Are We Really on the Verge of a Correction?

Maybe.

We might be approaching a significant correction.
We might see only a mild pullback.
We might see strong performance continue.

The challenge is that no one can reliably predict short-term market movements—not commentators on CNBC, not economic models, and not historical charts. While analysts can point to signals that have come before past downturns, timing remains close to impossible.

Why Timing the Market Rarely Works

Even if you managed to get out of the market right before a drop, you’d still face the much harder question: When do you get back in?

We’ve seen clients step out of the market during periods of uncertainty, only to watch prices rise afterward. This often leads to waiting for “the perfect re-entry point,” which may never come. Missing even a few of the market’s best days can create long-term damage to a retirement plan.

Market timing isn’t just difficult—it’s risky.

What You Can Control: Your Risk Management Plan

Instead of trying to predict the next correction, focus on the parts of your plan that are completely within your control.

1. Maintain Cash for Near-Term Expenses

Keep enough cash or cash-equivalents on hand so you don’t need to sell investments during a volatile period that might last 12-24 months.

2. Stick to a Comfortable Asset Allocation

Your mix of stocks and bonds should reflect:

• Your risk tolerance
  

• Your time horizon
  

• Your need for growth vs. stability

Once set, stay disciplined—through both strong markets and turbulent ones. Rebalance back to your target allocation when it drifts more than +/-5%.

This structure helps ensure you are not unintentionally taking on more or less risk than planned.

The Long-Term View Still Matters Most

Markets are unpredictable in the short run, but historically trend upward over time. The most reliable way to capture long-term growth is to remain invested at a level appropriate for your goals, even when news headlines are unsettling.

Holding steady doesn’t mean ignoring risk—it means managing it intentionally and consistently.

Bottom Line

• Short-term forecasts are unreliable, even from experts.

• Market timing introduces more risk than it solves.

• A well-designed financial plan can withstand market volatility.

• Staying invested at the right asset allocation is your strongest path to long-term success.

If you’re feeling uncertain about your current mix of stocks and bonds, now is a great time to revisit your plan—before emotions take over.

Disclosure: This article was inspired by an email response I wrote to one of our favorite clients about the potential for a market correction. We felt we should turn it into a blog post since it's a hot topic right now, and used ChatGPT to tweak the wording and format.

The Income-Driven Repayment (IDR) and Consolidation Applications Are Back Online!

Oh, what sweet peace it brought me to see the "log in to start" button returned to its former blue, non-greyed-out glory. After a months-long hiatus due to the ongoing SAVE Plan litigation, the income-driven repayment (IDR) and consolidation applications are back online! 

While it's reassuring to see movement in the right direction, the Department of Education (ED) has not confirmed in writing they're actually processing them. I've been told they're processing IBR applications, but I haven't seen this personally, so take that for what you will.

With the return of the online application, borrowers are now wondering whether they should switch or recertify their current IDR plan, especially if they're stuck in the ongoing SAVE Plan forbearance. I'll guide you through some considerations.

Should you switch plans?

Numerous changes have been made to the IDR plans over the past few months, and it's essential to understand whether they're available and whether you qualify. The IDR application warns of this, too:

In short, while you can *technically* apply for any IDR plan, your application may not ultimately be approved if you're not eligible or the plan is no longer available.

Here are the plans you can choose from:

When you use the online application to apply for a new IDR plan, you'll be given five options to choose from:

• Income-Based Repayment (IBR) Plan
• Income-Contingent Repayment (ICR) Plan
• Paye As You Earn (PAYE) Repayment Plan
• SAVE (REPAYE) Plan
• Have My Loan Servicer Select My Plan (they will choose the plan that gives you the lowest monthly payment)

You can learn more about each plan and its eligibility criteria by clicking the "View Eligibility" button (which I'll also summarize in the next section). If you gave the ED permission to access your tax return(s) at the start of the application, you should also see the estimated monthly payment. Before moving on to the next portion of the application, you'll be prompted to select the plan you'd like to apply for.

