUS loan, you must be the biological or adoptive parent (or in some cases, the stepparent) of a student who is enrolled in college at least half-time. As part of the application process, the U.S. Department of Education will conduct a credit check on you. (If you have a security freeze on your credit reports, you’ll need to lift it first.) 

You don’t need to have excellent credit to qualify for a PLUS loan. However, if you have an adverse credit history — you’ve defaulted on a loan or discharged debts through bankruptcy during the past five years — you won’t be approved unless you have a co-signer. 

Alternatives to PLUS loans

Parents may be able to obtain private student loans at a lower interest rate than they could get on a PLUS loan. As with PLUS loans, private loans allow you to borrow up to the full cost of college for your child, and some private loans offer rates below 5%. Rates on these loans may be fixed or variable. With a variable rate loan, you’ll benefit when rates fall — and the Federal Reserve is widely expected to begin cutting short-term interest rates this year. But when rates eventually rise again, your variable loan rate will go up, too. 

To qualify for most private loans, you need a good credit score — typically, a FICO score of 700 or higher — a long work history, and a low debt-to-income ratio. In addition, private student loans lack the protections that federal PLUS loans offer, including income-based repayment, deferral, and loan forgiveness for eligible borrowers. 

Whichever option you choose, it’s important to understand that you could be on the hook for loan payments for 10 years — or longer if you enter an extended repayment plan. Before taking out a PLUS or private loan, make sure that your child has exhausted all other options for financial aid, including federal student loans. Those loans have lower rates than PLUS loans — 6.53% for student loans taken out between July 1, 2024, and June 30, 2025. However, they come with annual limits. For the 2024–25 academic year, for example, the maximum amount a first-year undergraduate dependent student can borrow in federal loans is $5,500. 

If student loans and other forms of financial aid fail to cover your child’s college costs, consider limiting your own borrowing to no more than the amount of your annual income, Kantrowitz says. If you plan to retire within 10 years, you should borrow proportionately less — for example, half of your annual income if you expect to retire in five years.

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It’s no secret that getting a college degree comes with a hefty price tag.

According to a report from Education Data Initiative, the average annual cost of tuition in the United States in 2024 is $38,270. This price includes books, supplies and living expenses. That number goes down a bit for students attending college in-state, with the average annual cost being $27,146, or $108,584 for four years.

Entering the workforce with a six-figure debt can be debilitating, especially when entry-level job salaries aren’t keeping up. According to a report from ZipRecruiter, the national starting salary for a recent college graduate is $62,609, which is just over half the cost of getting a degree at an in-state school.

When it comes to employment, a report from Strada Institute for the Future of Work and the Burning Glass Institute found that 52% of recent four-year college graduates are underemployed a year after graduation. That number drops slightly for those who graduated a decade ago, with 45% still holding a job that doesn’t require a four-year degree. When you couple that with current inflation rates, it can be extremely difficult to pay that debt off, bogging down some Americans for decades. Of course, there are scholarships and grants available to help offset these costs, but there’s another option families can take advantage of known as a 529 plan.

What is a 529 plan?

Section 529 plans, named after Section 529 of the Internal Revenue Code, are tax-advantaged accounts that can be used to pay for educational expenses from kindergarten through graduate school. There are two types of 529 plans: education savings plans and prepaid tuition plans.

Education savings plans grow tax-deferred, and account holders can make tax-free withdrawals when the money is used for qualified education expenses. Prepaid tuition plans allow account holders to secure current tuition rates for future attendance. These funds can be used only for tuition and related fees. All other expenses, such as meal plans or room and board, will be charged at the institution’s current rate.

Despite these plans being offered by all 50 states, only 30% of Americans utilized them in 2023, according to data from Education Data Initiative. The same report showed that 54% of parents were unaware that 529 plans existed. These plans are available to anyone and are typically opened by parents or grandparents for their children or grandchildren, who are listed as beneficiaries on the account. Each state has its own rules, fees and tax benefits associated with these accounts. Another nice perk is that qualified withdrawals aren’t subject to federal or state taxes. However, for K-12 students, tax-free withdrawals are limited to $10,000.

In addition to their various structures, there are some stark differences between the two types of 529 plans. With education savings plans, funds contributed to the plan are invested in a preset selection of investments. Account holders can choose what kinds of investments to make, and the account grows based on how those investments perform over time. Many plans offer target-date funds, which typically become more conservative as the beneficiary nears college age.

What 529 plans cover has been expanded

The money can be used to cover tuition, fees, room and board and other related costs for both college and K-12 students. However, the federal government has made some expansions to the plans in recent years. Under the SECURE Act of 2019, the federal government allowed beneficiaries to use account funds to cover registered apprenticeship program expenses. These tax-free withdrawals can also be used to cover student loan repayments of up to $10,000 for beneficiaries and their siblings. In 2022, the government expanded the plan further to help boost retirement savings. Under the SECURE 2.0 Act, $35,000 of unused funds in education savings plans can be rolled into a Roth IRA account.

Prepaid tuition plans are a little different. These plans are offered only in a few states, along with select colleges and universities. As mentioned, these plans allow account holders to lock in current rates, even if the beneficiary isn’t college-age. These plans are not eligible for any K-12 education expenses — and they don’t cover the cost of room and board for college students. Similar to 529 education savings plans, withdrawals from prepaid tuition plans are not taxed, and the funds grow over time. It’s important to note these plans are not guaranteed by the federal government and may not be guaranteed by some states, depending on where you live, so make sure you understand those risks before opening an account.

529 plans are a great way for families to save money on education costs — especially when it comes to paying for college. Opening one of these accounts could lessen or even eliminate the amount of debt your child accrues until they graduate, saving them years of student loan payments. Furthermore, the funds in these accounts grow over time, allowing you to maximize your contributions.

You may also be eligible for various tax benefits depending on where you live. Despite continuous talk of student loan forgiveness and free tuition, a 529 plan can be a great way to help ensure your child has access to higher education, which will open a world of opportunities for them as they enter adulthood.

Justin Stivers is an investment advisory representative and provides advisory services through CoreCap Advisors, LLC. Stivers Wealth Management is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Borrowers of federal student loans have had a lot to keep up with since 2020, when the COVID-19 pandemic triggered a three-year freeze on loan payments and interest. 

In 2022, President Biden announced a plan to deliver on campaign promises and relieve up to $400 billion in student debt for tens of millions of borrowers. Last summer, the Supreme Court blocked that plan. Since then, the Biden administration has unveiled a series of new debt relief programs; if all of them are implemented, they would provide relief to more than 30 million borrowers and forgive $153 billion in loan debt. But some of those plans face legal challenges, too.

If you’re managing student loan debt — and especially if you’re struggling to keep up with payments — you may have questions about recent proposals and what they mean for you. Here, we highlight the key points. 

The pandemic-era suspension of federal loan payments and interest concluded last fall. Is there anything I should know now that payments have resumed?

As borrowers transition out of the payment pause, the U.S. Department of Education is extending them an “on ramp” period. During this period, which stretches from October 1, 2023, to September 30, 2024, the agency will not report missed loan payments to the credit-reporting companies (Equifax, Experian and TransUnion) and will not place overdue loans in default or collections. 

Now that interest is accruing on loans once again, it’s worth noting that you may be able to deduct up to $2,500 a year on your federal tax return for interest paid on student loans. You can also get a discount of 0.25 percentage point on your interest rate if you set up automatic payments on your loan servicer’s website. 

To make sure you’re up to date on your loan’s status, log in to your account at StudentAid.gov and verify that your contact information is current. There’s a chance your loan was transferred to a new servicer — the company that manages your billing and payments — during the payment pause, so you’ll also want to locate your current loan servicer and make sure that it has the correct information on file for you. 

The Supreme Court struck down Biden’s major loan forgiveness plan. What other measures has the government taken to provide debt relief?

In an April announcement, the Biden administration outlined a variety of new debt reduction and loan forgiveness policies. For people who owe more than they borrowed, the plan would automatically forgive the part of their balance that exceeds the original loan amount, up to $20,000 per loan. You might fall into this group if your monthly payment amount didn’t cover the interest charges that were accruing, or if you’ve incurred fees for overdue payments.

Additionally, for low- and middle-income borrowers enrolled in income-driven repayment plans, the new policy would forgive any debt that was added to their balances while they were on a repayment plan. And another proposed rule would automatically forgive your undergraduate loans if you entered repayment on or before July 1, 2005, and your graduate debt if you entered repayment on or before July 1, 2000. According to the announcement, the Department of Education could finalize these new policies and make them available to borrowers as soon as this fall. But some of the proposed rules may face legal challenges.

The administration has taken steps to remedy issues that were preventing qualified borrowers from receiving relief, too. For example, fixing inaccuracies in the number of qualifying payments some borrowers made on income-driven repayment plans has resulted in automatic debt forgiveness for the affected borrowers.

The administration also processed long-pending claims for Borrower Defense Loan Discharge, which helps borrowers who attended schools that closed down or practiced misconduct. (Borrower Defense, however, is also in legal limbo; you can still apply for it and be approved, but the program is under a federal court injunction until November 2024, meaning the new rules won’t go into effect and no debt can be forgiven before then.) Additionally, the administration expanded eligibility for the Public Service Loan Forgiveness program and is working to identify more students who qualify for Total and Permanent Disability Discharge.

You can stay on top of policy updates by periodically checking StudentAid.gov and ED.gov for announcements.  

I’ve heard about the SAVE plan. How does it work?

SAVE (Saving on a Valuable Education) is an income-driven repayment plan that went into effect last year. Like other IDR plans, SAVE bases your monthly payment on income and family size. But if your payment isn’t large enough to cover accrued monthly interest, your loan balance doesn’t increase; instead, the government covers any unpaid interest, helping borrowers avoid the scenario of owing more on their loans than they borrowed. 

For nearly all borrowers, SAVE will lower their monthly payments more than any other IDR plan, according to the Office of Federal Student Aid. And according to President Biden, 8 million borrowers have already benefited from using SAVE, with 4.5 million of them now paying $0 a month. 

SAVE could lower payments even further starting this summer, when new elements of the program are scheduled to go into effect. Beginning July 1, the amount of income used to calculate payments will be cut in half for borrowers with only undergraduate loans and can be cut by up to half for borrowers with a mix of graduate and undergraduate loans. 

On top of that, borrowers on the SAVE plan can have their loans forgiven in as little as 10 years. If you borrowed $12,000 or less, you’ll receive forgiveness after you make the equivalent of 10 years of payments. For every $1,000 you borrowed above the $12,000 mark, forgiveness is available after an additional year. So if you originally borrowed between $12,001 and $13,000, your loan can be forgiven after 11 years.

As of April, 18 states had filed lawsuits to block the SAVE plan, with some states claiming student debt forgiveness is illegal and others claiming it is an extraordinarily expensive policy. Their legal arguments have yet to unfold, but depending on the outcome of the lawsuits, elements of the SAVE plan could change. In the meantime, you can learn more about SAVE at https://studentaid.gov/announcements-events/save-plan.

What are the other options for loan forgiveness?

While some new loan forgiveness policies are up in the air, several programs are more firmly in place to cancel debt for qualified borrowers.

If you’re on an IDR plan other than SAVE, your loan balance will automatically be forgiven after you make either 20 or 25 years’ worth of payments (depending on the plan), including some periods when a $0 payment was required. And there are certain programs that discharge debt even sooner. A variety of borrowers may currently qualify for these special forgiveness programs, including teachers, medical professionals and other public servants. You could also be eligible for loan forgiveness if you have a total and permanent disability or if your school closed while you were enrolled. 

Each loan forgiveness program has different requirements for the number of payments you have to make before qualifying, the amount of debt that can be forgiven, and how to apply. With the Public Service Loan Forgiveness Plan, for example, the balance on your Direct Loans can be forgiven if you make 120 qualifying payments while working full-time in a public service role for the government or a nonprofit. To apply, you’ll need to have your employer sign a form to certify your work experience. With the Teacher Loan Forgiveness Program, you can have up to $17,500 forgiven on certain loans if you teach full-time for five consecutive academic years in a low-income school or educational service agency.

You can see a full list of forgiveness programs at https://studentaid.gov/manage-loans/forgiveness-cancellation. To find all the application forms, go to https://studentaid.gov/forms-library. 

I’m struggling to keep up with loan payments. What should I do?

Start by exploring your options with income-driven repayment plans. Depending on your financial situation, IDR plans can drop your payment to $0 a month. And unlike some deferment and forbearance plans, IDR plans let you continue earning credit toward loan forgiveness for the months you’re on them. To apply for an IDR plan, including SAVE, or to change your plan, visit https://studentaid.gov/idr. You can also use the loan simulator at https://studentaid.gov/loan-simulator to see a preview of what you qualify for. 

If you go on an IDR plan, remember to recertify (in other words, submit information about your family size and income) annually. Doing so helps to ensure you’re on the most suitable plan available and prevents you from being automatically placed on a default payment plan. If your income decreases, be sure to recertify right away.

If an IDR plan isn’t adequate, and you have a Direct Loan, FFEL Program loan or Perkins Loan, you can apply for deferment or forbearance. Deferment pauses your payments for several months or years when you’re facing certain hardships, such as losing your job or undergoing cancer treatment. Interest continues to accrue on unsubsidized loans when you’re in deferment, but it’s deferred on subsidized loans. 

Forbearance suspends your loan payments for up to 12 months at a time while you’re facing a qualified hardship. But interest charges still accrue on both subsidized and unsubsidized loans under forbearance, so borrowers should check to see whether they qualify for deferment before applying. If you want to apply for deferment or forbearance, reach out to your loan servicer. 

