Set a Time Limit
Some advisors are working with clients to set a date when they’ll start putting the money toward the loans, regardless of what happens in Washington, D.C.
For Cooke, if an announcement isn’t made by the end of this forbearance period in August, it’ll be time to stop waiting and start paying.
Having a personal deadline can help borrowers avoid feeling like they’re living in limbo, with student debt hanging over them. For others, getting rid of the debt is mentally freeing, so it’s worth paying now, even if forgiveness is coming.
“Some clients are really gung-ho about being debt-free and for those clients, we just fully tackle all of their loans regardless of the political state,” said Nathan Bender, lead planner at Black Bishop Financial Group.
Minimize Your Income
Some advisors are telling clients to prepare for income-based loan forgiveness.
Chris Diodato, founder of WELLth Financial Planning in Palm Beach Gardens, Florida, is telling clients to reduce their gross adjusted income, so they have a better chance of qualifying for potential federal forgiveness programs.
Strategies for this include maxing out pre-tax contributions to employer retirement plans, and putting as much money as possible into health savings and flexible spending accounts.
For business owners and independent contractors, paying for future expenses this year could also be a wise move. This is similar to the advice he gave in 2020 for clients to qualify for stimulus checks, he said.
“The moratoriums are the Biden administration kicking the can until he has enough support in Congress to pass some sort of much more comprehensive reform,” Diodato said. “I don't know if it will be a full forgiveness package or a certain amount, but if there are going to be income caps, they're probably going to go off previous years’ tax returns.”
This article was provided by Bloomberg News.