A quick recap of each plan and what you need to know

I know this is a lot, but it's REALLY important to understand the nuances of each plan!

• Income-Based Repayment (IBR) Plan: 
  • Still accepting new applications; is more likely to survive the ongoing litigation than the other plans.
  • There are two versions of IBR: "Old IBR" and "New IBR." New IBR is the better of the two because its calculation leads to a lower monthly payment over a shorter repayment period (20 years vs. 25 years).
    • Eligibility criteria:
      • Must have a Partial Financial Hardship (PFH) to be eligible*. This calculator can help estimate whether or not you have one.
      • Must be a new loan borrower as of July 1, 2014.
      • If you apply for IBR, your loan servicer will automatically put you in New IBR if you're eligible; otherwise, you'll be placed in Old IBR.
      • You only need the PFH when you initially apply. If you no longer have a PFH but are already enrolled in the plan, they'll allow you to stay on it.

• Income-Contingent Repayment (ICR) Plan:
  • Still accepting new applications 
  • Eligibility Criteria: as of July 1, 2024, only Direct Consolidation loans that paid off Parent PLUS loans are eligible for the plan.*
  • *A borrower enrolled before the cutoff can remain enrolled in the plan if they recertify their income and family size annually by the deadline.

• Pay As You Earn (PAYE) Repayment Plan:
  • Stopped accepting new applications in July 2024.*
  • *Borrowers who applied before the deadline can remain enrolled in the plan if they recertify their income and family size annually by the deadline.
  • Eligibility criteria:
    • Must have a Partial Financial Hardship (PFH) to be eligible. This calculator can help estimate whether or not you have one.
    • Must be a new loan borrower on or after October 1, 2007, and must have borrowed after October 1, 2011.

• SAVE (REPAYE) Plan:
  • Still accepting new applications, with a big caveat...
  • ...it faces MANY legal challenges, so its future is very uncertain. If a borrower was enrolled in the plan before the processing pause or applies now, it's uncertain whether they'd be "grandfathered" into the plan if it's struck down or forced to apply for a different one.
  • Borrowers who enrolled in the SAVE plan before the processing pause went into effect are in administrative forbearance until the legal issues are resolved in court, meaning no one is making monthly payments on SAVE right now.
  • Eligibility criteria:
    • Must have Direct loans only.
    • Parent PLUS loans or Direct Consolidation loans that repaid Parent PLUS loans aren't eligible unless they utilize the double consolidation loophole before July 1, 2025.

Important considerations to keep in mind

Now that you know the options available, the biggest question becomes: what the @&$^ do you do?!??!! I hate to say it, but it depends. 

I am a financial planner, not necessarily your financial planner, so while I can't give you advice unless you're a paying client, I'll offer some points to ponder:

If you're stuck on the SAVE forbearance

I don't see it ending anytime soon, so you could a) get comfortable, b) consider switching to IBR if your income is low (current or prior tax returns) while you have a Partial Financial Hardship, or c) apply for economic hardship if you're eligible. Currently, time spent in the SAVE Plan administrative forbearance does not count toward forgiveness. If you're pursuing Public Service Loan Forgiveness (PSLF), you could eventually use the buy-back option to get credit for this time. No payments are due, and no interest accrues.

If you recently applied for an IDR plan, regardless of which one

Even though the online application is available, the ED hasn't indicated they've resumed processing them. You could consider contacting your servicer to ask to be placed in a 60-day processing forbearance (if they don't automatically place you in one). No payments will be due, but interest will accrue. Time spent counts toward PSLF.

If you're enrolled in PAYE, IBR, or ICR and are still making payments

Due to the uncertainty, I'd be hesitant to change anything UNLESS your income has substantially decreased, in which case you could consider recertifying. Be sure to recertify your income and family size by your deadline to remain enrolled in the plan. Your loan servicer will contact you when it's time to do so. It's SUPER important not to miss the deadline. Otherwise, you will be kicked off the plan and potentially unable to re-enroll, depending on the circumstances.