If you need help navigating your loan accounts or applying for relief, avoid working with any company that charges a fee for those services—it might be running a scam. Instead, call the Federal Student Aid Information Center at 800-433-3243 or reach out to your loan servicer. You can also talk to a certified credit counselor or student loan counselor to get free advice on loan payoff strategies. You can find one through the National Foundation for Credit Counseling, at NFCC.org. 

Can I consolidate multiple federal loans into one?

Yes. With a Direct Consolidation Loan from the Department of Education, you can combine multiple loan accounts, and doing so could potentially reduce your overall monthly payment. On top of that, you won’t lose your progress toward loan forgiveness if you consolidate. However, consolidating doesn’t reduce the interest you pay. 

Perhaps most importantly, a Direct Consolidation loan can give you access to more federal relief. If, for example, your loans don’t qualify for a SAVE plan or for Public Service Loan Forgiveness (federal Perkins Loans and FFEL Program loans aren’t eligible), you can consolidate into a Direct Consolidation Loan and then apply. 

What are my options if my student loan is already in default?

Student loans typically go into default once you fall behind on payments by nine months or more. At present, the Fresh Start program can be a huge help for borrowers who have defaulted. 

Fresh Start can “rehabilitate” your loan, or remove it from collections and make it current again. And unlike the rehabilitation option that it’s temporarily replacing, you don’t have to make a series of new payments in order to qualify. The Fresh Start program is available only through September 30, 2024, and it’s much easier to enroll in it than in other rehabilitation programs. Just note that it takes about four to six weeks to have your loan transferred out of collections once you enroll.

Another benefit of using Fresh Start is that the Department of Education will remove the record of default from your credit reports, which could give your credit scores a significant boost. If you’re experiencing debt-collection efforts, such as having your wages garnished, those efforts will stop as well. On top of that, you can apply for IDRs and loan forgiveness plans after using Fresh Start to rehabilitate your loan. To enroll in this program, visit MyEDDebt.ed.gov or call 800-621-3115.

When the Fresh Start program expires, the previous rehabilitation option will go back in place. You can use the traditional rehabilitation option once per loan. However, if the Department of Education reinstates the same rules as before, borrowers will need to make nine monthly payments to have a loan rehabilitated. Alternatively, you can get a loan out of default by paying it off with a Direct Consolidation Loan. But to qualify, you may have to make three payments on the defaulted loan. 

Are Parent PLUS loans eligible for relief or other assistance?

If you took out a Parent PLUS loan to cover your child’s tuition, help is available for you, too. Parents can apply to defer payments while their child is enrolled in school at least half-time, and for up to six months after the schooling ends. Interest will continue to accrue during deferment.

There are also multiple payment plans available for parent borrowers. To be eligible for the income-based payment plan, also known as Income-Contingent Repayment, you’ll have to first consolidate your PLUS loan into a Direct Consolidation Loan. But as an added benefit, your loan balance can be forgiven after 25 years on an ICR, and you’ll have a better chance of qualifying for Public Service Loan Forgiveness.

What about private loans?

If you don’t qualify for the assistance you want from the government, you might be tempted to refinance your federal loans through a private lender, such as a bank, school or other lender outside the federal government. But weigh your decision carefully. Moving your debt to a private loan means permanently forfeiting a host of relief options, including any future federal programs that go in place, as well as a variety of IDRs that can help you if your financial situation changes.

Private lenders are not required to offer you any assistance or loan forgiveness, and they’re not likely to have income-based payment options. But if you have a private loan, you might have access to a hardship program, such as an extended repayment plan or forbearance, depending on your lender. To find out what your lender offers, call the customer service number on your loan statement. Be sure to ask about fees, interest charges and potential credit damage before agreeing to any new payment arrangement.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Since their creation in 1996, 529 college savings plans have become a popular vehicle to help parents save money to help pay for their children’s ever-increasing higher education costs.

Assets in 529 plans grow tax-deferred, and distributions from them are tax-free as long as they’re used to pay qualified educational expenses for the beneficiary, such as tuition, fees and books.

Another attractive benefit is that the owner of the plan can change the beneficiary whenever they want to.

That’s why some parents establish and fund a single 529 plan to help pay for the college costs of all of their children. This can be useful for parents of children with significant age gaps.

However, it’s not a good strategy if you have more than one child in college at the same time. Why? Because each 529 plan can only have one beneficiary at a time.

Here’s another reason: If you’re planning on using the Free Application for Federal Student Aid (FAFSA) to apply for financial aid for your child, the value of a 529 plan you own may negatively impact the amount of financial aid your child is eligible for.

A potential problem solver for parents

Establishing separate custodial 529 plans for each child, or splitting one large 529 plan up into separate, smaller custodial 529 plans, may help solve both of these problems.

Here’s why: Recent updates to FAFSA have eliminated certain benefits that sometimes resulted in lower out-of-pocket college costs for parents with multiple children in school or for divorced or separate parents.

Let’s take a look at these key changes and then discuss how 529 plans fit into the process.

The all-important 'out-of-pocket-expenses' number

In the ’olden days’ it was called the Expected Family Contribution, or EFC. Now it’s called the Student Aid Index, or SAI. Basically, it means the same thing — the percentage of a student’s college costs FAFSA determines that the student (or, more accurately, their parents) should pay out of pocket, based on the applicant’s income and assets.

Higher income usually results in a higher SAI, which usually translates into less financial aid (and, thus, higher out-of-pocket costs).

Supposedly the updated FAFSA process is more beneficial because it allows more of your own income and your child’s income to be left out of SAI calculations.

However, this update also removed certain longtime benefits that previously resulted in lower out-of-pocket costs.

No more benefits for parents with several kids in college at the same time

In the past, FAFSA would reduce your parental EFC if you had two or more children in college.

Now, FAFSA no longer cares how many kids you have in school when calculating your overall SAI. This could significantly raise your out-of-pocket expenses, especially if your family income is $100,000 or more.

No more 'who you live with' benefits for divorced parents

When parents are divorced or separated, only one parent needs to report their income and assets in FAFSA. In the past, this parent would be the one at whose home their dependent college student child was living. If this parent had significantly lower income than their ex-spouse, this could result in a lower EFC — and thus more financial aid.

Now, it doesn’t matter where the dependent child lives. FAFSA now requires the filer to be the parent who provides the most financial support for the child.

As before, only that parent needs to report their income and assets. But if they’re making much more money than their ex, this could result in a higher SAI.

Assets count, too

In addition to income, FAFSA also considers a family’s net worth. Parents and children must enter the value of all of their liquid assets, including money in bank accounts, CDs, taxable investment accounts and, yes, their own 529 plan accounts.

Retirement accounts and real estate don’t need to be included. Also, 529 plans established by grandparents with their grandchildren as beneficiaries don’t need to be entered in FAFSA, either.

This impact can be considerable. Student-owned assets can increase the SAI by 20% of the asset value. After certain allowances, the value of parental assets can increase the SAI by up to 5.64% of the assets’ amount.

Considering that married parents no longer receive “sibling breaks” and divorced or separated parents can no longer take advantage of “who our child lives with” benefits, it may be in everyone’s best interests to try to lower the financial aid-reducing impact of assets.

Where do 529 plans fit into all this?

If you own one 529 plan that was originally meant to help pay for the college costs of all your children, its overall value could work against you if you’re trying to maximize each child’s eligibility for financial aid.

That’s because when you’re using FAFSA to apply for financial aid for one 529 plan beneficiary, you have to enter the entire value of the 529 plan, even if you’ll only be using a small portion of it to pay for that child’s college expenses.

This same issue exists even if you’re the account owner for separate 529 plans you’ve established for each of your dependent children. You’ll have to include the value of all of these separate 529 plan accounts as parental assets even if you’re only filing a FAFSA for one child.

Fortunately, there may be a solution

You may be able to get around this issue by splitting a large 529 plan into separate custodial 529 plans for each dependent child. With custodial accounts, each child is both the account owner and beneficiary.

If you already own separate 529 plans for each child, you could transfer all of the money out of each plan to establish a new custodial 529 plan for each child.

These transfers are done through full or partial direct 529 rollovers. In most cases, these rollovers are tax-free if you’re moving these assets into a 529 plan in the same state, although you’ll want to confirm this with your 529 plan provider.

Using this method, you’ll only have to enter the value of one child’s smaller custodial 529 plan into FAFSA when you’re applying for financial aid for that child. The assets in those plans will still be considered parental assets for SAI calculation purposes.

This strategy can be particularly beneficial if you have more than one dependent child in college at the same time. Since you file separate FAFSAs for each child, you’ll only have to include the value of their individual custodial 529 plan account in each separate application.

But — it might be not a good solution for CSS filers

Some colleges require parents and students seeking financial aid to file a CSS Profile as well as a FAFSA. The CSS Profile is used by some colleges and scholarship programs to award non-federal financial aid to students in need. Each college that requires applicants to fill out the CSS Profile may use a different methodology to weigh the impact of parental and student assets on aid decisions.

Other issues to consider

Considering that FAFSA only counts a maximum of 5.64% of parental assets in its calculation of SAI, establishing separate custodial 529 plans may not significantly reduce out-of-pocket expenses.

Also keep in mind that if you split one large 529 plan into several different custodial 529 plans, you may have to pay enrollment fees and annual account maintenance fees for each plan. You’ll have to decide how the investments in each plan should be invested. And you’ll have to manage distributions from each plan and keep track of gifts to each plan made by you or other people.

And, if you have younger children, there’s a chance that at some point FAFSA may make more changes to its methodologies that reduce or eliminate the potential SAI-reducing benefits of this strategy.

That’s why before you make any changes to your 529 plans, you may want to speak to an accountant or a financial adviser to determine whether this strategy makes sense for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Student loans have become one of the heaviest financial burdens for Americans. As of this year, student loan borrowers owe a whopping $1.7 trillion in federal and private student loan debt, according to the Federal Reserve. It may seem that student loan debt is most often a problem for younger and middle-aged Americans, but data from the Consumer Financial Protection Bureau says otherwise. It found nearly 40% of borrowers 65 and older have defaulted on their loans.

What’s even more concerning is that for many, age 65 is when people start thinking about claiming Social Security benefits, if they haven’t done so already. This financial burden can add even more pressure on Americans nearing, or in, retirement.

Having enough money to live on for the rest of your life is one of the biggest concerns in retirement. It’s why we spend most, if not all, of our working years saving up for it. When you add rising costs, increased medical treatment and the burden of student loans onto an older adult’s plate, it can become extremely challenging to make ends meet. This has caused many to default on their student loans, which can lead to even more problems, especially if they’re federal loans.

Under the Treasury Offset Program, the federal government can garnish up to 15% of monthly federal benefits for those with outstanding student loans. This includes disability payments, tax refunds and even Social Security benefits. This has caused concern for lawmakers who sent a letter to the White House in March. They’re urging the Biden administration to exempt Social Security benefits from being garnished under the program.

Co-signed student loans can also be an issue

Older adults who are co-signers on student loans for children or grandchildren also need to be careful, especially when it comes to private student loans. The federal government isn’t allowed to garnish a co-signer’s Social Security checks if the borrower doesn’t pay the loan. However, the lender can take you to court in an attempt to collect the amount due on the loan.

This isn’t really an issue for federal student loans, because they typically don’t require a co-signer. A biological or adoptive parent can take a Direct Plus, or parent Plus, loan to help their child pay for college, but if you default on those payments, your Social Security or disability payments could still be garnished. If you’re planning to co-sign or take a loan to help your child pay for college, make sure you understand the terms of the loan and the consequences if payments aren’t made.

If you’re heading into retirement before your student loans are paid off, there are a few options for handling the financial burden. If you have federal loans, it may be worth checking into income-driven repayment plans. These plans determine your monthly payment based on your income. More information on these plans can be found on the Federal Student Aid website.

Another option is to see if you qualify for student loan forgiveness. Depending on your career, your student loans could be forgiven entirely. The Public Service Loan Forgiveness program forgives loans after 120 payments have been made and 10 years of service have been completed. Government workers and teachers are just some of the professions that qualify for this type of forgiveness.

Refinancing could be an option

If you don’t qualify for forgiveness, you might want to consider refinancing your loans. Refinancing may allow you to reduce your interest rate and repayment term, but there are some risks. If you refinance federal student loans into private loans, you’ll lose any borrower protections you had under the federal government.

If none of these options works for you, you can also let your student loans “ride,” meaning you’ll make the lowest monthly payments allowed.

Federal student loans are discharged upon death, so your children will not be responsible for paying them. This is true for most private loans, too, as long as they’re not co-signed.

Daily living expenses need to be taken care of in real time, and sometimes, the best option is to check into an income-driven repayment plan to lower payments or pay the bare minimum required each month.

The burden of student loans can be paralyzing for older adults heading into retirement. If you’re retiring with outstanding loans, be sure you can still afford to make payments. If you can’t, you may need to delay retirement, pick up a side gig for extra income or check into income-driven payment plans and forgiveness. The last thing you need to be concerned with in your golden years is paying off debt from decades ago.

Pat Simasko is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Simasko Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you paid student loan interest last year, you could qualify for a tax deduction worth up to $2,500. You won’t receive that money back as a refund since the student loan interest deduction isn't a tax credit, but taking advantage of the deduction can help you reduce your taxable income.

However, the IRS has strict rules for who can claim the deduction, and not everyone qualifies for the maximum amount.

So, how much student loan interest — if any — can you deduct this year? Here’s what you need to know.

Student loan interest deduction 

The student loan interest deduction is among the most overlooked tax deductions, but qualifying for this tax break might be easier than you think. For example, both private and federal student loans qualify, and both required and voluntary interest payments are deductible.

