Recent Changes to Student Loans and 529 Plans

By Moe Moubarak, CRPC

Federal student loans have undergone multiple changes in the last few years, with a handful of proposals being discussed and others working their way through the legal system. When was the last time you reviewed your federal student loan account? Last month? Last year? Three years ago at the start of the payment pause? Let’s be honest, managing student loans is a task best described as a thief of joy. If it has been a while since you logged in to check your balance, now is as good a time as any to refamiliarize yourself with your account (and that dreaded number that never seems to get any smaller). 

The last required payment to federal student loans was February 2020. The CARES Act of 2020 was signed into law in March 2020 which paused payments and froze accumulating interest. Borrowers in Income-Driven Repayment (IDR) plans are required to recertify their status annually, but that has not been necessary since the pause began. 

Recertification involves updating your marital status, family size, and using the IRS Retriever tool to automatically upload your tax return. Something to consider if you’re married, do you file your taxes jointly or separately? While filing jointly delivers taxable benefits such as eligibility to several tax deductions and credits, it may be worth comparing a return filed separately if only one spouse has student loans. Consult a tax professional to determine what would be the most optimal filing method for your situation.

President Biden announced the final forbearance extension when he shared the One-Time Student Debt Relief Plan this past August. Under this plan, a one-time credit up to $10,000 was to be issued to all federal student loan borrowers, up to $20,000 for borrowers that received Pell Grants, and student loans were set to resume January 2023.

Challengers blocked the order, bringing the matter up to the Supreme Court which is set to hear arguments on February 28th, 2023. Payments are set to resume 60 days after June 30th (end of August) OR once the Supreme Court has made a final decision, whichever occurs first. If you are on an IDR plan, log in to your account to see if you have been given a recertification date. 

While we wait for the Court’s decision, the passing of the SECURE Act 2.0 brought two noteworthy changes to loans and future college planning:

  1. Starting in 2024, qualified student loan payments will count as a salary deferral for qualified work plans (401k, 403b, 457b, Simple IRA, etc.) 

    1. Addresses an issue for employees with student loans having to pick between saving for retirement or pay off student loans.

    2. Employees can count student loan payments as retirement contributions to receive matching employer contributions to their retirement plan.

    3. Check with your retirement plan administrator to determine eligibility.

  2. 529 College Savings Accounts can now be rolled over to Roth IRAs for the Beneficiary (Section 126 H.R. 2617)

    1. Addresses fear of putting too much money into 529 accounts by creating a tax and penalty-free alternative for unused funds

    2. The 529 College Savings Account must have been opened for 15 years.

    3. $35,000 lifetime rollover limit.

    4. Subject to Roth IRA annual contribution limits ($6,500 for 2023)

If student loans are something that have been stressing you out, take a moment to review your account or reach out to our team for a consultation.

Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  1323GPW