When I was 17, a high school junior, our educational system introduced me to the delicate art of going into thousands of dollars of debt. No, I'm not talking about buying a car or prom dress. I am talking about going to college and getting student loans.
I don't know about you, but at 17, I didn't have much worldly experience. I was told my entire life that I needed to go to college and get an education, so that's what I planned to do. However, the issue was that college education in America is very expensive. In 1963, the average four-year tuition was $243.34. In today’s dollars, that number would be $2,348.67. However, the average cost of tuition is closer to $10,000 annually. This means that the cost of tuition at a public university is 37 times higher than it was in 1967. The amount mentioned does not consider room, board, and food. When these things are considered, the average annual cost of going to college is about $25,290 for a four year, in-state, public institution . Even with my part-time job at the restaurant, $10,000 a year was a completely unrealistic sum of money for me to make to cover my tuition.
So, I did what millions of 17-year-olds in America do. I took out a student loan that the government so graciously gave me. At 17, it is hard to conceptualize how being in debt affects you. The price for what I was told was essential education now hung over my head, a boulder waiting to drop. Even though I was fortunate to find scholarships and receive support from my parents, I still found the weight of debt difficult.
In fact, according to an article by Forbes Magazine, 55% of 4-year program students took out loans and owed an average of $28,950. This debt at such an early age can be devastating and overwhelming to someone who has just started their career. I know because I am one of those people.
As you may have read, there is new hope for us student loan carriers: the possibility of student debt cancellation. The U.S. Department of Education has offered student debt cancellation for up to $20,000. Although a federal appeals court placed a temporary block on President Biden’s plan for student debt relief, they are still accepting online applications. While the long-term legal outlook for the President’s plan is, at best, uncertain, the good it can do for your ability to work with the next generation remains strong.
This article will outline the loan forgiveness program and how you can help your client’s children or grandchildren.
What does student debt cancellation mean to a financial advisor?
As a financial advisor, you may be well into your career, and the news of student debt cancellation does not seem relevant. However, it may be significant to your client's children or grandchildren. As a financial advisor, it is essential to connect with the next generation, and student debt cancellation may be the way to do it.
Your client's children or grandchildren may have questions regarding eligibility and how to apply. As their financial advisor, you may be the one they look to for this information. That's why I created this piece, to help you help them!
For more information on client communication, read our Financial Essential Series
Who is eligible for student debt cancellation?
Before you assist clients' children and grandchildren with student debt cancellation, you must ensure they are eligible for this opportunity.
According to the official website of this student debt cancellation plan they can receive two forgiveness amounts.
- They could receive up to $20,000 in student debt cancellation if they had a Federal Pell Grant while in college, and if on their 2020 or 2021 tax return, they recorded income of under $125,000 as a single filer or under $250,000 if they were married and filed jointly.
- They could receive up to $10,000 in student debt cancellation if they did not have a Federal Pell Grant in college and if on their r 2020 or 2021 taxes, they recorded under $125,000 as a single filer or under $250,000 if they were married and filed jointly.
To get debt cancellation, the loan must have been dispersed before June of 2022. If your client's child or grandchild is a dependent, the income requirements apply to their parents. The application for parents is the same as the child’s application.
What loans are eligible for student debt cancellation?
The types of loans eligible for debt cancellation are loans held by the U.S Department of education. These loans are:
- Federal Perkins Loan Program
- William D. Ford Federal Direct Loan Program Loans
- Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, graduate PLUS; and Perkins loans held by ED)
- FFEL Program Loans
It is important to note that non-federal or private loans are not eligible for the 2022 student debt cancellation plan.
How do you apply for the 2022 student debt cancellation plan?
The application process for debt cancellation is straightforward. How do I know? I completed my application last week. The application is one page on the Department of Education's website.
You will need the borrower's name, social security number, date of birth, and email address. Yes, it really is just those few things!
Once the borrower fills out the application, they must digitally sign it, confirming they are eligible for the debt cancellation.
When will the borrower receive debt cancellation?
Your client's children or grandchildren must complete the application for student debt cancellation no later than December 31, 2023. Once they apply, the Department of Education will verify the borrower's eligibility and may contact the borrower for additional information.
Once eligibility has been verified by the Department of Education, the borrower's loan servicer will notify them when their debt cancellation is received.
Helping your clients or their children or grandchildren with student debt cancellation may be just the thing to connect with the next generation of clients and make yourself an irreplaceable asset to both the current and younger generation.
For more information on the 2022 student debt cancellation, visit the U.S. Department of Education's website.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax, or investment advice or an investment recommendation, or as a substitute for legal counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy, or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC.
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