Markus Andrews

The Biden administration said on Wednesday that it would forgive $7.7 billion in student debt for more than 160,000 borrowers, its latest effort to reduce the burden of education debt on households.
The relief is a result of the U.S. Department of Education’s improvements to its income-driven repayment plans and Public Service Loan Forgiveness program.

U.S. President Joe Biden delivers remarks regarding student loan debt forgiveness in the Roosevelt Room of the White House on Wednesday August 24, 2022.
Demetrius Freeman | The Washington Post | Getty Images

The Biden administration said on Wednesday that it would forgive $7.7 billion in student loans for more than 160,000 borrowers, its latest effort to reduce the burden of education debt on households.
The relief is a result of the U.S. Department of Education’s improvements to its income-driven repayment plans and Public Service Loan Forgiveness program.

“The Biden-Harris Administration remains persistent about our efforts to bring student debt relief to millions more across the country,” said Education Secretary Miguel Cardona in a statement.
Wednesday’s loan forgiveness includes $5.2 billion for 66,900 borrowers pursuing Public Service Loan Forgiveness, and $1.9 billion for 39,200 people enrolled in income-driven repayment plans.
Another $613 million will go to 54,300 borrowers under the Biden administration’s new income-driven repayment option, known as the Saving on a Valuable Education, or SAVE, plan. That option leads to student loan forgiveness after 10 years for those who originally borrowed $12,000 or less.

Forgiveness total reaches $167 billion

After the Supreme Court struck down President Joe Biden’s sweeping student debt cancellation plan last summer, the White House has been exploring its existing authority to reduce borrowers’ balances. One area it has found fruitful: the Education Department’s already established but hard to access loan forgiveness options.

Including Wednesday’s round of relief, the Biden administration has so far excused the debt of 4.75 million borrowers, totaling $167 billion in aid. Much of that total comes from expanding the reach of and making fixes to these programs.

Historically, borrowers found these aid options were hard if not impossible to navigate, and many complained they weren’t receiving the relief to which they were entitled, consumer advocates say.
For example, income-driven repayment plans lead to loan erasure after a certain period, but the Education Department often didn’t have a proper accounting of borrowers’ timeline, reports found. The department said in 2022 it would review these accounts.
Have you recently gotten your student debt forgiven? If you’re willing to share your experience for an upcoming story, please email me at: Annie.nova@nbcuni.com

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A new Congressional proposal, the 401Kids Savings Act, would create savings accounts for children starting from birth.
As states implement similar programs, Congressional lawmakers are divided as to whether a national program makes sense.

Urbazon | E+ | Getty Images

An unequal distribution of wealth in the U.S. can make it so some children are behind from birth.
Now lawmakers are considering whether federal children’s savings accounts can help.

One proposal — the 401Kids Savings Act — would create savings accounts for all newborns. Low- and moderate- income families would receive federal contributions if their modified adjusted gross incomes falls under certain thresholds. Children in households that qualify for the earned income tax credit would receive additional aid. All families would be eligible to contribute up to $2,500 per year.
By the time some children turn 18 — particularly a qualifying low-income newborn born to a single parent — up to $53,000 may be accumulated for their benefit, according to the proposal.
Children’s savings accounts are currently available statewide in seven states — California, Illinois, Maine, Nebraska, Nevada, Pennsylvania and Rhode Island.
At the end of last year, there were 121 children’s savings account programs in 39 states serving 5.8 million children.
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The programs are aimed at helping to reduce unequal wealth distribution among American child households, which research shows is prevalent among Black and Hispanic households as compared to white households.
“All the evidence from existing programs shows that money not only unlocks opportunities for kids, it’s a smart investment that goes right back into the economy down the road,” Sen. Ron Wyden, D-Oregon, and chairman of the Senate Finance Committee, said at a Tuesday hearing.
However, implementing a federal program may come with significant costs to taxpayers, said Sen. Mike Crapo, R-Idaho, who is the ranking member on the committee.
“Expanding options to save is a worthy goal, but we must do so in a way that does not exacerbate already out-of-control government spending, or create another unsustainable government program,” Crapo said.

