First, Congress halted a pandemic-era pause on student loan repayments. Then, the U.S. Supreme Court struck down the Biden Administration’s student loan forgiveness plan.
Suddenly, 43 million Americans holding $1.75 trillion in debt were left wondering what to do, and so were tax preparers. In this churning landscape, student loan repayments are now, more than ever, a tax preparer’s business.
Are you ready for the inevitable questions from clients, whether individual taxpayers, employers or higher education institutions? As the issue surged, Surgent CPE jumped into action with timely continuing education, developing a course addressing the Supreme Court’s decision on student loan forgiveness.
Read on for an overview of the changes and how tax professionals can study their full impact on student loans and employer benefits.
Impact of Supreme Court ruling
On June 30, the Supreme Court ruled that the Biden Administration and the U.S. Secretary of Education overstepped their power when they offered a plan for forgiving $430 billion in student debt.
The ruling erased their hopes for the forgiveness of up to $20,000 for Pell Grant recipients and up to $10,00 for many others holding student loan debt.
The ruling’s impact is rippling across multiple fronts:
- About 7 million borrowers aged 24 or younger still in college when repayments paused for the pandemic will be making loan payments for the first time.
- Older borrowers will scramble to reconnect with loan servicers, which has likely changed.
- About one in five borrowers will need help financially to make or resume payments, according to the Consumer Finance Protection Bureau.
- Frustrated borrowers will encounter more roadblocks as they deal with overwhelmed and underfunded loan servicers and Federal Student Aid, the Department of Education’s student loan portfolio division.
When are student loan payments scheduled to resume?
Student loan repayments were first paused in March 2020 and extended eight times under the Trump and Biden administrations.
In August 2022, President Biden announced loan forgiveness for individual borrowers earning less than $125,000 in 2020 or 2021, and for married couples or heads of households making less than $250,000 a year.
The Supreme Court’s June 30 decision put the lid on the coffin of student loan forgiveness, but the June 3 debt-ceiling deal between Congress and the White House had already ended the pandemic-era pause. Repayments are now set to resume on Oct. 1, 2023.
Two Biden administration initiatives — an on-ramp program and reshaped income-driven repayment — could help ease reentry for borrowers unprepared to resume repayments.
What are the on-ramp program and SAVE?
The on-ramp program creates a grace period for borrowers who miss repayments from Oct. 1, 2023, to Sept. 30, 2024. Payments will still be due, and interest will accrue, but borrowers who miss payments will not be reported to credit agencies, and their student loans will not go into default.
In the wake of the Supreme Court ruling, President Biden finalized SAVE, the Saving on a Valuable Education plan. The new take on Income-Driven Repayment (IDR) — the program capping maximum monthly payments from 10% to 15% of discretionary income — raises eligibility for $0 payments to people earning less than 225% of federal poverty, up from 150%.
SAVE also stops accumulating interest for borrowers who faithfully make their monthly payments, and IDR caps are lowered to 5% to 10% of discretionary income, depending on loan type.
Beginning in July 2024, SAVE also accelerates loan forgiveness, erasing any debt left after 10 years of payments by borrowers with initial balances of $12,000 or less. Every additional $1,000 in original debt extends loan forgiveness by one year.
How student loan assistance benefits employers
Increasingly, employers are offering student loan repayments as a benefit for struggling employees.
Those employer-paid repayments are tax-free through Dec. 31, 2025, or longer if Congress renews them. In essence, the initiative adds loan repayments to the qualifying educational assistance expenses many employers offer under IRS Code’s Section 127.
Under the program, employers can give each qualifying employee up to $5,250 per year toward student loan payments directly or to the lender. The benefit is not included in the employee’s income. Anything over $5,250, a combined limit covering loan repayment and other educational assistance, is subject to taxes and should be reported as employee income.
Why should employers offer student-loan repayment benefits?
- Attract top talent: Not only talent fresh out of college but experienced talent saddled with college debt.
- Pay-raise alternative: When raises aren’t possible, student-loan repayment offers a tax-free option.
- Provide debt relief: Boost employee engagement and productivity by easing their worries about repaying burdensome debts.
- Employee satisfaction: Offering student-loan repayment benefits can increase employee satisfaction and loyalty.
What’s next for student loan forgiveness?
The Biden Administration is trying again, unleashing the U.S. Department of Education to develop a new student loan forgiveness program. However, the initiative needs time to move through rulemaking, and of course, legal challenges are almost certain.
In the meantime, more employers are expected to adopt student loan repayment benefits to help employees manage their repayment challenges.
Amid all this upheaval, IRS tax data on student loan repayment and FAFSA will begin integrating with the Department of Education. Put it all together, and tax professionals have a new slate of issues to absorb.
Surgent CPE for the latest updates
Surgent CPE is always first-to-market with courses covering the nonstop changes to tax laws and codes, arming tax professionals with timely guidance to better serve their clients.
That includes Surgent CPE’s STL2: Supreme Court Student Loan Decision and Developing Opportunities for Finance and Accounting Pros, a ripped-from-the-headlines course ideal for accounting and finance professionals focusing on businesses and higher ed. The course will address the new rules, including SECURE 2.0, tax-free repayment reimbursement and other employer repayment restart issues.
Major topics include:
- Impact of the Supreme Court loan forgiveness decision
- The president’s plans in response to the Supreme Court decision
- New IRS data integration with the Department of Education
- Reasons why loan servicers cannot provide proper advice
- Importance of tax planning due to Income-Driven Repayment (IDR) and loan forgiveness
- Employers’ implementation and cost of a student loan assistance benefit
- Proper planning steps related to the repayment restart
- Methods of lowering payments to maximize loan forgiveness
- Better planning for divorced and separated couples in FAFSA planning
- Higher education concerns on loan repayment support and default rates
The Surgent advantage
Surgent is a leader in continuing professional education for accounting and financial professionals. Surgent offers more than 1,500 CPE webinars each year, a full library of self-study courses, tailored in-firm seminars and training, and accounting exam prep programs for several core credentials and certifications.
For accounting and tax preparation firms, Surgent takes care of administering continuing education while ensuring that team members receive relevant, engaging and up-to-date learning. Consider these advantages:
- Timely content: The Surgent team of industry experts releases content in real-time when tax pros need it most — as the student loan course attests.
- All-in-one courses: Staff gets an immediate, practical application of what they have learned.
- Monthly webinar series: Monthly webinars package the latest industry updates.
Ready to learn more? Visit Surgent CPE to explore the vast assortment of topics and courses, find a CPE package tailored to your needs, subscribe to an informative email with news, tips, and course updates and discover the tools of continuing education that give your firm a competitive edge.