Remember: there is a chance your payment will increase

Any time a borrower switches to a new IDR plan or recertifies their income and family size annually, their monthly payment may increase if their income recently increased. 

TO BE SUPER CLEAR: To remain enrolled in your IDR plan, you must recertify your income and family size by your yearly deadline. Otherwise, depending on the circumstances, you will be kicked off the plan and potentially unable to re-enroll in it. Everyone's deadline is different, and if you don't know what yours is, please contact your loan servicer to confirm.

Recertification was paused due to the COVID-19 Forbearance, but notices are now going out to borrowers for the first time in years asking them to provide updated information to their loan servicer.

Regardless, more waiting is in our future

The next hearing for the SAVE Plan's litigation is scheduled for October 24th, after which I expect it to end up with SCOTUS. Once I know more, I'll send out an email newsletter and post a blog with an update.

This waiting and legal back-and-forth has been brutal, and I truly empathize with the borrowers stuck in it at no fault of their own.

I'm here for you! Contact me at emma@perkplanning.com if you'd like to work together.

Student Loan On-Ramp Ending Soon

What is it?

Back in fall 2023, the Biden Administration announced the temporary on-ramp transition period through September 30, 2024, to help borrowers ease back into repayment. It was designed to "...protect borrowers from the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments."

Even though payments have still been due and interest has accrued during this time, borrowers didn't technically have to pay. They could miss a payment without worrying about being reported as delinquent on their student loan payments.

This temporary on-ramp ends on September 30th, so borrowers must pay now pay each bill in October 2024 and beyond to avoid any hits to their credit.

Why does it matter?

Many borrowers have used this on-ramp period to their advantage these past few months while the Department of Education (ED) has been sorting their s....tuff out. Spend five minutes on Reddit's PSLF or Student Loans subreddit and you'll see what I'm talking about.

Put succinctly (and more professionally), they've been slow to process PSLF forms the past few months. Additionally, due to the ongoing SAVE Plan litigation, they've stopped processing online income-driven repayment (IDR) plan applications, leaving many borrowers stranded and confused. Due to the on-ramp, borrowers had some reassurance they wouldn't be penalized for non-payment.

Without the security of the on-ramp, borrowers must make their monthly payments OR be put in an appropriate deferment or forbearance so that no payments are technically due. 

If you can't afford your monthly payment, here are some options.

If you recently consolidated your loans but were placed on the Standard plan instead of the IDR plan you applied for: call your servicer and ask to be placed in a 60-day processing forbearance. 60-day processing forbearances count toward PSLF and IDR forgiveness and no payments will be due. Simple daily interest will continue to accrue, however.

If you were/are on an IDR plan already, but your income has substantially decreased since you last certified your income & family size, you have two options:

• Determine whether you're eligible for Economic Hardship Deferment. If so, fill out the application and submit it to your student loan servicer. It's usually granted for one year and counts toward PSLF & IDR forgiveness. 

• Recertify your income and family size via the paper IDR application and submit it to your servicer. Because of the processing pause, they can't technically process it, so you'll also need to call them and ask to be placed in a 60-day processing forbearance. 60-day processing forbearances count toward PSLF and IDR forgiveness and no payments will be due. Simple daily interest will continue to accrue, however.

With the on-ramp period ending, it's essential to have a plan.

I've been helping others navigate student loan repayment for years, and this is truly the most complicated and convoluted situation I've seen yet. A lot is happening that borrowers need to be aware of and pay attention to, so every borrower needs to make sure they have a plan in place.