State child savings accounts show promise

Even without federal funding, children’s savings accounts have shown the ability to help families build wealth, William Elliott, a professor of social work at the University of Michigan, testified on Tuesday.
Existing programs provide small initial deposits ranging from $5 to $1,000, he said.
In the SEED for Oklahoma Kids experiment, which deposited $1,000 on behalf randomly selected newborn participants including low-income and Black families, the average child now has about $4,373 in their account at age 14.
“Even when family savings are minimal, significant assets accumulate in these types of accounts,” Elliott said.
The money doesn’t just help improve financial preparedness for college, he said. It has also been shown to help children’s early social emotional development, math and reading scores and increase the likelihood they will eventually enroll in college.

In Maine, the Alfond Scholarship Foundation has provided all babies born in the state with a $500 grant towards either college or future training.
To date, the foundation has invested about $78 million on behalf of 156,000 children, according to Colleen Quint, president and CEO of the Alfond Scholarship Foundation.
Families have contributed about three times that amount, or about $236 million, she said. They have also received about $29 million in matching grants from the state.
The total invested — about $344 million — grew to $477 million in the market as of the end of April, according to Quint.
Early data shows the $500 investment families receive has an outsized impact on their aspirations, savings behaviors and engagement around education, she said.
A federal program would help give residents of all states the same opportunity.
“We don’t have to imagine what a national platform would look like,” Quint said. “We can see it happening now.”

Concerns about inflation, tax implications

Critics of the children’s savings plans point out the government already deployed massive amounts of stimulus money during the pandemic, which hasn’t meaningfully boosted long-term savings.
“Savings rates are again near historic lows,” Adam Michel, director of tax policy studies at the Cato Institute, said at the hearing.
“In this case, checks from the government fueled more inflation than they did wealth building,” he said.

Other approaches may better help to address wealth inequities for young children.
Reforming the tax code can help prevent double taxation on wages when they are earned, as well as interest that accumulates on saving, Michel said. While that disincentive has been reduced for 401(k)s and 529 plans, they still come with restrictions on how the money may be used that may discourage low- and middle-income individuals from using them.
The 401Kids proposal calls for children to only have access to the funds once they turn 18. The money would have to be used for education, training, a home purchase or to start a business. The funds could also be rolled over to a Roth individual retirement account or ABLE account for children with disabilities.
Universal savings accounts, which may allow for more flexibility in uses for the money, may be a better solution, some experts said.
“Universal savings account have a benefit that they do not discourage savings for those who are concerned that the conditions for withdrawal … would stop them from addressing an emergency in their family,” said Veronique de Rugy, senior research fellow at The Mercatus Center. More

Nearly one-third of aspiring homebuyers plan to pull money from their 401(k) plan to help cover the cost, according to the Real Financial Progress Index by BMO Financial Group.
Millennials and Gen Zers are more likely than older workers to say they will pull from retirement accounts to buy a home.
While a 401(k) loan might be a better option, doing so entails its own set of risks, experts say.

Some young retirement savers say they might raid their 401(k) accounts to buy a home. Doing so, however, could be to their detriment, experts warn.
Nearly one-third (30%) of aspiring homeowners say they plan to withdraw funds from their 401(k) plan to fund a purchase, according to the Real Financial Progress Index by BMO Financial Group. BMO polled 2,505 U.S. adults this spring.

Millennials and Generation Z are more likely than older generations to say they will pull out money from their 401(k), BMO found, at 31% and 34%, respectively. To compare, only 25% of Generation X homebuyers and 16% of baby boomers plan to withdraw retirement funds for a home purchase.
“You really, really, really, really shouldn’t be taking out your retirement for a house,” said Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York City.
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Generally, early withdrawals from retirement accounts can trigger taxes and a 10% penalty, unless the account owner meets a listed exception. For both individual retirement accounts and 401(k)s, qualifying first-time homebuyers may be able to take up to $10,000 penalty-free. With Roth IRAs, owners can withdraw their post-tax contributions at any time without penalty.
Still, “it’s much better to have those dollars working for you,” said Francis, a member of the CNBC Financial Advisor Council.