Also, current students and graduates can benefit from the deduction, and in some cases, you can deduct student loan interest even though a parent pays your loan. Parents who took out student loans for their dependents are also often eligible (more on that below).

And while only student loans taken out solely to pay higher education expenses qualify, most types of education expenses are eligible.

• Tuition and fees are qualified education expenses
• Room and board expenses qualify
• Loans used for books, supplies, and equipment qualify
• Even transportation expenses qualify

Is student loan interest an itemized deduction? There is no need to itemize deductions to claim student loan interest. You can claim the student loan interest deduction even if you take the standard deduction.

Qualified education expenses and institutions: The student loan interest deduction isn’t limited to four-year college students. For the deduction, any of the following postsecondary educational institutions qualify if they are eligible to participate in a student aid program administered by the U.S. Department of Education.

• Colleges (includes community college)
• Universities
• Vocational schools
• Institutions that conduct internships or residency programs that lead to a degree or certificate from one of the above institutions or a hospital or healthcare facility that offers postgraduate training

Additionally, the IRS says the student loan interest must have been “paid or incurred within a reasonable period before or after you took out the loan.” However, you can only deduct student loan interest for the year you paid it.

Who can deduct student loan interest? 

To deduct student loan interest, you must have taken out the loan for yourself, your spouse, or someone who was your dependent when you took out the loan. (A dependent generally refers to a qualifying child or qualifying relative.) So, paying interest on a loan taken out for your child typically counts for purposes of the deduction.

Can you deduct student loan interest if you didn’t make any payments? In some cases, you can claim the student loan interest deduction even if you were not the one to make payments (for example, if a parent made loan payments on your behalf). To deduct loan interest paid by a parent or anyone else, all of the following must be true:

• You must be legally responsible for repaying the loan.
• You can no longer be claimed as a dependent.
• Your filing status is not married filing separately.

(Note: The above criteria apply even if you made payments on your own student loans.)

Income limit for the student loan interest deduction 

There is one more test for qualifying for the student loan interest deduction, and it’s based on your modified adjusted gross income (MAGI). The income limit is set annually for each filing status. Here are the 2025 income and phase-out limits:

How much student loan interest can you deduct? You might not qualify for the full $2,500 deduction even if your MAGI falls below the amount set for your filing status. That’s because $2,500 is the maximum amount you can deduct each year. Your deduction is limited to the actual amount of student loan interest you paid during 2025.

• So, if you paid $800 in student loan interest, your deduction is limited to $800.
• And if you paid $3,000 in interest, you won’t be able to deduct more than $2,500.

Student loan interest deduction form 

You should receive Form 1098-E from your lender if you paid $600 or more in student loan interest last year. However, you can still deduct student loan interest if you do not meet the $600 threshold. So, if you made student loan payments but haven’t received a Form 1098-E for 2025, it’s a good idea to contact your loan servicer and request a statement of interest paid. Some borrowers may be able to find this information by visiting their online account.

If you still have doubts about whether or not you qualify for the student loan interest deduction this year, you can visit the IRS Interactive Tax Assistant (ITA) tool for answers. The process will take approximately 10 minutes, and you will need the following information before you begin.

• Filing status
• Basic income information
• Your adjusted gross income (AGI)
• Educational expenses paid with nontaxable funds

MAGI limits for taking the student loan interest deduction are inflation-adjusted each year. So, if you don’t qualify for 2025, you might be able to claim the deduction next year. Additionally, there are several other education tax breaks, including the Lifetime Learning Credit and American Opportunity Credit, available to students and graduates.

For more information about tax breaks for college students and their families, see Kiplinger's report, 14 Education Tax Credits and Deductions.

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A group of more than 30 U.S. lawmakers are calling for the Biden administration to end the practice of offsetting Social Security benefits to pay off the student loan defaults of seniors and people with disabilities.

The group — led by U.S. Senators Elizabeth Warren (D-MA) and Ron Wyden (D-Ore.) and U.S. Representatives Ayanna Pressley (D-MA), Pramila Jayapal (D-WA), Raúl Grijalva (D-AZ) and John Larson (D-CT) — said that social security beneficiaries can be pushed closer to, or even into, poverty by the practice, which undermines the mission of the Social Security Act.

In a March 19 letter to the Social Security Administration (SSA), the Department of Treasury (Treasury) and Department of Education, the lawmakers urged action on the Treasury Offset (TOP) program, which authorizes the collection of defaulted student loans and other debts using Social Security benefits. They are asking that Social Security retirement, survivor and disability benefits be exempted from the offsets due to student loan debt.

The lawmakers, who asked for a response to their letter by April 4, said that more than 3.5 million seniors had student loan debt totaling over $125 billion in 2023. Social Security benefits are reduced by about $2,500 annually for borrowers in default, they said in the letter.

The situation "can be a devastating blow to those who rely on Social Security as their primary source of income," the lawmakers said.

“Unfortunately, older borrowers often face the greatest repayment struggles, with nearly 40 percent of federal borrowers over the age of 65 in default on their student loans,” the lawmakers said. “These borrowers who have struggled with their student loan repayment progress could see their wages, tax refunds and Social Security checks garnished or offset.”

Debt relief bill introduced

The move follows the reintroduction last year of the Student Loan Relief for Medicare and Social Security Recipients Act, which would forgive student loan debt  dating back more than 20 years for current and future Medicare and Social Security Disability Insurance enrollees.

 The bill is "an important first step in our work to ensure that seniors and those with disabilities can focus on their health, well-being, and living a life of dignity, according to Rep. Adam Schiff (D-CA) who sponsored the legislation with Rep. Raúl Grijalva (D-AZ).

The Biden administration has canceled almost $138 billion for nearly 3.9 million borrowers to-date, including $1.2 billion in loan forgiveness for about 153,000 Americans last month and $4.8 billion in loan forgiveness for roughly 80,000 Americans in December 2023.

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The Health and Human Services (HHS) as well as Defense departments are set to receive funding as part of the six-bill, $1.2 trillion funding package that President Joe Biden signed into law on Saturday (March 23), avoiding any major impact from a partial government shutdown that technically began on the same day.

Under the package, new investments will be made in a number of other agencies and programs as well including the Transportation Security Administration (TSA), the Internal Revenue Service (IRS) and the Department of Education.

The Senate passed the legislation, the second and final six-bill appropriations tranche, by a 74-24 vote, a few hours after the March 22 midnight deadline. It was then sent to the president who signed it into law later that day.

In a 286-134 vote on Friday, the House passed the package, which accounts for 70% of government funding. With all 12 appropriations bills now cleared after months of delay in a busy and dysfunctional Congress, the threat of a shutdown is averted for this fiscal year, which ends on September 30.

“The bipartisan funding bill I just signed keeps the government open, invests in the American people, and strengthens our economy and national security,” Biden said in a statement, adding that the agreement is a Democrat-Republican compromise but rejects extreme cuts advocated by some hard-line House Republicans.

“But I want to be clear: Congress’s work isn’t finished,” he said. The House must pass bipartisan national security supplemental legislation, he said, and Congress must pass a bipartisan border security agreement. “It’s time to get this done,” he said.

“The fiscal year 2024 process has not been easy, but I am proud of the legislation this hardworking (Senate Appropriations) Committee has produced — two packages of twelve total individual bills that will fund important government programs, agencies and departments through the end of the fiscal year,” said Sen. Susan Collins (R-ME), vice chair of the Senate Appropriations Committee and Subcommittee on Defense.

She added that the DOD investments in this package “strengthen our military readiness and industrial base, provide pay and benefit increases for our brave servicemembers, and support our closest allies.”

The package consists of funding for Defense, Financial Services, Homeland Security, Labor and HHS, the legislative branch, as well as State and Foreign Operations.

Medicare, Social Security agency funding

For HHS, the package provides about $116.8 billion in funding, including $4.1 billion for the administrative needs of the Centers for Medicare and Medicaid (CMS).

Various other areas and programs that will receive funding include Community Health Centers ($1.86 billion); the Mental Health Block Grant ($1 billion); the Behavioral Health Workforce Education and Training Program ($153 million); the 988 Suicide Prevention Lifeline ($18 million); and Certified Community Behavioral Health Clinics ($385 million).

The Social Security Administration (SSA) would receive $14.2 billion for administrative expenses, an increase of about $100 million over its fiscal 2023 budget.

“These resources will help SSA keep up with rising costs to address service delivery challenges,” Sen. Patty Murray (D-WA), chair of the Senate Appropriations Committee, said in a statement. 

“But tight spending caps significantly limit the ability to provide SSA the funding it needs to provide the service that Americans who have paid into Social Security deserve," she said. "Addressing backlogs in key workloads and wait times will require sustained increases to allow SSA to increase staffing and make needed IT improvements.”

Defense funding

For DOD, the package provides $825 billion in total funding, including the agency's requested 5.2% service member and civilian pay raise as well as $29.6 billion for military housing and $8.4 billion for military family subsistence.

Other provisions in the package include $18.3 million to implement recommendations of the Suicide Prevention and Response Independent Review Committee — $10 million above the budget request. It also makes way for $20 million above the budget request to support the Navy’s suicide prevention and response efforts, and $10 million for department-wide suicide prevention. Some $3.3 billion will go toward Defense medical research, among other investments. 

“Critically, this bill makes important new investments in the brave men and women who keep our country safe,” Murray said. “It invests in cleanup of forever chemicals on our bases and delivers essential resources to support the wellbeing of servicemembers, including by increasing funding to strengthen suicide prevention efforts and address sexual assault and harassment.”

TSA funding

The TSA is set to receive $1.1 billion for pay equity and compensation-related initiatives aimed at helping the agency with recruiting and retention issues as it responds to "burgeoning" post-pandemic travel volumes. 

TSA launched a new compensation plan last July to pay employees at a level commensurate with employees at other federal agencies. Since its inception, the agency said that it has seen a significant drop in attrition and improvement in its ability to recruit for open positions.

IRS funding

The package includes $12.3 billion for the IRS. The funding is expected to help the agency carry out its responsibilities and continued renewed efforts to improve customer service, replace antiquated computer systems and ensure the everyone "pay what they owe in taxes," Murray said.

Education Department funding

Some $79.1 billion is slated for the Education Department to be used for several programs including student aid initiatives that support implementation of more affordable repayment plans and fixes to long-standing issues in student loan forgiveness. It also is intended to help support borrowers in repayment, Murray said.

As of last month, the Biden administration's total student debt cancellation, under various programs, hit nearly $138 billion and covers nearly 3.9 million borrowers, according to the Education Department. This includes some $1.2 billion in student loan debt forgiven under the Saving on a Valuable Education (SAVE) repayment plan.

On March 8, the Senate passed a $460 billion funding package — the first tranche of six appropriations bills — with little time to spare before the bills were set to expire that day. Before that, intraparty fighting, particularly among House Republicans, kept lawmakers for months from doing more than passing a series of short-term funding extensions on all 12 appropriations bills.

On March 22, intraparty fighting in each chamber once again nearly sank the second tranche of bills.

Commenting on the Senate floor on March 22, Senate Majority Leader Chuck Schumer (D-NY) said that it's hard to get things done in a divided government. “Getting things done in this divided government is even harder."

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Across the country, employers are competing fiercely for talent. According to recent data from the U.S. Chamber of Commerce, more than 34 million workers quit their jobs in 2023. Young people, in particular, are switching companies — or careers — if it means a higher paycheck or better hours.

Employers worried about recruiting and retaining employees have a new tool at their disposal, thanks to a federal law that went into effect at the start of the year. As of January 1, the SECURE 2.0 Act permits employers to "match" any payments their employees make toward their student loan balances with tax-advantaged contributions to their retirement accounts.

Employers should take advantage. Doing so can allow them to make a difference in their employees' financial security now and in the future. And that can make them an attractive destination for talent.

Student loan debt load is heavy

Student debt is a millstone for American workers. The nation's collective student debt load is roughly $1.73 trillion, according to the Federal Reserve. On average, borrowers pay between $200 and $299 monthly toward student loans.

That debt burden weighs on their mental and financial health.

A recent survey from Morning Consult found that more than nine in 10 young adults who continued with education after high school faced stress over money and finances that affected their physical and mental wellness. Of that group, 86% said student loans were a contributor to that stress.

Nearly half said student debt impacted the amount of money they contributed to their 401(k)s. Of that group, more than four in 10 said student loan debt caused them to withdraw money from their retirement accounts.

Those kinds of decisions can have severe long-term consequences. Just $10,000 contributed at age 25 grows into more than $100,000 by age 65, assuming a 6% annual return. Waiting until age 35 to set aside that money drives the total return at age 65 to just $57,000.

Young workers are looking for employers who can help them overcome that math. According to the Morning Consult survey, seven in 10 said they were very interested in a workplace benefits plan that offered contributions to a 401(k) if an employee made payments on their student loans.

That's more than the share who said they were very interested in hybrid work, paid family or parental leave or help with childcare costs.

Further, over half of those surveyed indicated that a 401(k) contribution for student debt repayment would have a "significant impact on their decision if choosing between multiple job offers."

What young adults are looking for

In other words, the new benefits authorized by SECURE 2.0 are exactly what young adults are looking for. Rarely do businesses have the chance to simultaneously tackle a pressing societal problem and expand their pool of talent.

There's already real-world evidence demonstrating how effective these programs can be. As of 2021, nearly one in five U.S. companies — including Google and Hulu — offered some form of student loan assistance to employees. This assistance includes enabling employees to cash in unused vacation time and apply it to their student loans and giving employees with school debt money to put toward their loans.