SAVE's Recent Legal Journey

SAVE's Administrative Stay

In mid-July, the 8th Circuit Court of Appeals granted an administrative stay filed by a handful of Republican-led states, blocking the entirety of the Department of Education's newest income-driven repayment plan, the SAVE plan. I'm not a lawyer, but an administrative stay is "...a court order that pauses the process of an action that is already pending." This stay impacts:

1. Borrowers who were already enrolled in SAVE,
2. Borrowers who recently applied for SAVE, and 
3. Borrowers wanting to apply for SAVE

In response to the administrative stay, the Secretary of the Department of Education stated, "Today's ruling...could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect." To say he was correct is a severe understatement.

Since then, the Department of Education hasn't been able to:

1. Process monthly SAVE payments
2. Process forgiveness under PSLF who were enrolled in SAVE
3. Reduce monthly SAVE payments as planned (they were supposed to be reduced from 10% to 5% of a borrower's discretionary income for undergrad loans)
4. Accept new SAVE applications from borrowers wanting to enroll in the plan

SAVE's Injunction

Then, in mid-August, the 8th Circuit Court of Appeals issued an injunction against SAVE, replacing the administrative stay. Again, not a lawyer, but an injunction "...is a court order or judgment that prohibits a person or entity from doing something." This has nearly guaranteed that the case will eventually appear before the U.S. Supreme Court, likely later this fall. 

This may sound daunting, but there is some hope for borrowers: while the U.S. Supreme Court leans conservatively, it's much less conservative than the 8th Circuit Court.

Getting back to the injunction, the Biden Administration's top lawyer at the Department of Justice, Solicitor General Elizabeth Prelogar, harshly criticized the court and asked for clarification on its potentially far-reaching impacts based on its language.

Page 9 of the injunction reads: "The Government is, for any borrowers whose loans are governed in whole or in part by the terms of the Improving Income-Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program, 88 Fed. Reg. 43820, enjoined from any further forgiveness of principal or interest, from not charging borrowers accrued interest, and from further implementing SAVE's payment-threshold provisions. This injunction will remain in effect until further order of this court of the Supreme Court of the United States. The administrative stay is hereby superseded."

In the Department's efforts to clarify, they stated, "The Department therefore believes that the Court did not intend to enjoin either (1) loan forgiveness offered under statutory authorities other than ICR (such as IBR or PSLF) or (2) loan forgiveness offered to borrowers enrolled in previously existing ICR plans."

While they waited for clarification, the Department of Education deactivated the online income-driven repayment (IDR) and online consolidation applications, both of which remain unavailable. Though loan borrowers can submit the paper IDR application to their servicers, servicers have stopped processing them, leaving borrowers stuck between a rock and a hard place at no fault of their own.

Two Words: Motion Denied

As you probably saw coming, in another legal blow to borrowers yesterday, the court denied the Department of Justice's request to clarify the injunction. 

Next stop: the U.S. Supreme Court

This court case, Biden V. Missouri, is listed as Docket 24A173 on the Supreme Court's emergency shadow docket, which "...consists of applications seeking immediate action from the court. Unlike the merits docket, these cases are handled on an expedited basis with limited briefing and no oral argument, and the court often resolves them in unsigned orders with little or no explanation." 

It was submitted to Justice Kavanaugh on August 13th with a request for his response by 4 pm EDT on August 19th, which has obviously since passed. 

Considerations for Borrowers 

Here is how things stand today for the three groups I mentioned at the start of this blog post:

1. Borrowers already enrolled in SAVE: Have recently been placed in administrative forbearance until further notice (likely until November at the earliest). No interest accrues, and no payments will be due. Currently, time spent in this forbearance does not count toward PSLF or IDR forgiveness.
2. Borrowers who recently applied for SAVE: Your application will not be processed until the legal challenges play out, and you'll likely remain on the plan you were on previously OR be placed on the Standard plan.
3. Borrowers wanting to apply for SAVE: While you technically *can* submit a paper IDR application and apply for SAVE, it won't be processed anytime soon. 

