The Supreme Court on Friday reversed President Joe Biden’s plan to provide student loan relief to millions of borrowers. And whatever their personal feelings, most consultants said they considered the possibility of such a decision in client meetings.
“While it would have been nice for many to see $10,000 or more in student loans eliminated, it would have been a pleasant surprise,” said Spencer Stephens, owner of Rooted Interest, a Salt Lake City financial planning firm. “I never recommend including pleasant surprises in a financial plan. It’s great when it happens, but it should be the exception, not the rule. Student loan forgiveness would have wiped out the remaining balance for many people, but for most it would only have reduced the amount they owed and thus their monthly payments. So it’s just a matter of going back to the original plan of how best to manage the debt.”
Ryan Salah, financial planner at Baltimore-based Capital Financial Partners, said in all discussions with clients who had student loans, they always assumed those payments would continue.
Jay Zigmont, financial planner and founder of Childfree Wealth, said many of her clients waited for this decision before taking any action regarding their student loans. Some had money set aside that they now simply have to use to pay off their loans, while others now need to run the repayment programs to make those payments affordable.
“We never plan for customers to receive handouts from the government or other organizations,” he said Michael J. Gauthier, CEO of Strategic Income Group, an Arizona-based financial planning firm. “Student loans are just that – loans and a financing agreement in which the borrower agrees to repay the loan. It is always standard in our planning practice to prioritize these loans, mortgage loans and other loans or debts in your plan. We recommend clients pay off all personal loans first, and then prioritize student loans and mortgages as the last loans to pay off.”
Francisco Ayala, a financial planner at The Coleridge Group in Phoenix, Arizona, said that while they didn’t expect this forgiveness to be successful, they did identify areas where they would have put that “free money” if it had would be, including high-interest debt, emergency funds, and investments. Now that the decision has been made, in addition to adjusting discretionary spending and reassessing debt repayment strategy, Ayala’s firm also advised clients to consider whether a steadfast or income-based repayment plan would be best for them.
Angela M. Bender, managing partner of AMJ Financial Wealth Management in Leesburg, Virginia, said they have always taken the conservative view that payments would resume and that some loan balances would not be forgiven.
Bender said when they supported parents and younger customers, they encouraged them to factor those expenses into their budgets and use the high-yielding savings accounts as a place to put those payments. That way, if the court didn’t vote for the writ, they could make a lump sum payment to the lender of their student loan with the highest interest expense. In some cases, they also promoted tax planning strategies with 529 plans.
Desiree Kaul, associate financial planning at MainStreet Financial Planning in Satellite Beach, Fla., said that with the announced resumption of accrued interest on federal student loan balances beginning September 1, they had already advised their clients to prepare. They recommended paying the full balance up front whenever possible, reviewing their budgets for discretionary spending, and discussing payment schedules with service providers.
Kris Maksimovich, financial adviser at Global Wealth Advisors in Lewisville, Texas, said they prepared clients for the worst-case scenario that loan payments would start again. In their planning, they continued to budget for loan payments and saved the difference to eventually apply to the loan balance as needed. Maksimovich said that now that interest is accruing again in September and payments are due in October, those who have accumulated that difference are in a better position to start paying or even pay off any remaining balance.
Robert J Falcon, President and founder of College Funding Solutions and financial adviser and founder of Falcon Wealth Managers in Concordville, Pa. said like any other investment, clients can overpay for college. Falcon said his clients were unaffected by this Supreme Court decision because they knew the amount of student loan debt they would be taking on before their students began college, as he helped them identify colleges that were financially sound suited them.
Jeremy Bohne, financial advisor at Paceline Wealth Management in Boston, said that while it is important for borrowers to take advantage of any relief that may benefit them, clients should not make significant financial decisions that are counting on credit relief so that they can can work.
Tim Melia, board-certified financial planner at Seattle-based Embolden Financial Planning, said now that the hiatus in student loan payments is over, it’s a good time for advisors to share with clients their overall plans, interest rates, and payment amounts of all debt, including auto -Debt, review loans, credit cards and mortgages.
He recommends comparing the interest rate on all loans, considering how the student loan interest deduction affects the actual interest rate on a student loan. Melia said one way to structure loan repayments is to pick the highest interest rate and focus on paying that off first, making minimum payments on all debt and anything else that adds to the higher interest rate. Another approach would be to identify the smallest loan and pay off the balance as quickly as possible, and then concentrate the additional capacity to make payments on the next higher balance.
Additionally, Melia said as borrowers prepare to resume student loan payments, they may want to consider how the SECURE Act 2.0 will allow employers to make pension plan adjustments based on student loan payments beginning in 2024. This could change the priority or timing of repayment to student loans. This would likely require consultation with the employer to see what options would be available.
“As borrowers prepare to resume student loan payments, they may want to consider how the SECURE Act 2.0 will allow employers to adjust pension plans based on student loan payments beginning in 2024,” he said. “Perhaps this will change the priority or timing of student loan repayments. It will likely be necessary to check with the employer what options are available.”
Some financial advisors were discouraged by the decision. James Veal, financial planner at JRV Wealth Management Group in Philadelphia, said he was “utterly disappointed” by the news because it would have been a great relief to black and minority students.
Meanwhile, Michael C. Perry, president of Retirement Advisors in Dallas, said many of his clients are “grateful” for the ruling.
“They were upset at the idea of loan forgiveness because they were planning, saving, and making sure their kids would graduate with no college debt,” he said. “And even more upset that they now have to pay for forgiveness with higher taxes.”