While a 401(k) loan might be a better option to meet necessary payments for a home purchase, doing so entails its own set of financial risks, experts say.

‘Significant financial consequences’ for withdrawals

More savers tapped into their retirement savings last year, which experts say shows that some households were facing financial distress. In 2023, 3.6% of savers took out hardship withdrawals, up from 2.8% in 2022, according to Vanguard’s How America Saves 2024 preview.
But making withdrawals from your 401(k) plan can have “significant financial consequences,” said Tom Parrish, head of lending at BMO. Not only will you be denting your funds set aside for retirement, early withdrawals can also often subject you to associated penalty fees and taxes, he said.

“There’s a reason there’s limitations to these accounts. They’re in your favor,” said Clifford Cornell, a certified financial planner and an associate financial advisor at Bone Fide Wealth in New York.
For example, a 30-year-old worker who left $10,000 in their 401(k) instead of withdrawing it could end up with nearly $77,000 more for retirement at age 65, assuming average annual returns of 6%.

The pros and cons of 401(k) loans

While experts say taking out a loan against your 401(k) is generally a bad idea, it can be a more palatable option for the down payment or part of closing costs of a home, versus a withdrawal.
Federal law allows workers to borrow up to 50% of their 401(k) account balance or $50,000, whichever is less, without penalty as long as the loan is repaid within five years.
“The key thing is to ensure that you pay that back over that period of time,” Parrish said.
However, if you leave your company — whether you’re laid off or find a new job — most employers will require your outstanding balance be repaid more quickly.

Another risk is that you overstretch on your home budget. Purchasing a home entails long-term, real commitments, said Francis. Not only are buyers responsible for down payment, moving and closing costs, they then also have ongoing payments for the mortgage, real estate taxes and maintenance costs to consider.
“It’s going to be a very expensive thing for you to do,” she said. If “any little domino falls the wrong way,” you might not be able to pay neither the 401(k) loan nor the mortgage, putting yourself in a “real deep financial hole,” Francis said.

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Many homeowners are sitting on low-interest-rate mortgages and could face the decision of whether to sell or rent out their property when it’s time to move.
Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an interest rate below 4% during the fourth quarter of 2023.
The average 30-year fixed-rate mortgage was around 7% in May.
You should weigh affordability, hassle and possible tax breaks before renting out your property.

A “For Rent” sign is posted near a home in Houston, Texas, on Feb. 7, 2022.
Brandon Bell | Getty Images

Many Americans are sitting on low-interest-rate mortgages and could face a decision when it is time to move: sell or rent out their existing property. That choice could be tricky, especially for those eager to buy another home.
Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an interest rate below 4% during the fourth quarter of 2023, according to the latest figures from the Federal Housing Finance Agency. By comparison, the average 30-year fixed-rate mortgage was around 7% in May.

However, renting out your old home while buying another “gets very, very complicated, which is why most people don’t do it,” said Keith Gumbinger, vice president of mortgage website HSH.
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Homeownership has become increasingly unaffordable amid higher interest rates and soaring home values. That makes qualifying for a second mortgage harder, especially without tapping equity from your original property, Gumbinger said.
The typical down payment for first-time homebuyers was 8% in 2023, compared to 19% for repeat buyers, based on transactions from July 2022 to June 2023, according to a survey from the National Association of Realtors.
Plus, if you are using rental income to qualify for the second mortgage, lenders typically only consider 75% of your proceeds, Gumbinger said.

Renting out your home isn’t ‘easy money’

You also need to consider whether you have the time or desire to manage a rental property, said certified financial planner Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts.
“Be careful about wanting to be a landlord,” he said. “It’s not the panacea you think it is.”

Be careful about wanting to be a landlord. It’s not the panacea you think it is.