To be clear: ANY borrower hoping to switch to a new/different income-driven repayment plan right now *can* submit a paper IDR application to their loan servicer, but it will not be processed for the foreseeable future. The Department of Education is seemingly waiting for the Supreme Court's decision.

Borrowers are truly stuck between a rock and a hard place at no fault of their own. Many of us are crossing our fingers that Brett Kavanaugh (on behalf of the Supreme Court) weighs in on the injunction soon so we know what to expect moving forward. In the meantime, the best thing to do is remain calm and patient. 

Overview of Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness (PSLF) is a fantastic debt forgiveness program that can help you manage your student loans. This program can be your ticket to financial freedom if you work in public service. Let's break down what PSLF is, how it works, and what you must do to qualify. We'll keep it light-hearted and easy to understand so you can get a clear picture of this helpful program.

What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness, or PSLF, is a federal debt forgiveness program designed to encourage people to work in public service jobs. You could be eligible if you work for the government or a nonprofit organization. The program forgives the remaining balance on your Direct Loans after you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. That's a lot of "qualifying," but don't worry, we'll break it down for you.

How Does PSLF Work?

You need to follow a few steps to benefit from the PSLF program. First, you must make 120 qualifying monthly payments. These payments don't need to be consecutive, but they do need to be made under a qualifying repayment plan, such as an Income-Driven Repayment (IDR) plan. The IDR plans base your monthly payment on your income and family size. This makes your payments more affordable and manageable.

Next, you need to work full-time (an average of 30 hours per week) for a qualifying employer. Qualifying employers include government organizations at any level (federal, state, local, or tribal), 501(c)(3) nonprofit organizations, and some other nonprofit organizations that provide qualifying public services. If you're unsure whether your employer qualifies, you can use the PSLF Employer Search Tool to verify.

After you've made 120 payments, you can apply for forgiveness using the PSLF Help Tool. The Help Tool is also what you'll use to track your PSLF progress along the way. Once your application is approved, the remaining balance (including the unpaid principal and any unpaid interest!) on your Direct Loans will be forgiven. Imagine the relief of seeing that debt disappear!

Qualifying Payments and Employment

One key aspect of the PSLF debt forgiveness program is understanding what counts as a qualifying payment. A qualifying payment must be made on time, for the full amount due, and under a qualifying repayment plan. You also need to work full-time for a qualifying employer. The definition for full-time is an average of 30 hours per week.

It's important to note that only payments made on Direct Loans count toward PSLF. If you have other types of federal loans, such as FFEL or Perkins Loans, you'll need to consolidate them into a Direct Consolidation Loan to make them eligible. Consolidating your loans can simplify your repayment process and ensure all your payments count toward PSLF. However, it's important to understand the pros and cons of consolidation before doing so.

Staying on Track with PSLF

Staying on track with the PSLF debt forgiveness program requires some organization and diligence. Start by submitting a PSLF form annually (or whenever you change employers) through the PSLF Help Tool. This form confirms that your employment qualifies for PSLF and helps you keep track of your progress on studentaid.gov. The more organized you are, the smoother your forgiveness process will be.

It's also helpful to set reminders for important deadlines, such as submitting your PSLF form(s) and updating your income and family size for your income-driven repayment plan. It's also a good idea to keep copies of all your forms and communications with the PSLF program. If any issues arise, you'll have a record of your efforts to meet the requirements.

Welcome to my very first "How-to Series" where I show you how to calculate your monthly payment under the SAVE plan!

I don't trust loan servicers to calculate the monthly payment accurately, so I encourage loan borrowers to understand how to calculate it themselves so they can double-check the math! Keep reading for a step-by-step breakdown of how to do this. Please note that this math takes effect on July 1, 2024.

Let's break it down step-by-step together. You can do this old-school style with a pen and paper or in an Excel file I created - whatever works best for you!

Step 1: Write down your Adjusted Gross Income (AGI) from line 11 on your 2023 tax return. If your current income is less than this, use that instead.

