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After a record high 8.7% Social Security cost-of-living adjustment for 2023, beneficiaries may owe more taxes on their benefit income.
Lawmakers on both sides of the aisle have proposals to eliminate those levies.

Alistair Berg | Digitalvision | Getty Images

A record 8.7% cost-of-living adjustment helped Social Security beneficiaries stave off the effects of inflation in 2023.
But as they file their federal returns this tax season, they may be surprised to find more of their benefit income has been taxed.

Capitol Hill lawmakers on both sides of the aisle have put forth proposals to eliminate those levies on benefit income altogether.
Rep. Angie Craig of Minnesota, who is championing a bill with fellow Democrats, calls the idea a “win-win.”
“It’s a tax cut for seniors and a way to ensure more Americans can depend on the Social Security benefits they’ve earned,” Craig said in a statement.
But experts say eliminating taxes on Social Security benefit income may be a tough ask as the program faces a funding shortfall.

COLAs go up, but tax thresholds stay the same

The 8.7% cost-of-living adjustment, or COLA, for 2023 — prompted by record high inflation — was the biggest annual increase in four decades. The Social Security Administration estimated it would put an extra $140 per month on average in beneficiaries’ monthly checks.

The year before — 2022 — the cost-of-living adjustment was 5.9%.
Both increases were substantially higher than the 2.6% average annual increase to benefits over the past 20 years due to record high increases in prices.
As inflation has started to subside, a 3.2% cost-of-living adjustment for 2024 has come closer to that average.

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But even as recent annual adjustments spiked, the thresholds at which Social Security benefits are taxed have stayed the same.
Up to 85% of Social Security benefit income may be taxed.
The levies are applied to combined income, or the sum of half your benefits and total adjusted gross income and nontaxable interest.
If your combined income as an individual tax filer is between $25,000 and $34,000 — or between $32,000 and $44,000 if married and filing jointly — you may pay taxes on up to 50% of your benefits.
If your combined income is more than $34,000 and you file individually — or if you’re married and file jointly and have more than $44,000 in combined income — up to 85% of your benefits may be taxed.

More may owe taxes on Social Security income

This year, some Social Security beneficiaries may see their benefits taxed for the first time, according to the Senior Citizens League. A 2023 survey from the nonpartisan senior group found 23% of respondents who had been receiving Social Security for three or more years paid taxes on their benefits for the first time that year.
That share may increase this tax season following the 8.7% cost-of-living increase in 2023, according to the group.
But just how much more beneficiaries will pay in taxes due to the “unusually large COLA” for 2023 depends on their personal circumstances, said Tim Steffen, a certified financial planner and the director of advanced planning at Baird.

“Whenever income is up, it’s reasonable to expect your tax liability to be as well, although that really depends on other income and deductions [you] might have between last year and this year, too,” Steffen said.
Over time, because Social Security’s combined income thresholds don’t change, more beneficiaries can expect to pay taxes on the money from their monthly checks.
“At a certain point in the future, essentially everyone will be paying taxes on their Social Security benefits,” said Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center.

Proposals aim to eliminate ‘double tax’

Some lawmakers have decried a so-called “double tax” that those levies on benefits impose after beneficiaries paid into the system through payroll taxes.
“This is simply a way for Congress to obtain more revenue for the federal government at the expense of seniors who have already paid into Social Security,” Rep. Thomas Massie, R-Ky., who is sponsoring the Republican bill, said in a statement.
While both sides of the aisle have proposals to eliminate taxes on Social Security benefits, they differ on how to pay for it.
Craig’s proposal — called the You Earned It, You Keep It Act — would pay for the change with transfers from Treasury general funds and applying the Social Security payroll taxes to earnings over $250,000. Currently in 2024, the first $168,600 in employee wages is subject to the Social Security payroll tax.
The bill, which has seven Democratic co-sponsors, would help increase Social Security’s ability to make benefit payments on time and in full by 20 years, according to an analysis by the program’s chief actuary.
Massie’s proposal — called the Senior Citizens Tax Elimination Act — would pay for the cost of eliminating taxes on benefits through government fund transfers outside of the Social Security trust funds. The proposal, with 30 Republican co-sponsors, would not include any tax increases.

