Tax-Free Loan Forgiveness, Employment Certification, and Have Refinancing Rates Bottomed?
Well there’s been no shortage of student loan news lately… and here are some highlights:
$1.9 Trillion Stimulus Impact
The latest COVID stimulus is expected to pass this week, and while it contains no DIRECT student loan relief, there’s a provision in it that eliminates any tax liability of student loan forgiveness and/or cancellation through 2025. This could pave the way for some loan cancellation this year but, in his last Town Hall, President Biden indicated that he would not cancel as much as $50k. $10k seems to be under more serious consideration.
Keep in mind that federal loan cancellation would be subject to income limits, with the possibility that those making over $125k are phased out.
More impactful for many borrowers is that this elimination of tax liability would also apply to Income-Driven Repayment (IDR) plan loan forgiveness. The first of these plans, Income-Contingent Repayment (ICR), was made available in 1993, and for those who used it properly and maintained documentation (an admittedly difficult task given the servicing environment back then), the forgiveness granted becomes non-taxable as a result of the stimulus. We hope for this to become the case for all Income-Driven plans available today. In any case, expect to see increasing media coverage on the shortcomings of the ICR plan, which should not be attributed to the more broadly used and better understood IDR plans today.
Employment Certification Form Issues
For those of you pursuing PSLF, we are seeing an increasing number of clients who submit Employment Certification Forms (ECF) which come back with a number of payments in “pending review” status. We are inclined to, given the challenges loan servicers are facing administering stimulus benefits, hold off on submitting continuing ECF forms until the interest rate and payment pause is complete in the Fall, or we are seeing less issues.
To REFI or not to REFI… That is the Question
If you’ve been on the fence about refinancing over the past year, but hesitant to give up the CARES Act benefit of no interest and no payments scheduled to expire in September, now may be the time to reconsider. Over the past two weeks, we’ve seen private rates hit a floor, with a recent uptick in rates. Rates as low as 2.5% FIXED are available. If you’re not sure if refinancing is appropriate, register for a suitability analysis from our partner, DWOQ, and tell them BenElevate sent you.