Kashif Ahmed
President of American Private Wealth

Ahmed, who owns rental property in Austin, Texas, warned that some first-time landlords do not consider the costs of ongoing maintenance, lower rents or vacancies, among other expenses.
Plus, you will typically pay about 25% more for insurance as a landlord compared to your standard homeowners policy, according to the Insurance Information Institute.
“It’s not easy money” after factoring in the stress and added costs, Ahmed said.

The capital gains tax break is a ‘huge factor’

If your original home has significant equity, you will also need to consider the capital gains exemption for primary residences.
Married couples filing together can earn up to $500,000 on the sale without owing capital gains taxes and single filers can make $250,000.
But there are strict IRS rules to qualify.
Renting your home starts the clock for the “residence test,” which says the home must be your primary residence for 24 months of the five years before the sale. The 24 months do not need to be consecutive.
“It’s a huge factor,” said CFP David Flores Wilson, managing partner at Sincerus Advisory in New York. “Those numbers go into projections.”
Of course, the choice to sell your first home or rent it out ultimately hinges on your financial plan, and cash flow changes can affect retirement and other goals, he said.

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Americans have been grappling with higher food costs since 2021.
To get relief, some are turning to credit cards, buy now, pay later programs or payday loans.
But those balances can be difficult to pay down due to a higher cost of living.

Young woman feeling concerned about grocery prices on the bill in the supermarket.
Lordhenrivoton | E+ | Getty Images

Many shoppers have been shocked by what they pay at the grocery store checkout.
Food prices shot up amid broader inflation in recent years, and remain high for many staples.

As consumers struggle with elevated food costs that can lead to unpaid debt balances.
Many families dipped into their savings or turned to credit cards, buy now, pay later installment programs or payday loans to pay for groceries in 2023, according to new research from the Urban Institute.
While those payment methods can be a lifeline, they may also lead to financial instability.
“The rate of price increases is slowing, but households are still paying more today for groceries than they did last year,” said Kassandra Martinchek, senior research associate at the Urban Institute.

“That might mean that folks are having to rely on liquidity sources other than their income to be able to meet their very basic needs, their food needs,” she said.

It’s not just those who are most financially disadvantaged who are experiencing these challenges, according to Martinchek.

Expiring pandemic aid, inflation affect grocery bills

Consumers have been grappling with higher food prices since 2021. For some, coping with those costs has been more difficult as pandemic-era aid expired. Enhanced allotments to Supplemental Nutrition Assistance Program, or SNAP, benefits expired in March 2023, leading the average individual to receive about $90 less in benefits per month.
About 70% of all grocery transactions are through credit or debit cards, the research found. Those payment methods carry risks, especially for consumers who can’t pay off the balance in full.
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In 2023, the average annual percentage rates for credit cards rose to 22.8%, the highest rate on record, according to the Urban Institute.
“When that unused credit limit is there in front of you, sometimes it looks like a lifeline,” said Bruce McClary, senior vice president at the National Foundation for Credit Counseling. “In some circumstances, that lifeline is really a cinderblock.”

Grocery charges can lead to missed payments

While 33.4% of adults who used a credit card for groceries repaid the charges in full, 20% of adults paid less than the full balance but always paid the minimum payment. Meanwhile, 7.1% did not make the minimum payments.
Households with greater levels of food insecurity were more likely to use payday loans, buy now, pay later programs or savings to pay for basic needs, according to the Urban Institute.
Of those who used buy now, pay later for groceries, 37% of adults missed payments on those loans.
Adults with lower levels of food security were also likely to experience debt repayment challenges.

Certain policy changes could help alleviate those struggles, according to the Urban Institute research, such as increasing SNAP and other social safety net supports; expanding financial options to help families in need and making credit counseling and debt-management services more broadly available.
Individuals and families who are currently struggling can take steps to help avoid turning their grocery store visits into lasting debt balances.
By shopping with cash instead of credit, that can help limit spending to an exact amount, McClary said.
For debtors who feel stuck, talking to a nonprofit credit counseling agency can help with budgeting and managing debt, he said.
“If you can’t do it yourself, somebody’s there to help,” McClary said.

