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Don’t Put Off Student Loan Planning

By Ryan Glinn, CFP®, MBA, , CLTC®

The student loan debt in America hit record highs in 2020. In fact, the last ten years has seen the U.S. student loan debt increase more than 100 percent.[1] More than $1.5 trillion of outstanding student loan debt exists across more than 165 million accounts.[2] While student debt can be overwhelming, not planning for it can be costly. Tackle your loans head on and get a strategy in place to take them out in the most efficient manner.

Understanding your loan. A “subsidized” loan does not accrue interest until payment is due. “Unsubsidized” loans will start to accrue interest immediately. Private, Graduate PLUS, and Parent PLUS loans typically start accruing interest immediately as well. Working to make payments while interest is accruing can pay dividends long-term. Right now, executive order has placed an interest-free pause on non-private student loan payments through October 1, 2021.

While everyone’s situation is different, debt planning typically revolves around reducing interest paid. The catch with student loans, however, is that some folks qualify for loan forgiveness. The primary planning question tends to be, “Do I pay my loans off outright or do I angle for forgiveness?”

In the past, this came down to math. Loan forgiveness typically occurs after 20 or 25 years of payments, but the forgiven amount is included as taxable income. This extra income generates a tax bill that often hits folks in their highest earning years. Tax brackets are difficult to forecast as well, particularly without knowing legislative impacts. That said, a typical loan forgiveness strategy would be to minimize monthly loan payments while saving money on the side to pay for the future tax bill. Lowering income-based monthly payments can be done by reducing your adjusted gross income (AGI). Contributions to qualified retirement plans such as 401(k)’s or Health Savings Accounts and Flexible Spending Accounts can accomplish this. Filing taxes separately can also reduce loan payments, especially when the highest earning spouse does not have loans. Furthermore, a couple filing separately could choose to have the loan-holding spouse make all their pre-tax retirement contributions. This would further reduce the loan-holder’s AGI, thereby reducing the income driven payment. However, as of First quarter 2021, the COVID-19 relief bill was signed into order allowing student loan forgiveness to be tax-free until 2026. This measure will affect income-driven repayment plans the most. If you have any questions or would like to review your student loans, please contact a Financial Professional.

Forgiveness is not for everyone. Many times, the math will dictate that a traditional pay-down makes the most financial sense. That said, many people still hold student debt sitting at around 6% interest. Refinancing may be wise to consider during this historically low interest rate environment. Just remember that if you refinance with a private company such as SoFi, Laurel Road, or Credible that forgiveness and other Federal relief is off the table.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.

The example(s) given are hypothetical and are for illustrative purposes. Actual results may vary from those illustrated

 This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice.  The services of an appropriate professional should be sought regarding your individual situation.


[1] CNBC. December 22, 2020.

[2] “Student Loan Debt Reaches Record High.” Experian. 2020.

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