Not a ‘high probability of legislative success’

The idea of nixing taxes on Social Security benefits will likely be popular with the retirees who pay them. More than half of seniors — 58% — said the income thresholds for taxes on Social Security benefits should be updated to today’s dollars, according to a Senior Citizens League survey conducted last year.
But it may be tougher to get the change passed by lawmakers.
“They’re really popular messaging bills,” Sprick said. “But that doesn’t translate to a high probability of legislative success.”
Authorizing general fund transfers to shore up Social Security is “deeply unpopular” in Congress, Sprick said.
Social Security’s tax policies are already progressive, with just around 40% of beneficiaries owing levies on their benefit income, he noted.
Because of that, other changes to help the bottom 60% who do not owe taxes — such as providing higher income replacement for lower earners or a guaranteed level of minimum benefits — may better help those retirees, Sprick suggested. More

Smart Tax Planning

If you sold a home in 2023, part of your profit could be subject to capital gains taxes.
Single homeowners can shield up to $250,000 of home sales profit from capital gains taxes and married couples filing jointly can exclude up to $500,000, provided they meet IRS rules.
You can also increase the home’s “basis,” or purchase price, by tacking on the cost of certain improvements.

Witthaya Prasongsin | Moment | Getty Images

Despite a slump in U.S. home sales, many homeowners made a profit selling property in 2023. Those gains could trigger a tax bill this season, depending on the size of the windfall, experts say.
In 2023, home sellers made a $121,000 profit on the typical median-priced single-family home, according to ATTOM, a nationwide property database. That’s down from $122,600 in 2022.  

But sometimes profits exceed the IRS limits for tax-free gains and “it’s a shock” for sellers, said certified public accountant Miklos Ringbauer, founder of MiklosCPA in Los Angeles. 

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Still, “the tax laws were written to encourage homeownership,” and many sellers qualify for a tax break, Ringbauer said.  
Single homeowners can shield up to $250,000 of home sales profit from capital gains taxes and married couples filing jointly can exclude up to $500,000, provided they meet IRS eligibility.
If you’ve owned the property for more than one year, profits above $250,000 and $500,000 are subject to long-term capital gains taxes, levied at 0%, 15% or 20%, depending on your 2023 taxable income. (You calculate “taxable income” by subtracting the greater of the standard or itemized deductions from your adjusted gross income.)

Who qualifies for the capital gains exemptions

There are strict rules to qualify for the $250,000 or $500,000 capital gains exclusions, Ringbauer warned. 

The “ownership test” says you must own the home for at least two of the past five years before your home sale — but that’s only required for one spouse if you’re married and filing jointly.

There’s also a “residence test,” which requires the home to be your primary residence for any 24 months of the five years before sale, with some exceptions. (The 24 months of residence can fall anywhere within the five year period, and it doesn’t have to be a single block of time.)
Both spouses must meet the residence requirement for the full exclusion.
A partial exclusion may also be possible if you sold your home because of a workplace location change, for health reasons or for “unforeseeable events,” according to the IRS.
Generally, you can’t get the tax break if you received the exclusion for the sale of another home within two years of your closing date.

How to reduce your home sale profits

If your capital gain exceeds the IRS exclusions, it’s possible to reduce your profits by increasing your home’s original purchase price or “basis,” according to certified financial planner Assunta McLane, managing director of Summit Place Financial Advisors in Summit, New Jersey.
You can increase your home’s basis by adding certain improvements you’ve made to the property to “prolong its useful life,” according to the IRS.
For example, you could tack on the cost of home additions, updated systems, landscaping or new appliances. But the cost of repairs and maintenance generally don’t count.