Abbott implemented a first-of-its-kind program in 2018 when we launched Freedom 2 Save with special dispensation from the IRS. This program inspired the student loan provision of SECURE 2.0.

Under Freedom 2 Save, employees who apply at least 2% of their salary toward paying down their student loans receive a 5% company contribution into their 401(k) annually. Over 2,800 Abbott employees have enrolled and received more than $7 million in total contributions to their 401(k)s.

Paying down significant amounts of student debt

Employees who participate in the program overwhelmingly say it makes them feel that we care about them as people, not just workers. Some have paid down as much as $60,000 in debt in just a few years.

The program also aids a diverse set of graduates, with over one-third of enrollees using it to pay off loans from a non-bachelor's degree.

Our experience can serve as a blueprint for companies planning on taking advantage of the flexibility offered by SECURE 2.0.

Student debt relief initiatives can aid not just workers but employers, too. They should resolve to make them part of their recruitment and retention strategy this year.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Biden administration has forgiven another $1.2 billion in student loan debt for about 153,000 borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan.

To be eligible for this debt relief, SAVE enrollees must have been making at least 10 years of payments on a federal student loan of $12,000 or less, the Department of Education (DOE) said. 

Eligible borrowers should have begun to receive emails this week from President Joe Biden letting them know that their loans are forgiven and that they will not need to take any further action to receive relief. Next week, the DOE plans to begin to email borrowers who can become eligible for loan cancellation if they switch to the SAVE plan.

This part of the plan was originally set for implementation in July but the administration announced last month that it would accelerate the timeline. The DOE said it will implement the remaining benefits of the plan, however, in July.

Launched last August, the SAVE student loan plan is an income-driven repayment (IDR) plan that calculates a borrower’s monthly payment using monthly income and family size as key determiners.

The latest action brings the administration's total student debt cancellation, under various programs, to almost $138 billion for nearly 3.9 million borrowers. This includes $4.8 billion in loan forgiveness for roughly 80,000 Americans in December 2023 as well as $9 billion in loan forgiveness for about 125,000 Americans in October 2023 — both through fixes to IDR and Public Service Loan Forgiveness programs.

President Joe Biden launched the program following the Supreme Court's decision last June to reject his sweeping $400 billion student loan debt relief plan, a key part of his campaign promise to help borrowers get out of debt. Last October, federal student loan payments resumed after a three-year, pandemic-induced hiatus.

The DOE's Federal Student Aid Office offers a step-by-step guide on repaying student loans with tips including how to review your loan balance, choose a repayment plan based on your income as well as various loan forgiveness options.

Other government resources include the DOE's Benefits.Gov, which a wealth of information on various loan programs offered by the federal government.

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College 529 plans have been around for about 25 years. In fact, all those years ago, I launched the first public relations campaign explaining to parents and grandparents how they can save for their loved one’s secondary education.

529 plans derive their name from Section 529 of the Internal Revenue Code. They were birthed because college tuition rates and costs were increasing at two to three times the rate of inflation. Student debt was mounting, and the government felt it had to offer tax-advantaged savings.

529s are a tax-advantaged savings plan to help pay for education. Originally, they were designed for post-secondary education costs, but in 2017, they were expanded to include K-12, and in 2019, they started including apprenticeship programs, as well.

How popular are 529s?

In 2021, total investment in 529s hit $480 billion, but by 2022, that had fallen to $411 billion, according to College Savings Plan Network. Some people started to back off from this investment because if you withdrew money from a 529 to use for a purpose other than the designated approved educational uses, you would have to pay a penalty.

New rules

529 provisions in the SECURE 2.0 Act came into effect this year. SECURE 2.0 has lots of advantages, but with regard to 529s, it enables families to convert leftover 529 money into retirement savings that allows the avoidance of the penalty for non-educational withdrawals.

But there are a few rules you need to be aware of before setting up a 529, including:

• The 529 plan must be open for a minimum of 15 years before you can do a 529-to-Roth IRA transfer.
• The beneficiary of the 529 plan must also be the owner of the Roth IRA.
• 529 plan contributions made within the last five years aren't eligible for a tax-free transfer.
• There's a lifetime maximum of $35,000 for 529-to-Roth IRA transfers.
• Roth IRA annual contribution limits apply.
• Always check into the fees that will be charged.

It can get confusing if you are not familiar with the Roth IRA rules.

You also can't contribute more in any given year to a Roth IRA than you earned in that year. So, if for example, a 529 plan beneficiary earns only $3,000 in a year, that's the most they could transfer to their Roth IRA that year.

Finally, it's worth noting that if you do a 529-to-Roth IRA transfer, you may not put additional money into your Roth IRA that year if doing so would cause you to exceed the annual contribution limit. For example, the Roth IRA contribution limit is $7,000 for 2024, which means you can transfer $7,000 from your child's 529 plan to a Roth IRA in their name. They won't be able to make any additional IRA contributions in 2024 without incurring penalties. However, they could save for retirement in a 401(k) or some other tax-advantaged retirement plan.

Setting up a 529 for your loved ones

There are over 100 529 plans in the U.S., and they are all offered via states. You don’t have to use your state’s 529 to get the benefits. They are tax-free at the federal level, and many states offer their residents a state income tax deduction or a tax credit for 529 contributions to one of their plans. Do some research into the plans available to you to learn more about the investment options you'll have and what kind of fees they charge before you open an account.

Once you've chosen your plan, you must fill out an application, providing information about yourself and your child. You can do this with help from your financial adviser.

Once your account is set up, you can fund it on the schedule that works best for you. That could mean making irregular contributions whenever you have the extra cash. Or you could set up automatic deposits on a recurring schedule. Many 529 plans are designed to easily accept financial gifts from other family members and friends as well.

I have always recommended that parents set up a 529 for their child at birth. Rather than receiving lots of scratchy baby clothes that need to be dry cleaned, wouldn’t it be better to have your friends and family donate to your child’s future?

How a 529 plan works

Most 529 plans are pretty simple. You can have a savings plan locked-in rate or one that offers a variable rate. The IRS does not impose an annual contribution limit on 529s, but it does set limits on aggregate contributions, depending upon the state. In most cases, this means that you can contribute a large investment. But check with your accountant, because in most cases this contribution may be considered a gift by the IRS. The gift limit, without tax consequences, for this year is $18,000 for an individual and $36,000 for a married couple.

You'll also need to choose what to invest those 529 funds in. Just use common sense. When the child is young and has lots of time before college or other education, you can invest in a more aggressive portfolio. This provides time to recover from market downturns. But, as the withdrawal date gets closer, and you will need to count on the money being there, you should move the portfolio into more conservative investments.

I suggest that you try to have a regular investment schedule so you keep building the 529. One benefit is that you can change beneficiaries. That way, if one child decides not to pursue their education, you can switch — or you have the Roth IRA option.

My best advice is to remember that you should not compromise your own retirement savings to help your offspring with their education. They can always borrow for college; you can’t borrow for your retirement. And frankly, if you have not saved enough for retirement, you may become an economic burden to your kids.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

“I read the news today (oh boy).”

These iconic opening lyrics from The Beatles song “A Day in the Life” resonate as much today as they did in 1967. In today’s rocky economic environment, elevated interest rates, high inflation and slow wage growth have contributed to historically high levels of financial stress, low feelings of financial wellness and a steady depletion of pandemic-era savings.

In a time of growing individual financial responsibility contrasted with a rapidly changing financial landscape, the importance of workplace financial coaching has never been more significant. As employees navigate complex financial decisions, from managing debt to saving for retirement, the role of employers in providing financial education and support has evolved into a crucial component of the modern workplace.

The changing economic landscape

The global economy is in the midst of a decades-long transformation, with some of the biggest fractures exposed during the pandemic and haunting us through today. The traditional job security of previous generations has given way to a gig economy characterized by temporary and freelance work — leaving many workers without traditional employment benefits like retirement plans or health care coverage. The pensions of old have also given way to retirement plans, employer-sponsored or not, where the onus of contributing and saving is on the individual.

Complicating the issue, financial markets have also become more complex. From cryptocurrencies to intricate investment instruments, the average person is now confronted with a multitude of choices that can significantly impact their financial well-being.

So while individuals bear greater financial responsibility in this new economic reality, they are also expected to navigate a higher level of complexity. Workplace coaching can fill the gap by arming employees with guidance, education and a stronger understanding of personal finance.

Changing employee expectations

The modern workforce increasingly values employers that offer more than just a salary — employees seek comprehensive benefits packages that support their financial well-being. As a result, businesses are under pressure to attract and retain talent by offering more holistic employee support.

Workplace financial coaching addresses this demand by offering a range of benefits. Firstly, it helps employees reduce stress and anxiety related to their financial situation, which the American Psychological Association reports is a top stressor across the country. When employees are worried about money, their job performance and overall well-being can suffer.

Secondly, financial coaching aids in retirement planning. With the responsibility for retirement funding shifting to individuals, employees need assistance in negotiating retirement accounts, investment strategies and risk management.

Lastly, financial coaching supports responsible debt management. Many employees grapple with student loans, credit card debt and mortgages. Understanding how to manage and reduce debt can lead to improved financial stability.

By providing financial coaching benefits, employers can mitigate their workers’ financial stress, alleviate burdens and equip them with the knowledge and tools to make informed decisions about their financial future — leading to happier, more productive workers.

Broader societal implications

The benefits of workplace financial coaching transcend individual employees and directly influence society at large. When employees are financially secure, they are less likely to require social safety nets, such as unemployment benefits, food assistance and housing subsidies. Reduced dependence on these programs lightens the financial burden on taxpayers and government resources.

Moreover, financially secure individuals are more likely to make responsible financial decisions that benefit the people around them. They can invest in education, contribute to local economies and support community initiatives — fostering individual well-being, but also contributing to the economic growth and stability of the nation.

Workplace financial coaching also addresses the growing wealth gap. As individuals acquire the knowledge and skills to manage their finances more effectively, they are better equipped to accumulate wealth and build financial security. This narrowing of the wealth gap will reduce economic disparities across the board and lead to a more equitable society.

Challenges and implementation

While the benefits of workplace financial coaching are numerous, implementation must be done right. Employers need to ensure that coaching programs are tailored to meet the diverse financial needs of their employees. A one-size-fits-all approach may not be effective, as different individuals may face unique financial challenges.

Moreover, financial coaching programs should be accessible to all employees, irrespective of their income level. It is crucial to avoid creating a situation where only higher-income employees can access valuable financial guidance or being seen as targeting a specific at-risk population at the exclusion of others.

Additionally, the effectiveness of financial coaching programs needs to be measured and adjusted over time. Employers should regularly assess the impact of these programs on employee well-being and financial literacy, making the necessary improvements and modifications.

Workplace financial coaching is more important than ever

Workplace financial coaching addresses the challenges of a rapidly changing economy on so many levels. Where employees are empowered to make informed financial decisions, employers can attract and retain talent and reduce financial stress among their workforce. At a larger scale, this workplace benefit contributes to a more equitable society.

As the world navigates an increasingly complex financial landscape, workplace financial coaching stands as a vital tool for fostering individual and societal prosperity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The arrival of a newborn is a momentous occasion for parents that often prompts them to consider their child’s financial future. While it might seem far away, they realize large expenses may come as the child reaches adulthood, including college, a house and a wedding, to name a few. To help with these expenses, parents often consider a savings plan for their newborn that will grow and help with these future costs.

There are a few different ways a parent can go about saving for their child, each with pros and cons. A few of the options include 529 plans, UTMA accounts, brokerage accounts and savings accounts.

529 plans

A 529 plan is a college savings account that offers tax benefits and allows the contributions to be invested into available stock and bond funds. While contributions do not get a federal tax break, earnings inside the 529 are tax-deferred and tax-free if used for qualified education expenses. In most states, a tax deduction on state taxes is available on contributions up to certain limits. Since 529s are administered by each state, the investment selections are limited to approved funds and may result in some states having less attractive investment options than other states.

Qualified education expenses include tuition, fees, books, computers and room and board for students who are at least half time (typically at least six credits per semester). Federal tax and a 10% penalty on earnings are due if 529 funds are not used for education costs.

A common concern for many regarding 529 accounts is the possibility that their child might not need college funding, either by not going to college or getting a full-ride scholarship, but 529s have a lot of features to reduce this concern. The account can be used to pay for community college, trade schools and certification programs. Up to $10,000 can be used for K-12 costs at a private school, and another $10,000 can be used to pay off student loans.

In addition, the beneficiary of the account can be changed to a broad range of relatives, including siblings, parents, cousins and even future generations, to name a few. If the child ends up getting a scholarship, the amount of the scholarship can be withdrawn penalty-free from the 529, with no limitations on how it is spent and with only taxes on those earnings due. 529s that have been opened for 15 years can also be rolled over to a Roth IRA owned by the child, up to $35,000 in a lifetime, as long as each rollover amount is counted as the child’s Roth IRA contribution for that year.

UTMA accounts

An UTMA (Uniform Transfers to Minor Act) is a custodial account that allows an adult to manage investments on behalf of a minor. Investment options are vast, including stocks, bonds, mutual funds, ETFs and more.

While the adult manages the account for the minor and chooses investments, it’s important to know that funds placed inside this account are owned by the child. While there is no penalty for withdrawals, money must be used for the benefit of the child. Once the child reaches the age of majority, age 18-25 depending on the state of residence, the account is turned over to them to control however they like.