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In attempts to fix the country’s $1.6 trillion student loan system, the Biden administration has routinely announced forgiveness of large shares of that debt.
Here’s what to know about the aid programs that have led to that relief, including income-driven repayment plans and Public Service Loan Forgiveness.

President Joe Biden announces student loan relief with Education Secretary Miguel Cardona, right, in the Roosevelt Room of the White House in Washington, D.C., Aug. 24, 2022.
Olivier Douliery | AFP | Getty Images

In attempts to fix the country’s $1.6 trillion student loan system, the Biden administration has routinely announced forgiveness of large shares of that debt.
In total, the U.S. Department of Education has canceled almost $160 billion in federal student loan debt for nearly 4.6 million borrowers since President Joe Biden entered office.

Here’s what to know about the aid programs that have led to that relief.

Income-driven repayment plans

Income-driven repayment plans, which date back to 1994, allow student loan borrowers to pay just a share of their discretionary income toward their debt each month and to get any remaining debt forgiven after a set period. There are four different plans.
Many borrowers paid into the system for years without getting that promised cancellation, explained higher education expert Mark Kantrowitz.
“The loan servicers weren’t keeping track of the number of qualifying payments,” Kantrowitz said in an earlier interview with CNBC.
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The Biden administration has been evaluating millions of borrowers’ loan accounts to see if they should have had their debt forgiven.
It has also been granting borrowers who consolidate loans a one-time payment count adjustment. That gives them credit toward all their loans based on the one they have been making payments on for the longest, as well as for certain periods that previously didn’t count, including certain months spent in deferments or forbearances.
So far, nearly 1 million people have benefited from the improvements to income-driven plans, receiving almost $50 billion in debt cancelation.
Most people with federal student loans qualify for income-driven repayment plans. Options for these plans and applications are available at studentaid.gov. In some cases, borrowers will want to request a loan consolidation by June 30 to qualify for the Biden administration’s account adjustments.

Public Service Loan Forgiveness

Navigating the Public Service Loan Forgiveness program has been famously difficult. 
The program, which former President George W. Bush signed into law in 2007, allows employees of the government and certain not-for-profit entities to have their federal student loans discharged after 10 years of on-time payments.
The Consumer Financial Protection Bureau in 2013 estimated that 25% of American workers may be eligible.
However, after some borrowers got the wrong information from their servicers about the program’s requirements, many of them hit walls. Those borrowers frequently found that some or all of their qualifying payments didn’t count because they had a loan or were enrolled in a payment plan not covered under the initiative.

The Biden administration has tried to reverse the trend of borrowers being excluded from the relief on technicalities. It has broadened eligibility and allowed people to reapply for the relief, as long as they were working in the public sector and paying down their debt.
Some 876,000 public servants have gotten their debt erased as a result, amounting to more than $62 billion in relief.
With the PSLF help tool, borrowers can also search for a list of qualifying employers under the program and access the employer certification form. They can head to studentaid.gov to learn about all the program’s requirements.

Borrower defense

Another 1.6 million borrowers have been able to eliminate their debt over the past few years because of the Borrower Defense Loan Discharge. These people received more than $28 billion in relief.
You may be eligible for a full discharge of your Direct Loans, Federal Family Education Loan (FFEL) Program Loans or Federal Perkins Loans if your school closed while you were enrolled or if you were misled by your school or didn’t receive a quality education.

In processing these applications, the Biden administration has begun considering cases in a group rather than requiring each attendee of a school to prove that they were misled.
Those who think they might qualify can apply with the Education Department.

Total and Permanent Disability Discharge

The Biden administration has forgiven the student debt of more than 548,000 disabled borrowers. The $14.1 billion in aid was delivered under the Total and Permanent Disability, or TPD, Discharge.
The Department of Education has gotten better at identifying borrowers who are disabled and in need of this relief by accessing information from the Social Security Administration, Kantrowitz said.
Borrowers may qualify for a TPD discharge if they suffer from a mental or physical disability that is severe and permanent and prevents them from working. Proof of the disability can come from a doctor, the Social Security Administration or the Department of Veterans Affairs.

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