Step 2: Use this chart to determine the 225% Federal Poverty Guideline for your state and family size. Write it down. This is your income protection threshold (IPT), meaning the income protected from student loan payments, so it's not used in the monthly payment calculation.

Step 3: Subtract your income protection threshold (IPT) from your adjusted gross income (AGI). This is your discretionary income. Write this down. This is what they'll use to calculate your monthly student loan payments.

Step 4: Next, we must determine whether they'll multiply your discretionary income by 5%, 10%, or a weighted average when calculating your monthly payment. This depends on whether your loans are from undergrad only, grad only, or a mix of both. 

• Undergrad only: 5% (.05 in Excel)
• Grad only: 10% (.10 in Excel)
• A mix of undergrad and grad: Weighted average. Use my handy Excel file to help calculate this.

Step 5: Multiply your discretionary income (calculated in Step 3) by 5%, 10%, or the weighted average (calculated in Step 4). This is your annual payment.

Step 6: Divide the annual payment by 12 to get the monthly payment. This is your NEW monthly payment under the SAVE plan as soon as you re-certify your income and family size any time after July 1, 2024. Your recertification date is listed on your studentaid.gov account and will be as early as fall 2024.

I hope you found this helpful! If you have any questions, comment below or email me at emma@perkplanning.com.

Biden Unveils New Student Loan Forgiveness Plans

I was lucky enough to be a face in the crowd at Madison College on Monday, April 8th, where Biden unveiled his newest plans to extend student loan relief to millions of federal student loan borrowers. He detailed the five key features of his plan, which I've highlighted below. If these proposed solutions move forward as planned, he expects them to be implemented in fall 2024 at the earliest.

1. Cancel runaway interest

For those of us burdened with student loan debt, the interest often seems to run away, making it challenging to pay the loans off. However, under this plan, up to $20,000 of unpaid, accrued interest could be canceled for borrowers whose loan balances have grown since entering repayment. Notably, single borrowers earning $120,000 or less and married borrowers earning $240,000 or less are eligible, ensuring a wide range of borrowers can benefit without needing to apply.

2. Cancel debt for borrowers eligible for loan forgiveness under SAVE, PSLF, closed school discharge, or other forgiveness programs who are not currently enrolled

Tens of thousands of borrowers are eligible for forgiveness programs. Unfortunately, they may not 1) know that they're eligible or 2) be able to overcome the significant and burdensome hurdles of paperwork, horrible advice from their student loan servicer, or other obstacles. The Department of Education would identify borrowers who fall into these categories and cancel their debt without requiring an application.

3. Cancel debt for borrowers who entered repayment over 20 years ago

Due to the lack of systemic tracking of borrowers pursuing forgiveness under the 20- and 25-year income-driven repayment plans, many borrowers still face surmountable debt when it should have been forgiven years ago. Borrowers with undergraduate student loan debt would qualify for debt cancelation if they first entered repayment 20 years ago; borrowers with any graduate school debt would be eligible if they entered repayment 25 years ago. Direct loans and direct consolidation loans would be eligible. Borrowers do not need to be on an income-driven repayment plan to qualify.

4. Cancel debt for borrowers who enrolled in low-financial-value programs

This would cancel student loans taken out in programs that eventually lost their eligibility to participate in the Federal student aid program or were denied recertification due to shady business practices. It would also cancel student loans taken out during programs that eventually closed and failed.

5. Cancel student debt for borrowers experiencing hardship

Biden explained that borrowers currently in default (or at high risk of eventually being in default) would qualify for this. Additionally, borrowers experiencing other financial difficulties, such as medical debt and high childcare costs, could apply for this relief.

Stay tuned for more information!

I would be shocked if various lawsuits weren't already in the works to try to bring these plans to a halt. I'll be sure to blog as I learn more!

Don't miss the June 30, 2024, deadline! (Updated from April 30th due to Biden's recent announcement).