Investments inside the UTMA may produce income and capital gains. An important advantage of the UTMA account is how these investment gains are taxed. In 2024, the first $1,300 of income and gains are tax-free to the child. The next $1,300 is taxed at the child’s rate, which is usually lower than the parent’s rate. Any income or gains above $2,600 for the year are taxed at the parent’s rate. 

In certain situations, it may be beneficial for a parent to gift stock to a child via an UTMA account and have gains and income taxed at the child’s rate.

Brokerage accounts

If the thought of the child having full control of the account causes concern, a brokerage account may be a good option. In this instance, the parents would open a brokerage account in their name and direct contributions and investments however they like. They can save and invest funds for the child but are under no obligation to ever give them the funds. 

As the child enters adulthood, the parents can then gift the investments to their child while being mindful of the annual gift tax exclusion ($18,000 in 2024) or name the child as beneficiary of the account.

The brokerage account has a wide array of investments, similar to the UTMA account. Since the parents are owners of the account, all income and gains would be taxed at their rates. While that is a disadvantage to the UTMA, the brokerage account has the advantage of giving the parents more control over the funds. As stated, the funds are not required to be given to the child at adulthood. 

Withdrawals do not have to be made for the benefit of the child, but instead can be used in any way the parents choose. The account can be established with the full intent of helping the child later in life, but also be used by the parents if times get tough financially.

Savings accounts

A savings account can be a good option for parents looking to save money for their kids, especially for money that they do not want exposed to the stock market. An adult would need to be either primary or joint on the account with the child. The funds can be invested in a high-yield savings account or CD, away from daily investment market fluctuations. Also, money up to $250,000 is FDIC-insured.

When it comes to saving money for a newborn, parents have a few options to consider. They each have unique features that may make one more appealing than the others depending on the parents’ situation and financial goals.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kehoe Financial Advisors is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: www.kestrafinancial.com/disclosures

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

More than 50% of Americans feel that the cost of higher education is out of hand, according to the most recent statistics from Bankrate. And it’s hardly surprising. As of mid-December, more than 43 million Americans have federal student loan debt, equaling a collective balance that exceeds $1.7 trillion. 

After a three-year reprieve, federal student loan payments resumed on October 1, 2023. Some borrowers are choosing to defer their student loan payments while they work out a way to repay their loans and fit the payments into their budgets. Others are exploring 401(k) student loan matching. 

The SECURE 2.0 Act opened a door for student loan borrowers by offering loan payoff options while making a secure retirement more achievable for Americans. Even so, many borrowers still need clarification about this new legislation. 

What is 401(k) student loan matching?

Student loan matching, part of the SECURE 2.0 Act that went into effect Jan. 1, 2024, allows employers to start counting student loan payments as qualifying contributions toward employee retirement plans. In other words, if your employer matches your 401(k) contributions, your monthly student loan payments count as your contributions instead of depositing the funds in your retirement account. That’s great news for millions of borrowers. 

This option benefits many student borrowers but could be especially worthwhile for recent graduates with high debt levels. However, not all employees will choose to offer student loan matching, and there are still a few kinks to work out before the widespread adoption of the program. For one, will private student loans qualify?

Who qualifies for 401(k) student loan matching?

According to the SECURE 2.0 Act, which unfortunately is as clear as dishwater, Section 110 allows employers to make matching contributions under 401(k), SIMPLE IRA and 403(b) plans.

• The IRS defines qualified student loan payments as a loan taken out to pay for qualified higher education expenses. These expenses include tuition and other related qualified expenses, such as student activity fees, books, or anything required to enroll or attend the school.
• An eligible student is an individual enrolled at least half-time (6 credits) in a program leading to a degree, certificate, or another recognized educational credential at an eligible educational institution.

How to get your match

As with any student loan program, there are rules to qualify for 401K student loan matching. You must have an eligible employer-sponsored retirement account — 401(k), SIMPLE IRA, 457(b) or 403(b) plans — and make payments on your higher education loan.  You will also need to ‘self-certify’ that you made or are making your payments. Finally, your contributions cannot exceed the annual retirement contribution limits set by the IRS.

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As the holiday season progresses and the end of the year quickly descends upon us, many minds turn to the subject of giving. Grandparents in particular seek to bring joy to their grandchildren’s faces and enrich their lives at this time of year. Few things in life are as rewarding as seeing a child’s eyes light up when they get the gift they wanted, especially when you’re the one who was able to give it to them! What is arguably even more rewarding is helping to set our loved ones up for long-term success and ease some of the larger burdens they (or their parents) are likely to face as they grow up.

Giving cash directly to the children or their parents is how most grandparents approach this, but as soon as the gift is given, control is surrendered, and this can be problematic for some. Saving for college is one of the biggest concerns many parents and students have these days.

Overall inflation has been abnormally high for the past couple of years, but even the 9% high watermark of June 2022 is dwarfed by the 12% annual inflation experienced between 2010 and 2022 in U.S. college tuition rates. This inflation helps in part to explain the current crisis of student loan debt in the U.S., and it’s reasonable that grandparents would wish to keep their family out of this predicament.

Managing the size of your estate is getting more important

Generosity, estate planning and the turning of the calendar all intersect here. As the current estate tax exemption sunsets at the end of 2025, managing the size of one’s estate is starting to become more of a priority and is an additional motivation to give within your lifetime. The 529 structure solves for tax efficiency, control over use of the gift and takes advantage of continued long-term compounding.

Current gift tax rules allow for each individual to gift up to $17,000 per year per person. So, a married couple may gift $34,000 to each child and grandchild without any of it counting against their lifetime exemption of $12.92 million or needing to file a gift tax return. The 529 uniquely allows a frontloading of five years of such gifts ($85,000 per recipient, or $170,000 from a married couple).

Historically, 529 plans have been very underutilized across our society. One reason for this may be that the upfront tax benefit is not particularly exciting for most Americans. If your state has a plan, you may get some limited deduction on your state income taxes. Many states don’t have a plan, so there is no deduction on contributions, but to focus on this is to largely miss the point. The true tax benefit is not observable at the beginning but is quite significant over the course of the beneficiary’s life.

Most 529 plans are invested in college savings plans. Simply contribute, invest and target a certain account balance. Nine states offer a prepaid tuition plan for public colleges and universities. While locking in a tuition rate in advance sounds attractive, these plans are not for everyone, as they narrow the range of prospective schools from early on.

Qualified 529 expenses are more broadly defined than many may assume. In addition to tuition, funds can be used for housing, meal plans, books, supplies, laptops and even internet service provided the institution deems these items necessary for the course of study.

Solutions for overfunding concerns

One concern about 529 plans we hear raised is the danger of overfunding the account, or the funds being unused if the beneficiary decides on a different path. Given the penalties involved in using plan funds for non-qualified expenses, it is a valid question. Thankfully, the plans allow the account holder to change beneficiaries without any tax consequences so long as the new beneficiary is a member of the current beneficiary’s family. If the new beneficiary is younger than the prior one, it’s likely worth a change in asset allocation to reflect the new time horizon.

Another concern is whether such gifting has an impact on the student’s application for federal aid, which can also have a major impact on the cost of college. While 529 plans owned by parents are considered and do have some impact, plans owned by grandparents are not considered at all on the FAFSA (Free Application for Federal Student Aid) form. From a grant or aid perspective, the grandparent is simply in a much better position to gift and retain control through the 529 structure than the parent.

Congress expanded and enhanced the 529 structure

Enhancements to the original 529 structure have made this gift even more valuable. Recent legislation has seen Congress quietly expand and enhance the 529 structure as a possible long-term solution to the affordability issue in education. Back in late 2017, the Tax Cuts and Jobs Act expanded the eligibility of 529 funds to include private and parochial K-12 schooling.

This legislation was then built upon in 2019 by the first SECURE Act, which allowed 529 funds to be used to pay down up to $10,000 in student debt. The most recent enhancement came in 2022 with the SECURE 2.0 Act, which allows for unused 529 funds, starting in 2024, to be rolled over into Roth IRA assets at the annual contribution limit up to a lifetime maximum of $35,000 for a beneficiary. The account needs to have been open for at least 15 years. The importance of being able to continue to compound these assets in a tax-free environment and remove the 529-related investment and distribution restrictions should not be underestimated.

Whether the priority is reducing the size of your estate, providing for the next generation, being tax efficient or all of the above, the 529 plan should be considered a significant tool in your financial planning toolkit.

The information provided herein is for illustrative and education purposes only and is not intended to be and does not constitute specific investment advice. We urge you to consult with a qualified advisor before making any investment decisions.

Information contained herein has been obtained from sources believed to be reliable. While we have no reason to doubt its accuracy, we make no representations or guarantees as to its accuracy. The opinions and analyses expressed herein constitute judgments as of the date of this publication and are subject to change at any time without notice. Any decisions you make based upon any information contained in this publication or otherwise are your sole responsibility.

Specific securities mentioned are used as examples for illustrative purposes only and should not be construed as a recommendation. Further, it should not be assumed that investments in the securities identified and discussed were or will be profitable. Past performance does not guarantee future results. All investments involve risks including the loss of principal. Employees and related persons of FBB Capital Partners may, and in some instances do, hold positions or other interests in the securities mentioned herein.

Any forward-looking statements or projections herein are based on assumptions. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. You should not place undue reliance on forward-looking statements, which reflect our judgment only as of the date this information was published.

FBB Capital Partners, LLC (FBB) is a SEC-registered investment advisor located in Bethesda, Maryland. Additional information, including our services, advisory fees and other helpful disclosures, can be found in our Form ADV Part 2, which is available upon request or on the SEC's website at www.adviserinfo.sec.gov.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A group of mostly Democratic lawmakers are urging the Biden administration to expand its latest student loan debt relief proposal, saying that the plan does not go far enough to help those trapped by "crushing" debt.

In a December 11 letter to Education Secretary Miguel Cardona, the lawmakers said the proposed rule “would fall far short of providing the full scale of debt relief that low- and middle-income Americans urgently need.” The letter is signed by Sens. Elizabeth Warren (D-MA), Majority Leader Chuck Schumer (D-NY), Bernie Sanders (I-VT), Alex Padilla (D-CA), and Reps. Ayanna Pressley (D-MA), Ilhan Omar (D-MN), and Frederica Wilson (D-FL).

The Department of Education (DOE) is in middle of a rulemaking procedure for the proposed debt relief plan and recently published an initial draft of the rule that would make four subsets of borrowers eligible for debt relief. The letter is in response to this initial draft.

The four borrower subsets eligible for relief under the plan are those who have loan balances greater than the original principal balance; have paid loans over 20 or 25 years; are eligible for loan forgiveness but have not yet enrolled; and those who took out loans that wound up going to unaccredited or predatory programs.
 

The proposal follows the Supreme Court's 6-3 decision in July to strike down Biden's initial student loan forgiveness plan aimed at wiping out $20,000 of student debt for 43 million borrowers. Since then, the administration has used a different approach and, according to the DOE, has to date cancelled $132 billion in student loans for more than 3.6 million borrowers.

In their letter to Cardona, the lawmakers acknowledged that effort but said they believe the draft text could be “improved to better take advantage of the (Department of Education's) full authority under the Higher Education Act to protect vulnerable borrowers.”

They urged that six recommendations be considered in the proposed rule as it undergoes the rulemaking process. These are to:

• Eliminate all debt that exceeds the original principal balance of the loan.
• Provide full cancelation for borrowers who have repaid enough to cover the original principal.
• Remove the restricting cutoff date for borrowers who entered payment at least 25 years ago, and instead allow borrowers to become eligible on a rolling basis.
• Extend relief to borrowers based on varying financial hardships such as receipt of Earned Income Tax Credits or the Supplemental Nutrition Assistance Program, along with non-financial factors such as incarceration status or eviction history.
• Extend relief to people who have faced predatory loan servicer practices.
• Allow borrowers to obtain relief automatically without having to submit “burdensome” applications.

For more information on federal student loans, including the recently streamlined student loan application form, the DOE advises visiting studentaid.gov.

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The Biden administration is cancelling an additional $4.8 billion in student debt for roughly 80,000 people, through fixes made to the income-driven repayment (IDR) forgiveness and Public Service Loan Forgiveness (PSLF) programs.

Some $2.2 billion will go to 46,000 IDR borrowers and provide them “with an accurate count of progress toward forgiveness and address longstanding concerns with misuse of forbearance,” the Department of Education (DOE) said in a statement.

Another $2.6 billion will go to 34,400 borrowers through PSLF to ensure that “teachers, members of the military, nurses and other public service workers get the relief they have earned,” the White House said in a statement.

To date, the administration has forgiven $132 billion in student loans for more than 3.6 million borrowers. This includes $9 billion in loan forgiveness for 125,000 Americans in October also through fixes to IDR and PSLF, as well as $39 billion for 804,000 borrowers in July through IDR fixes.

The loan cancellation activity follows the U.S. Supreme Court's 6-3 vote in July to strike down a Biden student loan forgiveness plan that  was intended to wipe out $20,000 of student debt for 43 million borrowers. Many of the debt cancellation programs now being used had been problematic, but the administration has been able to fast-track relief "by adjusting rules and temporarily waiving some requirements," according to a November 11 New York Times article.

'Unparalleled' debt relief

In a December 6 statement, DOE Secretary Miguel Cardona said that the current level of debt relief is unparalleled. “Before President Biden took office, it was virtually impossible for eligible borrowers to access the student debt relief they rightfully earned,” he said.

Earlier this year, the administration launched the Savings on a Valuable Education (SAVE) program, one of four IDR plans, which is promoted as the most affordable student loan repayment program. It works by calculating a borrower’s monthly payment using information about their income and family size.

