Some Silver Linings For Student Loan Borrowers

Despite the Supreme Court striking down the student loan debt relief program, there is some good news for debtors.


The Supreme Court Friday ruled, in a 6-3 decision, against President Joe Biden’s student debt relief program. The debt relief would have forgiven $10,000 for non-Pell Grant recipients and $20,000 for Pell Grant recipients if they were earning less than $125,000 a year. The order would have forgiven approximately $430 billion in student debt.

The Supreme Court ruled that the Biden Administration exceeded its authority under the HEROES Act, a federal law first enacted in response to the Sept. 11 terrorist attacks, to “waive or modify” legal provisions related to student loans.

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But not all the news is bad for borrowers. Other elements of the debt relief program that were not struck down, but are still hugely significant for borrowers, were also finalized on Friday. Student loan borrowers’ monthly minimum payments will now be capped at 5% of discretionary income, down from 10%. The formula for calculating “discretionary income” was also changed for this purpose. It is now measured at 225% of the federal poverty line, up from 150%. This means that the minimum payments for many borrowers, especially for the more indebted, will be reduced.

Secondly, balances older than ten years will be forgiven, provided the original balance was $12,000 or less. This has been reduced from balances older than 20 years.

The interest on student loans will resume accruing on September 1. , and the first repayments will come due in October. Biden cannot extend the debt accrual and repayment pause because of the debt ceiling budget deal he reached with House Speaker Kevin McCarthy in May.

Biden did however create an “on ramp” for the resumption of payments. Though interest will begin to accrue this September, the Department of Education will not send late or missed payment information to credit agencies for payments due until September 2024.

Employers interested in overall financial wellness and financial education can highlight some of this news to their participants to assist them in their financial planning, as well helping to address anxiety employees may be experiencing about the accrual and repayment resumptions. The debt forgiveness elements that the Supreme Court rejected have received more headlines than those that remain.

The SECURE 2.0 Act of 2022 also permits retirement plan sponsors to match, with contributions to a defined contribution plan, participants’ student loan repayments starting in 2024. The date at which sponsors can start providing this benefit  this is all but certain to be later than January 1, 2024, when it is legally permitted. The IRS and Department of Labor have yet to issue regulatory guidance on this measure, and many it is unclear if recordkeepers will be prepared to support it for sponsors on their platforms.

Pontera Says Rollover Not Always Superior to 401(k)

New findings reveal 59% of advisers opted not to roll over a client's 401(k) into an IRA in 2022.


New findings from Pontera reveal that 59% of advisers made the decision not to roll over their clients’ 401(k) into an IRA or other account in 2022, due to better benefits offered by the existing retirement plans and advisers’ ability to effectively manage the assets within those plans.

From 2016 to 2021, $2.9 trillion of IRA asset growth was from rollovers of retirement plan accounts. It is estimated that more than half of this amount was facilitated by financial advisers, according to software provider Pontera’s 2023 Financial Advisory Survey with data drawn from 124 advisers managing billions of client assets.

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Pontera said many investors mistakenly believe that a rollover is required, but they are not and can be quite costly. Retirement savers can lose out on numerous advantages associated with 401(k) plans by rolling over their assets, including access to lower fees and institutional funds, tax benefits linked to employer stock, creditor protections, and the availability of loan options.

“We are proud to see that the majority of Pontera advisor partners have concluded that it was in their clients’ best interest to keep assets in plan instead of rolling them over,” said Yoav Zurel, Pontera’s CEO, said in a statement. “This finding shows that our partners are employing their fiduciary duty in the face of an excessive rollover trend, costing Americans billions of dollars each year.”

Pew Charitable Trusts’ research estimates that retail investors could lose $45.5 billion over the next 25 years due to higher fees alone, out of the $516.7 billion in IRA rollovers from plan accounts in 2018.

A recent report from Cerulli Associates’ aligns with Pontera’s findings. Recent years have seen an increased focus on retirement income initiatives within 401(k) and other defined contribution plans, according to Cerulli’s June 2023 issue of The Cerulli Edge—U.S. Monthly Product Trends.

Among asset managers’ plan sponsor clients, 58% now actively seek to retain participant assets post-retirement, or prefer to do so, according to a 2022 Cerulli survey of DC plan consultants. The survey included both retirement-focused registered investment adviser aggregator firms and institutional consultants.

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