On May 24, President Trump signed a bill that repeals parts of the Dodd-Frank Act. Many community banks and smaller financial institutions have been ensnared in the burdensome regulatory bureaucracy and too-big-to-fail policies meant for our country’s largest financial institutions. Easing the burden on smaller financial institutions will allow them to compete for business and help grow the economy, particularly in rural areas where access to credit has been more limited.
The legislation includes two provisions related to the repayment of private student loans. The first provision prohibits a lender from declaring default or accelerating repayment terms when a co-signer of the loan declares bankruptcy or dies. Also, if a student borrower were to die, the lender will be required to release the co-signer from any remaining debt. Here is more information, straight from the bill summary:
The second provision will make it easier for you to remove a private student loan default from your credit report. If a lender offers a rehabilitation program that involves a borrower resuming consistent payments on the loan, the borrower could ask the bank to remove the mark from their credit. The request could only be done once per loan. These new rules will apply to private loan agreements entered into 180 days or more after the bill's passage. Here is more information, straight from the bill summary:
GradFin will be closely following the implementation of this bill and all other legislative activity related to student loan debt. For more information on the bill, click here.
Pay Attention to Income Limits for the Deduction for Student Loan Interest Payments
Student loan interest is interest the borrower pays on a student loan during the repayment period. Student loan borrowers (under a certain income limitation) may deduct the lesser of $2,500 or the amount of interest they actually paid during the tax year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.
For 2017, the available benefit of the student loan interest deduction is gradually reduced (phased out) if the taxpayer’s MAGI is between $65,000 and $80,000 ($135,000 and $165,000 if the taxpayer files a joint return). Student loan borrowers can’t claim the deduction if their MAGI is $80,000 or more ($165,000 or more if they file a joint return).
Be sure to check with your student loan servicer to figure out the amount of total interest paid during the year if your income is less than the required phaseout limits. While the benefit is only $2500 per taxable year, it is still a good way to save on your tax bill.
Home Buyers Beware: Starting in 2018 the Interest Deduction for Home Equity Loans is Restricted to Home Additions / Not Refinancing Student Loans
The Internal Revenue Service issued guidance in February indicating that, as of tax year 2018, taxpayers can continue deducting interest for home equity loans – however, the deduction would only be available for reasons “used to build an addition to an existing home.” For taxpayers that use a home equity loan for personal expenses such as to refinance credit card debt or other personal reasons (such as refinancing student loan debt) the interest deduction is not available.
The guidance by the IRS was released after several questions from taxpayers and tax advocates were received shortly after Congress and the President passed into law the Tax Cuts and Jobs Act of 2017. According to the IRS, the interest deduction is suspended for "interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.”
See the IRS Guidance released on February 21, 2018 for more information.
We've obtained the U.S. Department of Education's official memorandum to the Office of Management and Budget, which attempts to explain the impact of a government shutdown on U.S. Department of Education programs. Of note to our readers and clients is the impact of the shutdown on the federal loan and grant programs.
See page 3 of the memo for more information.
The memo, written by Education Secretary Betsy Devos, states that: "As a result of the permanent and multi-year appropriations, Pell Grants and student loans could continue as normal for some time. Staff and contractors associated with these areas will continue to work, and only skeletal program operations would continue under the “significant damage” standard. Should multi-year, unobligated funding be available, these funds could help cover costs for a period of time."
In other words, it really is going to depend on the length of the shutdown before we see any noticeable or significant impact on the federal loan programs. We will continue to monitor this situation and hope that a resolution is reached soon in Washington, D.C. to find a deal on government funding.
Washington, D.C. - GradFin is closely tracking new legislation (The PROSPER Act) that was approved by the U.S. House Education Committee. The legislation would make several significant changes to the federal student loan program, including capping student loan borrowing limits and modifying repayment programs. The last time any major changes were made to federal student loan laws was in 2008. This post by GradFin is a quick status update and a review of the major changes that would take place if the legislation were signed into law by the President.
Status Update - On December 13, 2017, the House Committee on Education and Workforce passed the PROSPER Act. This is the first step in the reauthorization process; however future action is required in order for these changes to be finalized. The House of Representatives is expected to pass the legislation on the floor by the full House in early 2018. It is unclear if the Senate will take action on a similar bill. In order for new legislation to be passed into law, the Senate and the House must pass identical legislation and send it to the President for his signature. For those interested in learning more about the impact of the proposals on the federal loan program, please read more about these changes below or reach out to GradFin to learn more.
New borrowing limits - The PROSPER Act proposes to cap borrowing limits for several federal loan programs.
Only Two Repayment Options - New Federal loans would come with only two repayment plans, down from the nine that exist today. The first option would be the standard, 10-year loan repayment plan of 120 equal payments and the second option would be an income-based repayment program. Under the new income-based repayment plan, borrowers would pay 15 percent of their discretionary income and the minimum payment allowed would be $25 a month. These borrowers would be required to repay the same amount of principal and interest as they would have repaid under the 10-year standard plan, so there would be no forgiveness of the principal. However, interest loans enrolled in the income-based repayment plan would be capped at whatever the borrower would have repaid under the standard 10-year plan, and any interest that accumulates in excess of that amount would be canceled.
Important Note: Current Federal "Direct" loan borrowers would continue to be eligible for all the income-based repayment options that exist today. Therefore, if you are already enrolled in a plan today, you would presumably be grandfathered in and be able to stay in this plan in the future.
Public Service Repayment Plan - Under the PROSPER Act, any new loans (known as "ONE Loans") issued by the federal government would not be eligible for the Public Service Loan Forgiveness Program, but "Direct" loans would continue to be eligible through the life of the loans. Direct Loans would be phased out after 2019.
Financial Aid Counseling - The PROSPER Act would require all recipients of federal student aid to undergo enhanced financial aid counseling. More specifically, the bill would require loan counseling to be tailored to a borrower’s individual situation as well as improve the timing and frequency by requiring annual loan counseling before an individual signs on the dotted line so the borrower, both students and parents, have the most up-to-date information.
SourceMedia and Employee Benefit News covered the event and provided a nice recap on the GradFin presentation.
Read the article here.
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