The other IDR plans are Pay As You Earn (PAYE) Repayment, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

The PSLF program, which was started under the George W. Bush administration, focuses on graduates who go into government, nonprofit and healthcare jobs.

For more information on federal student loans, the DOE advises visiting studentaid.gov.

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If you’re raising kids, you may feel squeezed as you save for both your own retirement and college expenses for your children. Plus, there’s the pressure that comes with staying on top of your other financial obligations, from paying the mortgage to covering the cost of extracurricular activities. If your children are getting close to entering college or are already there, the balancing act can feel especially precarious. 

Retirement and college saving

If your children are getting close to entering college or are already there, the balancing act can feel especially precarious. Here are a few tips to help you navigate this challenging time.

We see you, Generation X

Many members of Generation X, who are now in their mid-to-late forties and fifties, fall squarely in the group of parents who are making the final push toward paying for college while making sure their retirement accounts are adequately funded, too. And they face their share of challenges. According to the Education Data Initiative, Generation X college graduates have the highest student loan balance of all generations, at $44,290 per borrower. Those who entered the workforce in the 1990s experienced a transition from company-funded pensions to 401(k) plans, shifting more retirement-saving responsibility to employees. Plus, some Gen Xers are taking care of their aging parents, which can come with significant financial costs. 

Prioritize retirement savings

Understandably, many parents want to ease the financial burden on their kids. But you shouldn’t put your retirement savings on the back burner. Alissa Krasner Maizes, a 55-year-old Gen Xer and Florida-based attorney and registered investment adviser, recognized the importance of saving for retirement over the years as she and her husband, Jay, 57, prepared to send their sons Zachary, 22, and Joshua, 20, to college. 

The Maizeses have contributed to both Roth IRAs and traditional IRAs and made the maximum contributions to their workplace 401(k) accounts. Plus, they’ve funded brokerage accounts earmarked for retirement, says Maizes. To stay on track, they implemented dollar-cost averaging, setting up regular, automatic contributions of a fixed dollar amount into their brokerage accounts. 

Mari Adam, a certified financial planner in Boca Raton, Fla., suggests that you aim to save six to eight times your salary for retirement. While that may seem daunting if you’re behind on saving, Adam insists that you can catch up. “The most powerful thing on your side is time,” she says. Even if you’re a Gen Xer, “you still have about 10 to 20 years to save,” she says. 

She recommends fully funding your IRAs, if you can. For 2023, the standard maximum IRA contribution is $6,500 — and if you’re 50 or older, you can make catch-up contributions of up to $1,000, for a total $7,500. If you have access to a 401(k) or other workplace retirement plan, make sure to save at least enough to capture any match that your employer offers on contributions.

If you’re looking for wiggle room in your budget to increase your retirement savings, track your cash flow to see where you may be able to trim expenses. Consider delaying major purchases, says Adam — you may be able to get a few more years out of an aging car or appliances. She also suggests that once you’re an empty nester, you could downsize your home and direct the money you save on housing expenses toward retirement. 

Saving and paying for college

Once your retirement plan is on track, you can focus more on saving for college. For many parents, the first stop is contributing to a 529 college-savings plan. This type of account offers tax-free investment growth and no taxes on withdrawals if you use the proceeds for qualified higher-education expenses, such as tuition, room and board, books and supplies, and computers and internet access. 

Nearly all states offer a 529 plan, and depending on where you live, you may get a state tax deduction or credit on contributions if you use your own state’s plan. If your state doesn’t offer a tax break, or if it is among the few that offer a break no matter which state’s plan you use, you may want to check whether plans from other states provide lower fees or better investment options. You can compare 529 plans at Saving for College. 

These days, fewer than ten states accept new investors for 529 prepaid tuition plans, which allow you to purchase tuition for future schooling (typically at in-state public colleges) at today’s prices. You buy units or credits either as a lump sum or in installments, and the plan invests the money. The Maizeses made monthly contributions to Florida’s 529 prepaid plan to help cover the costs of their children’s future tuition. Even though their sons didn’t attend college in Florida — Zachary graduated from Northeastern University, in Boston, and Joshua is currently a junior at the same college — Maizes says that the Florida prepaid plan “still had some value for out-of-state tuition,” funding about 10% of their children’s education expenses. 

Savings in a taxable brokerage account can act as a source of funding for both retirement and college, depending on your needs. These accounts don’t provide the same tax benefits as a 529 plan, but you can withdraw from them for any reason without penalty. And if your retirement savings are on course, it can make sense in some situations to use funds that you can spare from your Roth IRA to help pay for college. You can withdraw contributions anytime without paying taxes or penalties, and withdrawals of investment earnings are tax- and penalty-free if you’ve had the account at least five years and are age 59½ or older. 

As your kids approach their college years, involve them in the planning process. In high school, Maizes’s sons took Advanced Placement courses that supplied them with college credits, saving them money by allowing them to spend fewer semesters in college. Zachary and Joshua also had jobs and were awarded scholarships. Maizes and Adam believe that parents and their children should temper their expectations when it comes to the prospects of attending pricey colleges. If your student would need to take on substantial debt to attend his or her school of choice, it may be worth considering more affordable schools. 

Should you take on debt?

Along with loans for students, the federal government offers Direct PLUS loans (also known as parent PLUS loans), which parents of dependent undergraduate students can use to help their kids pay for school. Interest is significantly higher than for student loans — 8.05% for PLUS loans disbursed from July 2023 through June 2024, compared with 5.5% on direct subsidized and unsubsidized student loans. 

Generally, it’s not advisable for parents to take out loans for college. “Although your parental instinct may be to take care of your child by paying for college, leaving yourself with debt in retirement is not ideal for you or your children,” says Maizes.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Read More

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• Three Reasons You Need to Use a 529 Plan (and Two Reasons You Don't)
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The notoriously complicated and frustrating federal student loan application, also known as FAFSA (for Free Application for Federal Student Aid), has recently undergone a simplification transformation. 

The form, which historically involved some 100 questions, has been pared down to just around 20. It will also automatically pull tax data from the Internal Revenue Service, removing a bulk of the most confusing and time-consuming aspects of the form, and is now expected to take about 10 minutes to fill out.

According to the Federal Student Aid website, other changes to the form include updated income calculations as well as an expansion of eligibility for Pell grants to 600,000 new students from low-income backgrounds. Additionally, once the FAFSA is completed, you now have the option to send it to up to 20 colleges and career or trade schools.

As Kiplinger previously reported, the sooner you file the FAFSA to get aid for college, the more likely you are to qualify for a greater amount of aid.

But, according to a November 15 Washington Post report, while the new process and adjustments to the student loan form and program will help streamline the process, the rollout has not. Due to the “complexity of the changes,” the forms, which are typically available beginning October 1, are not available this year until December 31.

As a result, students and their families now have less time between applying, finding out what they’re eligible for and deciding on a school.

“Any significant delays in delivering applicant data to schools would fall short of the spirit of the law, leaving the most vulnerable student populations in limbo as they wait for the financial aid information they need to make vital college-going decisions,” Justin Draeger, president of the National Association of Student Financial Aid Administrators, said in the report. 

The updated guidelines could also mean those with higher incomes may not be eligible to receive as much aid as they have been in years past.

How to apply

 To apply and check on the status of your loan, all students and their contributors (which are determined by tax and marital status) must sign up for a username and password on the Federal Student Aid website. There, students can also determine if their parents or spouses need to be listed as contributors, and find all the forms necessary to fill out the FAFSA.

You can also refer to the 2024-25 FAFSA FAQ playlist on YouTube for more information on how and when to apply.

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When my wife became a doctor, I saw the financial challenges that physicians and other medical professionals face due to heavy workloads, long hours and the emotional stress of their jobs. Sadly, many medical professionals, especially doctors, often overlook financial planning. The purpose of this article is to guide physicians in accessing financial resources and strategies that can help safeguard and grow their wealth while minimizing taxes.

1. Navigating student loan repayment

It’s no secret a career in medicine is expensive, so many medical students take out government and private loans for their degrees. During residency, doctors usually have limited income, so they pay the minimum amount on student loans. Once they have better income, they can allocate more money to pay off the loans.

I advise clients to make additional payments to the principal amount instead of just paying the interest. They should start with high-interest loans and pay off private loans before federal loans.

The Biden administration's efforts to forgive federal loan debt may have been delayed, but they have introduced other loan forgiveness programs that incentivize paying off private loans first.

2. The necessity of malpractice insurance

In some cases, hospitals provide malpractice insurance, but doctors in private practice often have to buy their own. This is a key reason why many doctors prefer large networks over smaller private practices.

Malpractice insurance is expensive, and doctors are likely to face legal action in their careers. In 2022, one-third of doctors reported a medical lawsuit, according to an analysis by the American Medical Association. While two-thirds of these cases are eventually dropped, one-third make it to trial, where they are decided by verdict — another expensive process, no matter the outcome. Surgical specialties face the highest risk of lawsuits, while internal medicine subspecialties face the lowest risk, according to the same AMA analysis.

The cost of malpractice insurance varies depending on the doctor's specialty, but it is highly recommended to have the appropriate coverage in place, whether provided by the hospital or the private practice.

Additionally, it is crucial to maintain meticulous records of the care provided and to document verbal consultations with patients and their families. These notes can be used in the defense against any potential lawsuit.

3. Hedge occupational hazards with disability insurance

Some hospitals offer disability insurance, while others do not. Carefully read and understand the benefits and limitations of the disability insurance plans, as well as how much they will pay in the event of a disability incident. Some plans may cover only up to 25% of your income.

Many doctors choose to work with an independent adviser to find a disability insurance plan outside of their hospital network. This allows doctors to have more control over the coverage they desire. For example, some doctors may prefer to have 75% or 100% of their income continue to support their household during a disability incident. Remember, the more income-replenishing coverage a doctor wants, the higher the premiums will be for that policy.

4. Negotiating post-residency employment contracts

It's important to note that employment contracts are negotiable. While some privileges may be easier to attain than others, there is a certain level of flexibility that both small and large employers can offer. Many institutions have standard contracts for physicians who have just completed their residency.

Many doctors have had success in negotiating for sign-on bonuses, moving allowances, working hours per week, dictating commute distances and advocating for more vacation and paid time off.

Always have an attorney review your contract and try to remember that attorneys are experts in legal jargon, not medical jargon. Doctors may need to assist the attorney in understanding key language in the contract. Therefore, it is vital for both the doctor and the attorney to thoroughly read and understand the contract before the doctor signs the employment agreement.

5. Review life insurance policies

Doctors are often underinsured when it comes to life insurance. Bad news, considering they’re also often the primary breadwinners of the household. There are many ways to calculate the death benefit needed, but in most cases, about seven to 10 times the gross annual income is in the ballpark. For example, a doctor earning $100,000 per year should have between $700,000 and $1 million worth of death benefits so their family can have income protection should the doctor die prematurely. Physicians take certain risks due to their occupational exposure that warrant this preventive measure for the family.

There are two main categories of life insurance: term insurance and permanent insurance. Term life insurance is initially cheaper and provides coverage for a specific period. However, it has no cash value, and the cost increases significantly after the term period ends. Permanent life

insurance costs more initially but can stay in place until the insured person dies. It offers cash value growth potential and may include long-term care benefits.

A combination of term and permanent life insurance policies can be used to fit the insured's budget while ensuring adequate coverage. A popular strategy is to utilize a combination of term and permanent life insurance policies to fit the budget of the insured while attaining the right amount of coverage.

6. Saving for retirement: 403(b)s and 401(k)s

Most hospital networks offer retirement plans like a 403(b) or 401(k). Contribute at least up to the matched amount in these programs to earn a 100% return on your investment. You can choose to contribute to a pre-tax or a Roth account within the retirement plan. Contributions to the pre-tax account give you an income tax deduction and grow on a tax-deferred basis.

When you reach retirement age and want to withdraw funds, these withdrawals will be taxed at the prevailing income rates. Consider whether taxes will rise or fall in the future, as it can impact your retirement. Saving on a pre-tax basis and withdrawing from an IRA can lead to higher taxes on Social Security income and increased Medicare premiums throughout retirement.

It's generally better to pay taxes on the seed rather than the harvest of your savings. If you contribute to a Roth plan, you won't get an income tax write-off during the year of contribution, but your account will grow tax-free over the years. Withdrawals from a Roth account during retirement can be federally income tax-free and won't have tax consequences on your future Social Security income or increase Medicare premiums.

7. When is it enough to retire?

It is recommended to have around 15 times your annual income saved for retirement. If you want to live on $100,000 per year in retirement, you should have about $1.5 million in your savings to supplement other retirement income sources.

Not everyone will reach this goal, but it means that their investments will need to perform well for a stable retirement cash flow. One popular retirement strategy is to invest a portion of your portfolio in an annuity, which provides pension-like income. However, it is important to note that annuities can vary in fees, risk levels, guarantees and ratings. It is highly advisable to consult an independent adviser who specializes in annuities when considering a purchase, especially if you are nearing or in retirement.

The bottom line

It is important to spend time interviewing financial professionals until you find one that can help with the unique challenges doctors face. Wealth managers who work for large firms are considered "captured agents'' because they are employed by those institutions. These firms have shareholders, and there may be conflicts of interest in the services provided to clients.

There are smaller independent firms that operate at a higher ethical standard. These advisers prioritize their clients' interests. Independent advisers may offer more investment options than their competitors. Whatever you choose, the most important thing is that you feel confident in the professional you’re working with and in the advice you receive.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Student loan servicer MOHELA has caused "confusion and financial distress" for some 2.5 million borrowers over its billing errors following the reinstatement of student loan payments in October, according to a group of senators.

