Happy New Year to all of our loyal clients and readers! To say it’s been an interesting year in student loans would be to put it mildly. As 2023 kicks off, we wanted to first of all wish you all the best in this New Year.
Next, because student loans are what we do, we wanted to summarize the key takeaways from the marketplace in 2022, and outline some expectations for 2023:
Biden Debt Cancellation
Let’s start with the biggest headline in student loans today, the President’s cancellation plan. If successful, it would mark a permanent shift in the executive branch’s role in student loan initiatives and become the largest student loan “handout” ever (much to the chagrin of some taxpayers). If this cancellation happens it will set a new precedent, and more debt forgiveness may follow. But this is a big “if” as the stage is set for an historic showdown between the executive and judicial branches. While student loans may be the topic, this case presents a much larger question about executive power and potential overreach. Follow our dedicated blog to stay up-to-date on this developing story.
The CARES Act: It’s the gift that keeps on givin’.
Cousin Eddie said it best about a one-year subscription to the jelly-of-the-month club. In the case for borrowers, the savings from the interest and payment halt is much more substantial. Consider a $200k loan balance at a 6% rate (which was set to 0% in March 2020 and remains so until at least April): Over three years, $36,000 of interest savings is accumulated. In aggregate, the cost of the halt is approaching $200 billion. By contrast, the cost of President Biden’s proposed loan cancellation plan detailed above is projected to be $400 billion.
The PSLF Limited Waiver has Changed the Narrative
Gone are the days of borrowers receiving denials on their PSLF applications as the rule; it is now the exception. Check out the statistics below on PSLF success before the waiver, and then through December.
Even better, the core components of the waiver have been extended out to July of 2023, so there’s still time to act if you have not been reading our updates for the past year (which we know you wouldn’t dare!).
A New Income-Driven Repayment (IDR) Plan
A new IDR plan was previewed last year, and the official proposal with the fine print was just released this week. This plan has the potential to be a game changer for many borrowers, especially healthcare providers. PAYE and REPAYE are fantastic for those pursuing PSLF, and their long-term (non-PSLF) forgiveness options offer substantial savings with many professionals with high debt-to-income ratios.
That said, our team has not seen the same reliance on IDR forgiveness that we’ve guided borrowers in Public Service towards. In many instances, the savings opportunity doesn’t outweigh the complexity of these plans, regulatory uncertainty, and the tax implications that exist over 20 to 25 years. However, the proposed plan offers a higher poverty level deduction, lower payment multiplier, and no interest accrual beyond the payment amount… which can result in much greater savings and simplicity than the existing plans.. We’re awaiting more detail, but we anticipate this plan going live July 1st . There’s still plenty of time to work out the details and see if it should be integrated into your strategy, so stay tuned for future updates.
DWOQ Is Here To Help!
Don’t forget that our team offers one-on-one student loan advice via our Comprehensive Student Loan Consultations. This is the perfect tool to get your loan repayment strategy up to date. Click here to learn more.
Our team looks forward to being your go-to resource for student loan information this year!
Til debt do us part,
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.