Wait...what are you talking about?

The June 30, 2024, deadline is for the Income-Driven Repayment (IDR) Account Adjustment. It is a huge opportunity for federal student loan borrowers to get credit toward Public Service Loan Forgiveness (PSLF) on past payments that wouldn't ordinarily count. The Department of Education is attempting to make up for past wrongs, including a lack of payment tracking, inaccurate information, and abysmal (and sometimes downright harmful) support from student loan servicers.

Who does this impact?

It impacts two groups of loan borrowers who are pursuing (or want to pursue) the Public Service Loan Forgiveness (PSLF) program:

1. FFEL loan borrowers
2. Direct loan borrowers who have separate loans with different PSLF-qualifying payment counts

If you aren't sure what type of federal student loans you have, watch my 2-minute tutorial. 

Regardless of which group you're part of, you must take action by June 30, 2024! Please keep reading for more information about this.

FFEL Loan Borrowers

FFEL loans are not eligible for PSLF; only Direct loans are eligible. To convert FFEL loans into Direct loans, you must consolidate them via studentaid.gov. By consolidating your FFEL loans, you will convert them into Direct loans, making them eligible for forgiveness through PSLF.

Usually, when borrowers consolidate their loans, the PSLF clock starts again at 0 since it creates a new loan. But thanks to the IDR Account Adjustment in effect until June 30, 2024, FFEL loan borrowers can consolidate their loans AND get credit for past payments made on their FFEL loans WITHOUT restarting the PSLF clock! This is HUGE! 

If FFEL loan borrowers wait to consolidate their loans until after June 30th, they will not receive any credit toward PSLF for past payments. The thought of this happening to borrowers truly keeps me up at night!

Direct Loan Borrowers With Different PSLF Payment Counts

Borrowers sometimes have a handful of Direct student loans with different PSLF payment counts. I usually see this when someone has loans from multiple degrees (an undergraduate and graduate degree, for example) and spent time working at a PSLF-qualifying employer before, between, and/or after them.

The IDR Account Adjustment is a golden opportunity for this borrower to consolidate their federal student loans by June 30, 2024. The resulting new Federal Direct Consolidation loan will be given the highest PSLF payment count of all the underlying loans they consolidated. I've seen this wipe YEARS off my clients' PSLF repayment timelines! 

Suppose these borrowers wait to consolidate their loans until after June 30th. In that case, the resulting Federal Direct Consolidation loan will be given the weighted average PSLF payment count of all the underlying loans they consolidated.

After consolidating, verify all periods of PSLF-eligible employment

Once borrowers consolidate, they should use the PSLF Help Tool to verify PSLF-eligible employment dating back to October 2, 2007, if they haven't already. The form will then be sent electronically to employers (past and current, as applicable) for them to sign off on. The form is then routed to Federal Student Aid for processing (which will likely take months).

The IDR Account Adjustment

What is it?

This is a huge opportunity for borrowers to get credit toward PSLF and/or IDR forgiveness by getting credit for past payments that wouldn't ordinarily count. You may need to take action depending on the types of outstanding loans you have and what option you're pursuing (PSLF or IDR forgiveness). Keep reading for a tutorial on how to determine what, if anything, you may need to do before the June 30, 2024, deadline!

Step 1: Review Your Outstanding Loan Types

If you're unsure what type of outstanding loans you have, you'll need to log into studentaid.gov and look them up. I recorded a short YouTube tutorial on how to do this. If you have FFEL loans, this quick tutorial shows you how to determine whether they're commercially held or held by the Department of Education. 

Step 2: Determine which forgiveness opportunity you're pursuing.

Once you know what type(s) of outstanding loans you have, your action steps depend on the kind of forgiveness you're pursuing (or would like to pursue). I have a quick synopsis of both options below.