They are calling for MOHELA (the Higher Education Loan Authority of the State of Missouri) to "get its house in order immediately" and update borrowers of the error and its impact on their loans, along with the steps it will take to improve overall customer service and communication.

The errors resulted in the Department of Education (DOE) recently ordering MOHELA to place the borrowers on administrative forbearance until the issue is resolved and adjust to zero any interest that accrues during the forbearance. MOHELA is then to count any months in forbearance as credit toward public service loan forgiveness and income-driven repayment plan subsidies.

MOHELA did not immediately respond to a request for comment.

After a three-year pause, student loan repayments resumed in October. The DOE's recent action effectively results in giving those affected by MOHELA's error a further repayment pause until the issue is resolved. 

MOHELA provides services for 8 million of the more than 40 million borrowers who recently began repayments, the senators said in a November 7 letter to the company's CEO Scott Giles. But it has made repeated mistakes since the pause was lifted, including using outdated poverty guidelines and billing low-income borrowers higher payments than necessary, said the senators, led by Edward Markey (D-MA) and Elizabeth Warren (D-MA).

The senators also charge that MOHELA failed to notify borrowers that it was ordered to provide additional consumer protections during the administrative forbearance period, and failed to explain how or why they were placed in administrative forbearance. This may lead borrowers to think they are responsible and cause them to end the forbearance, the group said.

"In fact, MOHELA’s notice tells borrowers that they may decline or request to end the forbearance," the senators added. "If that happens, resumed payment amounts may still be incorrect, due to MOHELA’s error, and borrowers may face financial hardship."

The DOE said that MOHELA failed to meet its basic obligations by sending late billing statements or no statement at all to about 2.5 million federal student loan borrowers, which resulted in about 800,000 borrowers being delinquent on their loans.

“Through vigorous monitoring of borrower accounts, we were able to detect these mistakes and take swift action to remedy them,” said Rich Cordray, Federal Student Aid (FSA) chief operating officer. “We are committed to making things right for borrowers and holding our contractors accountable for errors when they do occur.”

For more information on student loan servicers and the role they play in the repayment process, visit the FSA's website.

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The financial difficulties of going to college have long been a problem for American families. Decades ago, it was possible for a student to attend college and pay for it with the proceeds of a summer job. Those days are long gone. College today often costs as much as a new car, or more, for just one year! A bachelor’s degree — which, incidentally, most students take more than four years to complete — can easily cost more than $100,000 at an in-state public university.

It’s quite a lot of money for an 18-year-old to come up with! That’s why it’s important for parents to begin preparing for their child’s higher education early. Proper preparation can avoid years of crushing debt for both the student and their family.

The student loan crisis we’re wrestling with on a national level is a clear indication that what people are doing now isn’t working. Students are encountering significant financial obstacles in which parents and even grandparents feel compelled to help them. Often, this means taking out student loans on the student’s behalf, but that’s a dangerous choice.

As a parent, that’s essentially paying for a mortgage that doesn’t result in homeownership. Some student loans have 30-year repayment windows. My daughter is about to enter college, and I’ll be 47 when she graduates. If I took out one of these loans to help her pay for school, I’d be paying it off until I was 77! This is a prime example of how easy it is to end up paying student debt well beyond retirement age.

However, expecting my daughter to entirely fund her education on her own with 30-year loans is similarly undesirable. If she has to pay for student debt well into middle age, that will have a significant impact on her ability to achieve other life milestones, such as buying a home and saving for retirement.

A further consideration for today’s college students is the challenges they will likely face in the job market throughout their working years. The fact that automation continues to improve every year cannot be ignored; many high-level jobs requiring a college education are at significant risk of being taken over by artificial intelligence. If you get a degree in computer science with the intent of becoming a programmer, know that AI is likely at some point coming for your job. If you still have significant student debt when you are replaced by a machine — debt which is not generally forgiven in bankruptcy — you could find yourself in dire straits.

Avoiding education-related financial hardship

Proper planning for college takes time. If possible, start when your child is born. Consider savings vehicles such as a 529 plan, which confers tax advantages to the money within it and allows for tax-free withdrawals for certain education-related expenses, including tuition.

Life insurance is another option to consider: Unlike a 529 plan, a properly structured life insurance policy that has a cash-value component won’t count against you as an asset when applying for financial aid.

Stress to your child the importance of earning scholarships. The more “free” money they can get through high academic or athletic achievements, the better. Even if they aren’t a straight-A student, don’t assume they aren’t eligible for scholarships. There are a wide variety of scholarships available, including ones that reward a surprising array of activities. There are scholarships for vegetarians, tall people and even students who promise not to text while driving! Every scholarship your student can win is money they won’t have to source via debt.

Consider other educational options. If your student doesn’t know what they want to major in, completing their general education requirements at a community college is a less expensive — and sometimes free — way to save money on a four-year degree. If your student wants to enter a trade, don’t force them to get a bachelor’s degree; trade school is much cheaper and can lead to high-paying careers.

Involve your student in the plan

Above all, set expectations. Sit down with your future college student and be transparent about what you are willing to do to help them pay for college. Make sure they understand what they must do to pay for their education as well and make sure it’s a significant enough investment that they take it seriously.

If you foot the entire bill for their education, they are more prone to the temptation of slacking on their coursework; after all, if they do poorly in class, they’ve lost nothing but time.

Review the different types of loans available — some are friendlier than others in terms of repayment — and let your student have some proverbial skin in the game.

I regularly speak with clients who are nearing or in retirement and who are still paying off student loans they took out for their children or grandchildren. It’s an unpleasant situation to be in, and one that you should strive to avoid.

That can sometimes feel selfish, but remember, if you harm your retirement by overspending for your child, you may have to ask your child for financial support in what should be your golden years. That won’t be fun for either of you, which is why prioritizing your retirement above going deeply into debt to put your child through college is not only unselfish, but prudent.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Biden Administration issued final regulations aimed at bolstering oversight and accountability for higher education institutions and improving protections for student borrowers.

The new rules, which go into effect on July 1, 2024,  strengthen the Department of Education's (DOE) ability to protect students and taxpayers from sudden college closures, the Biden administration said in a statement. They include several requirements for colleges including the creation of warning signs that make it easier for DOE to secure letters of credit or other forms of upfront financial protections.

The rules also mandate that colleges provide clearer and more comparable information on financial aid; prohibit the withholding of transcripts for federally funded courses; require adequate career services; and limit the employment of individuals with a history of risky management of the federal student aid programs.

The move comes as several schools were ordered to cancel various amounts of student loan debt after being charged over misleading practices by the Biden administration. These include Sollers College, which last week agreed to cancel $3.4 million in student loans to resolve a Federal Trade Commission charge of deceptive and misleading loan practices.

Raising the bar

“Too many students have been abandoned by shady colleges that close their doors and leave borrowers with unaffordable debt and little hope of completing their educational journeys and embarking on rewarding careers,” U.S. Secretary of Education Miguel Cardona said. “We are raising the bar for accountability and making sure that when students invest in higher education, they get a solid return on that investment and a greater shot at the American dream.”

The DOE said it has approved $127 billion in relief for nearly 3.6 million students, including record amounts of relief for borrowers whose colleges took advantage of them or closed suddenly. 

After a three-year pause, student loan repayments resumed this month. But there are some tax breaks that can help.

If you believe you are a victim of fraud by your school, visit borrower defense loan discharge for assistance.

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Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…

It’s finally fall. Leaves are changing color. Children and some adults are awaiting trick-or-treat. And student loan payments have resumed putting a dent in a lot of people’s wallets after a three-year halt on repaying college debt ended. But these tax breaks can help ease the pain. 

1. There’s a deduction for student loan interest
Taxpayers needn’t itemize on Schedule A of the Form 1040 to take this write-off.

• Up to $2,500 of student loan interest paid each year can be claimed as a deduction on Schedule 1 of the Form 1040
• For 2023, the break begins to phase out for single filers with modified adjusted gross incomes above $75,000 and for joint filers with modified AGIs over $155,000. It ends for taxpayers with modified AGIs over $90,000 and $185,000, respectively
• Parents who help a child repay student loans generally can’t take the write-off unless they are also legally liable on the loans. But, even if a parent paid the loan and can't take the write-off, a child who meets the modified AGI limits can still take the interest deduction, provided he or she isn’t eligible to be claimed as a dependent on the parents’ return. The IRS treats this as if the parent gifted money to the child, who then paid the debt

2. Most student loan debt forgiven in 2021 through 2025 is tax-free for federal income tax purposes
This relief, enacted in the March 2021 stimulus law, is an exception to the general rule that cancellation of indebtedness is taxable. IRS has instructed lenders and loan servicers to not issue Form 1099-C to borrowers whose student loans are forgiven during this time period, and the discharged debt is excluded from income. Some states have different tax rules, which can be confusing. 

3. Up to $10,000 from 529 accounts can be used to help pay off college debt of the account beneficiary without having to pay income tax on the withdrawals
It’s important to note that this $10,000 is a lifetime limit, not an annual limit. 529 distributions for student loan repayments that exceed $10,000 are taxable in part to the extent of the excess and are also subject to a 10% penalty. 

4. Employers that offer qualified educational assistance programs can help
These programs can be used to pay down up to $5,250 of an employee’s college loans each year through 2025. The payments are excluded from workers’ wages for tax purposes. 

5. Relief can be offered through workplace retirement plans, starting in 2024
A new law will allow employer 401(k) matches conditioned on student loan repayments made by employees. 

The IRS blessed such a program in a 2018 private letter ruling. In that situation, the firm contributed to its 401(k) plan on behalf of employees paying down their college debt. The employer matches took place regardless of whether employees also paid in. Participation was voluntary, and employees had to elect to enroll in the program. Employers have been lobbying Congress for years to enact a statute to allow them to do this without seeking a private ruling from the IRS, and lawmakers obliged them last year in the SECURE 2.0 law.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

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New Jersey-based Sollers College is set to cancel $3.4 million in student loans to resolve a government lawsuit charging the for-profit college with engaging in deceptive and misleading practices.

Since 2018, the school has been “falsely touting" its job-placement rates and saying that its relationships with prominent companies would lead to jobs after students graduated, according to a statement by the Federal Trade Commission (FTC). Pfizer, Weill Cornell Medicine and Infosys are among the major companies that Sollers claimed to have partnerships with.

The FTC, which filed a complaint against school in the U.S. District Court of New Jersey, made the allegations along with the state. In a separate agreement with the office of New Jersey Attorney General Matthew Platkin, the school will also pay a $1.2 million civil penalty to the state to resolve investigations into consumer complaints.

“New Jersey will not allow for-profit schools to deceive students with false claims and promises or subject them to unlawful financing schemes that push them into debt instead of helping them reach their career goals,” Platkin said. “Schools that fail to comply with laws and regulations that protect students from financial abuses and fraud will be held accountable.”

The news follows a lifting earlier this month of the three-year pause on student loan repayments.

According to the complaint, Sollers inflated its post-graduate employment rate on its website as well as on corresponding advertising, making the claim that “90% of our students are placed within three months of graduation.” The number is, in fact, much lower. The job placement rate in its life sciences department, for example, is said to hover around 52%.

The school also “trapped” students by encouraging them to enter deceiving income share agreements – or a promise to use a percentage of their future income to cover tuition, the FTC said.

Sollers releases holds on accounts

As a result of the ruling, students enrolled in these agreements received a letter from Sollers College.

“We’re writing because you have an income share agreement with Sollers College,” it read. "The Federal Trade Commission (FTC), the nation’s consumer protection agency, sued us because they said we used deceptive ads and didn’t tell you about some of your rights in our income share agreements.”

According to the letter, no further payment or action is required. The school will release all holds on accounts and make transcripts and certificates available to students upon request. In addition, it informed students that they will request the debt be deleted from their credit report within 10 business days.

The settlement does not include other federal or private loans provided by Sollers.

Sollers did not immediately respond to Kiplinger’s request for comment. 

For-profit colleges have come under scrutiny under the Biden administration, which recently ordered the online University of Phoenix to cancel $37 million of student loan debt. The move followed a Department of Education investigation that found that the school also misrepresented its relationships with prospective employers to students.

Loan repayment help

The government offers several resources to help in figuring out how to repay student loans. If you haven’t already done so, the first step is to take stock of all your remaining loans as well as your balance by heading to StudentAid.gov.

• $39 Billion in Federal Student Loans Will Now Be Forgiven
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• Biden Cancels $37M in Student Loan Debt for Phoenix University Borrowers

The Biden administration plans to forgive $9 billion in student loan debt for about 125,000 Americans “through fixes to income-driven repayment (IDR) and Public Service Loan Forgiveness, and by canceling debt for borrowers with total and permanent disabilities,” the White House announced on October 4.

The $9 billion in forgiven loans consist of $5.2 billion in debt relief for 53,000 borrowers under the Public Service Loan Forgiveness program, nearly $2.8 billion in new debt relief for about 51,000 borrowers through fixes to income-driven repayment, and $1.2 billion in relief for about 22,000 borrowers who have a total or permanent disability.

The announcement came just days after the October 1 resumption of student loan repayments after a three-year hiatus.

The borrowers who qualified for relief from fixes to IDRs had made 20 years or more of payments, “but never got the relief they were entitled to,” the White House said. It added that the borrowers with total or permanent disabilities were identified and approved for discharge through a data match with the Social Security Administration.

The administration has now approved $127 billion in debt cancellations for nearly 3.6 million borrowers to-date, the White House said.

Earlier this year, the Supreme Court struck down President Joe Biden’s signature loan forgiveness plan. The administration had wanted to forgive up to $10,000 of student loan debt for eligible borrowers, and up to $20,000 in student loan debt for eligible Pell Grant recipients. 