Public Service Loan Forgiveness (PSLF)

The PSLF Program forgives the remaining balance on your Direct loans after you've made the equivalent of 120 qualifying monthly payments under an accepted payment plan and while working full-time for an eligible employer. The accepted payment plans are the four income-driven repayment (IDR) plans: SAVE, PAYE, IBR, and ICR. Loans forgiven through PSLF are federally tax-free. 

Only Direct loans are eligible for PSLF.  If you have federally-held or commercially-held FFEL/FFELP loans, you must submit a consolidation application by June 30, 2024! More on this below.

Income-Driven Repayment (IDR) Forgiveness

The remaining loan balance is forgiven after making payments for 20 or 25 years on an IDR plan. This is usually considered taxable income at the state and federal levels. However, it is currently paused from being federally taxed through 2025. Most states have also paused it, but not all! If you're in Wisconsin (like me), unfortunately, they've continued to tax it at the state level. 

Only Direct and federally-held FFEL/FFELP loans are eligible for IDR forgiveness. If you have commercially held FFEL/FFELP loans, you must submit a consolidation application by June 30, 2024! More on this below.

Step 3: Use the chart below to determine your action steps.

Once you understand the type(s) of outstanding loans and the forgiveness opportunity you're pursuing, use the chart below to determine your action steps. If the chart indicates that consolidation is necessary, you MUST submit a consolidation application on studentaid.gov by June 30, 2024, to avoid losing all progress. 

By submitting a consolidation application by June 30, 2024, you will get credit toward PSLF or IDR forgiveness for past payments that wouldn't ordinarily count. If you consolidate after the deadline, you may be forced to start all over again at payment 0.

Call me a nerd (I am), but I love helping federal student loan borrowers determine the impact of marriage and tax filing status in a community property state on their monthly payments. It presents a unique and creative student loan planning opportunity for my fellow cheeseheads to help keep their monthly payments low. Fun fact: Wisconsin is one of only nine community property states!

When a federal student loan borrower is enrolled in one of the income-driven repayment (IDR) plans, they must supply updated income information annually to their servicer. Their servicer takes this information and recalculates their monthly payments accordingly. Borrowers will usually provide their most recent tax return (as long as they're not making less than what is reflected on the return).

For married borrowers on an IDR plan, their spouse's income and federal loan balance will be taken into account if they file their taxes as married filing jointly (MFJ). This may mean a higher monthly payment, which isn't good news if they're pursuing Public Service Loan Forgiveness (PSLF). The strategy behind PSLF is to keep the payments as low as possible to maximize the forgiveness received after 120 qualifying payments. So, can they ignore their spouse's income information? 

If they file their taxes as married filing separately, they can (kind of) ignore their spouse's income information. Ah ha! Now we're getting somewhere. But wait, how does that work in a community property state? I thought you'd never ask! 

If a borrower files taxes as married-filing-separately in a community property state, their household income is split in half using Form 8958. Both spouses must submit this form with their tax returns. The borrower then supplies this recent tax return to their student loan servicer, resulting in a lower monthly payment. Let's take a look at an example of how this plays out for the married couple below: 

• Rachel and Ross are married and live in WI (a community property state)
• Rachel makes $100,000 annually, has $120,000 in federal student loan debt, and is pursuing PSLF since she works at UW-Madison
• Ross makes $80,000 annually and has no federal student loan debt 
• If they file taxes jointly, Rachel's monthly payment would be $1,116.75 on the SAVE plan (based on $180,000 of household income)
• If they file taxes separately, her monthly payment would be $467.63 on the SAVE plan (based on $90,000 of household income) - an annual difference of $7,789.50! WOWZA!

When Rachel does their 2023 taxes, she should compare the costs of filing taxes separately to the annual savings on her student loan payments. 

Pro tip: I always recommend that my clients consult with a CPA when deciding whether to file taxes as MFS or MFJ. Though I can share the impact of tax filing status on student loan payments, I can't give tax advice since I'm not a licensed CPA.