Since then, however, the administration has forgiven some student debt in several areas. These include the cancelling of $37 million in debt last month for about 1,200 students enrolled at the University of Phoenix, which was found to have a national ad campaign that misled prospective students.

Loan repayments begin

To prepare to start paying your student loans back, you’ll want to start by getting the facts straight by logging into your account at StudentAid.gov to review the list of all your federal loans, as Kiplinger previously reported. Check your loan details, make sure your contact information is correct, and review your financial information to make sure everything is up-to-date.

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The long, unexpected holiday is finally over for student loan borrowers, as they prepare to start paying student loans again. A new survey of employees and employers from Nationwide Insurance reveals difficult financial tradeoffs beginning to emerge, with a huge number of Americans planning to limit their retirement saving to cover resumed loan payments.

Student loan payments resume, force hard choices

The COVID-19 pandemic sparked seismic changes to Americans' financial lives, among them a protracted pause to student loan payments and interest accrual. The  pause allowed borrowers to better handle the severe economic dislocation of the full blown pandemic in 2020 and 2021, and later the lingering inflation of 2022 and 2023. 

After a few years of diverting student loan payment funds toward other financial purposes, like paying rising prices for food, gasoline, and rent, borrowers will now have to take a harder look at their spending.

On September 27, the Nationwide Retirement Institute released the results of a nationwide, online survey of 1200 American workers and 600 retirement plan sponsors. The survey revealed that a broad swath of employees, from the youngest to the most seasoned, are feeling the financial heat from the resumption of payments.

More than 12% of employees ages 45 and up — a group representing up to 17 million Americans — currently hold student loan debt. 61% of them already report negative impacts to  their financial stability and long-term planning. The kicker: A full 66% of this cohort agree that repayments will significantly affect their ability to save for retirement.

Employees are considering a variety of moves to adjust to loan payments once again taking a chunk of their paychecks:

• 18% of survey respondents have already adjusted their retirement plan contributions to help keep up with student loans, and another 29% plan to do so.
• 49% are reevaluating their previously-established retirement goals.
• 59% are exploring additional income and side gigs to keep up with their loans, while  maintaining their retirement savings contributions.

How employers can help

Employees don't have to handle the increased burden of student loan payments on their own. One solution posited by the Nationwide survey is the concept of an employer match, which garnered 85% support among respondents aged 45+ with student loan debt. 

The SECURE 2.0 Act allows your boss to set up matching retirement plan contributions based on the amount of your student debt repayments. Regarding employer match programs, President of Nationwide Retirement Solutions Eric Stevenson says “Between student loans, interest rate increases and inflation, employees have a lot to navigate when planning for retirement. There is a strong business imperative for employers to help.”

On top of an employer match, there's another way businesses can help their employees handle student loan burdens. Employer educational assistance programs enable employers to subsidize employee education expenses, including books, equipment, fees, tuition, and even the principal and interest on an employee's qualified educational loans.

An additional benefit of this approach for employees is that the IRS doesn’t consider the employer assistance as taxable income for the employee. Companies can provide up to $5,250 per year, tax-free, to their workers to offset their student loan payments. Educational assistance programs can cover student loan payments made between March 27, 2020 until December 31, 2025, under current law.

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For the third time in less than six months, a looming government shutdown is getting a lot of attention. After a long delay amid the COVID-19 pandemic, student loan repayments resumed in the fall. In the event of a shutdown, the Department of Education, which administers federal loans to students, may find itself in a tight spot.

Student loan borrowers enjoyed a break from payments and interest from March 2020 through October 2023 as the government sought to provide relief during the COVID-19 pandemic. 

But with outstanding loan balances hitting $1.6 trillion in the third quarter of 2023, according to the Federal Reserve's household debt and credit report, for many borrowers, it's time to face the music as interest started to accrue again on September 1, 2023 and student loan repayments restarted in October.

Although the Department of Education knew the October date was looming, loan services have found it difficult to keep up with the unprecedented volume of borrowers resuming repayments. Millions of borrowers continue to seek assistance, temporary forbearance or loan forgiveness from loan servicers and are also waiting to see how President Joe Biden’s plan for student debt cancellation shakes out. A government shutdown could only make matters worse.

What happens to student loan payments in a government shutdown

If lawmakers don't agree on a solution, employees across all federal agencies would be furloughed. According to the DoE's 2023 contingency plan, the Department would furlough over 89% of its total staff for the first week of a shutdown, maintaining only staff needed to perform exempt functions. If the lapse was prolonged, the Director of Budget Service "would be responsible for adjusting the plan to respond to the length of the lapse in appropriations and changes in external circumstances."

During the looming government shutdown in September 2023, White House Press Secretary Karine Jean-Pierre noted at a press briefing  according to CNBC, that if there was a shutdown, "key activities at Federal Student Aid will continue, for a couple of weeks." However, a prolonged shutdown would be substantially more disruptive.

To ensure a smooth transition for borrowers, the Education Department plans to remain in frequent contact with loan servicers. However, more than 17 million federal student loan accounts have been or will be transferred to different servicers or different servicing technology platforms, according to a June report from the Consumer Financial Protection Bureau. 

Even so, borrowers are still accountable for making their student loan payments, which has been the case during previous shutdowns. Just remember that with more limited resources at the DoE, there could be some complications with, say, being able to reach someone if you have a question or problem. 

Keep in mind that when applying for the FAFSA or seeking financial aid, a government shutdown could delay the process. New loans will be reviewed and processed, but a government shutdown could slow things down.

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As October draws closer, millions of Americans are preparing for a stark reality they haven’t faced in over three years: the restart of federal student loan payments.

The pandemic-induced payment pause that began in March 2020 was a critical relief during a time of widespread economic instability. However, its cessation could have significant implications for borrowers and the economy.

A looming problem

During the hiatus, many consumers used the break from student loans to help them manage other debts. Borrowers reduced their credit card balances by an average of $611 during the pause, according to a report by TrueAccord, though it also found an alarming surge in credit card reliance, with 87.5 million new cards issued in 2022 alone. Rising interest rates could make unpaid credit card balances more expensive post-resumption.

Another unexpected consequence highlighted by the report’s data analysis is the growth of auto loan debt among those who deferred student loans. These borrowers saw an increase of $264 in their auto loan balance in 2020 and a further increase of $428 in 2021. By 2022, student loan holders had an average of $811 more in auto loan debt than non-student loan holders, a sobering revelation.

Experts have expressed concern regarding this trend, warning that the resumption of student loan payments will usher in a monthly debt burden that borrowers will likely struggle to manage. This could lead to a significant increase in delinquencies across credit types, which would invariably impact consumer financial health on a large scale.

In addition to the burgeoning debt, the restart of loan payments is anticipated to impact consumer behavior, leading to a reduction in consumption, especially of discretionary goods and services. This scenario could prove disastrous, particularly when businesses are grappling with an inflation rate that peaked at 9.1% in June 2022 (it was 3.2% this past July). This disruption could push the economy into a recession.

An opportunity to change behavior

However, amid these concerns, the payment pause has had the beneficial side effect of increasing awareness about long-term options for financing higher education.

Embarking on the journey of higher education is an exciting and transformative experience for parents and prospective students alike. However, it also presents a significant financial challenge that requires careful planning and consideration.

Here are some options:

Tuition payment plans. Many colleges and universities offer tuition payment plans that allow families to spread the cost of tuition and fees over several months instead of making a single lump-sum payment. These plans typically divide the total cost into equal monthly installments, often without charging interest.

It is essential to contact the college’s financial aid or bursar’s office to learn about available payment plan options and enrollment deadlines.

Federal Work-Study (FWS). This need-based program provides part-time employment opportunities for eligible students. These programs allow students to earn money to help cover educational expenses.

Work-study positions are often available on campus and can be related to the student’s field of study or provide valuable work experience, helping the student to develop crucial job skills and build a professional network.

Alternative financing options. In recent years, new and innovative financing options have emerged, offering alternative ways to pay for college. One key example: The Biden administration recently announced it has finalized its newest income-driven repayment plan, called Saving on a Valuable Education (SAVE).

This plan, like other income share agreements provided by private companies, offers affordability and flexibility since payments are always proportionate to the borrower’s income, reducing the financial burden during periods of low or no earnings.

As we brace for the return of student loan payments, it is evident that this issue is not simply about repayment. It’s about how we can transform this challenge into an opportunity to explore and promote more sustainable solutions for managing student debt.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Biden administration plans to cancel $37 million in student loan debt for about 1,200 students who enrolled at the University of Phoenix from Sept. 21, 2012 to Dec. 31, 2014 and applied for relief under the borrower defense loan discharge program.

Following an investigation, the Department of Education (DOE) said it found that the university’s national ad campaign misled prospective students by falsely representing its partnerships with thousands of corporations, including Fortune 500 companies such as Microsoft, Adobe and AT&T. The ads gave the impression that students would benefit from these partnerships by providing, for example, hiring preferences at those companies.

The school told borrowers that a degree from Phoenix would help “get your foot in a few thousand doors” and that its partners were “looking specifically at University of Phoenix students for hire instead of any other school,” the DOE said in a statement. 

But none of that was true, the DOE said. “In fact, the school’s relationship with corporate partners did not result in any benefits to impacted Phoenix students,” the Department said. “Corporate partners let Phoenix display their insignias and names in a career database portal, which gave the false impression that Phoenix offered unique job opportunities, when in reality all the jobs posted were available to the general public.”

Students who applied for federal loans under the borrower defense loan discharge program may qualify for relief because they have been affected by this finding, the DOE said. The program seeks to provide relief to students enrolled in a school based on misleading information from the school.

The DOE said it will notify affected borrowers by early October that their applications have been approved. The remaining loan balances of these borrowers will be zeroed out and their credit trade lines deleted, the Department said. Any payments these borrowers made to the DOE on these loans will also be refunded.

The Department said it intends to initiate a recoupment proceeding against Phoenix to seek repayment of the liabilities associated with these approved claims at a later date.

“The University of Phoenix brazenly deceived prospective students with false ads to get them to enroll,” said Richard Cordray, chief operating officer of DOE Federal Student Aid.

Clock ticking to begin student loan repayments

The Biden administration has now approved more than $117 billion in debt cancellations, including $14.8 billion in relief for 1.1 million borrowers who were taken advantage of by their colleges, the DOE said.

But the clock is ticking to begin student loan repayments. Following the Supreme Court's decision last June to strike down Biden’s student loan forgiveness plan - which would have given qualifying borrowers up to $20,000 in federal student debt relief - repayments begin in October. 

To prepare to start paying student loans again, the first step is getting the facts straight by logging into your account at StudentAid.gov to review the list of all your federal loans, as Kiplinger previously reported.

Check your loan details such as the service provider’s name, how much you’ve paid, and your remaining balance, as reported. Make sure your contact information is correct so you’ll receive important notices. You should also go to your service provider’s website to review the financial information there and, if needed, update your personal data.

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Some state residents may be eligible to claim a Maryland student loan tax credit in 2023. However, although credit recipients won’t receive the debt relief until they file their 2023 tax returns, the application deadline was September 15, 2023. Residents who missed the deadline might qualify for other types of tax credits (more on that below).

“This program offers Maryland residents a critical advantage when looking for options to pay off student loan debt,” said Gov. Wes Moore in a release announcing the $9 million in student loan tax credits awarded last year.

For the 2023 tax year, $18 million in tax credits are available. That’s twice the amount in 2023! Here’s what you need to know about claiming a student tax credit this year.

Maryland student loan tax credit

The Maryland Student Loan Debt Relief Tax Credit Program offers tax credits to eligible Maryland residents. According to the Maryland Higher Education Commission, recipients of the credit will be prioritized for taxpayers who: 

• Haven’t previously received the credit
• Were eligible for in-state tuition
• Graduated from a higher education institution located in Maryland
• Have high debt-to-income ratios

The dollar amount granted as a tax credit may also be based on the above scenarios. However, it is important to note that you might still qualify for the Maryland student loan tax credit if none of the above criteria apply to your situation.

Who is eligible for the student loan tax credit?

Many Maryland residents qualify for the student loan tax credit. That’s because there are only three main requirements.

• You must be a Maryland taxpayer.
• You must have incurred at least $20,000 in student loan debt (graduate or undergraduate).
• You must owe at least $5,000 in student loan debt when you apply for the credit.

How do I receive the credit? You will claim the tax credit if approved when you file your 2023 Maryland state tax return. If the credit exceeds your tax liability, you will receive the difference as a tax refund. Recipients of the Maryland student loan tax credit must use the entire credit amount to pay student loan debt. If the credit isn’t used for this reason, the taxpayer must pay the amount back to the state. 

Tax credits for student loan payments

Even if you don’t qualify for the Maryland student loan tax credit or if you didn’t have time to submit your application this year, you might be eligible for a federal education tax credit in 2023.

• The American Opportunity Tax Credit (AOTC) is worth up to $2,500 per student and is partially refundable (meaning you could receive a portion of the credit back as a tax refund).
• The Lifetime Learning Tax Credit (LLC) is worth up to $2,000 but is not refundable (meaning it can reduce your tax liability, but you won’t receive it back as a tax refund).
• You may be able to claim a tax deduction for up to $2,500 of student loan interest paid in 2023 (this amount depends on your modified AGI).

Unlike the student loan tax credit for Maryland, you don’t have to use the federal tax credit amounts to pay down your student loans. However, taxpayers must meet specific criteria to claim these federal credits. So, students and graduates should read through the requirements carefully before claiming a credit or deduction on their federal tax returns.

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