Of course, you’ll need detailed records to show proof of capital improvements, because “estimates don’t work when it comes to an audit,” Ringbauer said.
After a home sale, the IRS receives a copy of Form 1099-S, which shows your closing date and gross proceeds. But you need paperwork to prove any changes to your home’s basis.
Failing to keep home improvement records throughout ownership is a “common mistake,” McLane said. More

Several factors may affect your path toward homeownership — one may be your parents.
Homeowner parents are more likely to help young adult children with down payments, help them save money and even show them how to achieve homeownership, experts say.

Maskot | Digitalvision | Getty Images

Several factors may affect your path toward homeownership — one may be your parents.
“If your parents are homeowners, you’re more likely to be a homeowner,” said Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania.

Homeowner parents are more likely to directly assist their children with down payments through gifted money or loans, create multigenerational households to help young adults save money and even pass along firsthand knowledge of how to achieve homeownership, experts say.
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The tendency follows a broader underlying phenomenon or “an intergenerational transmission of status,” said Dowell Myers, a professor at the University of Southern California’s Sol Price School of Public Policy.
“If your parents are more educated, you’re more educated. If a parent’s more educated and they have more money, then you have more money,” said Myers, whose research focuses on linking demographic data with housing trends.

‘The bank of mom and dad’ helps fund down payments

In 2023, about 23% of first-time buyers used a gift or a loan from friends or family for the down payment of their house, according to the National Association of Realtors.

Separately, Zillow’s chief economist Skylar Olsen said in August on CNBC’s “Last Call” that 40% of first-time homebuyers source money “from the bank of mom and dad” to make their down payments, up from one-third pre-pandemic.
“Some of that is hard-won savings,” she said. “The other part is, say, a gift from family and friends.”

“Intergenerational wealth is clearly associated with homeownership,” said Wachter. If a parent is a homeowner, they are more likely to assist with their kid’s down payment, she said.
In fact, a young adult’s homeownership rate increases with household income and the effect is compounded with the parent’s homeownership status, according to a 2018 report by the Urban Institute, an economic and social policy think tank based in Washington, D.C.
If your parent is not a homeowner, “then you are less likely to have intergenerational wealth or transferred gifts from your parent for a down payment, which has become quite important as down payments have increased,” she said.
Myers agreed: “As prices rise, down payments have to get bigger. No one can save up $100,000; that’s just not realistic.”

The lack of affordable housing keeps Gen Zers at home

Nearly a third, 31%, of adult Gen Zers, or those born in 1996 or later, live at home with their parents or a family member because they can’t afford to buy or rent their own place, a report by Intuit Credit Karma found.
The lack of affordable housing options is pushing young adults to live with their parents, and multigenerational living can help young people build savings to become homeowners, Wachter said.
But it’s harder for those with parents who are not homeowners: “Renter households are often precluded from bringing more people into their home. As a homeowner, you have more space, flexibility; you’re able to do so,” she said. “There’s this intergenerational propensity to be renters.”

Having homeowner parents is ‘like a 5 percentage point bonus’

Young adults with homeowner parents are more likely to become homeowners themselves because they can obtain more information about the mortgage application process directly from their parents, the Urban Institute found.
“Because the parents are so knowledgeable about homeownership, they’re more likely to encourage their kids to do it and show them how to do it,” Myers said. “It’s like a 5 percentage point bonus by having parents who are homeowners.”

Renter parents may express more “sour grapes” about the idea of owning a home, he said: “If they didn’t do it, they’re not going to talk it up.”
Cultural factors during someone’s upbringing can also influence their potential home buying and renting activity. “It’s a valid component,” Myers said.
If a young adult grew up with homeowner parents, they are more motivated to achieve the same status because they know the benefits firsthand. More

Stock trader Gregory Rowe (R) works on the floor of the New York Stock Exchange during morning trading on February 14, 2024 in New York City. 
Michael M. Santiago | Getty Images News | Getty Images

After a brief respite, the Magnificent 7 stocks have again hit new highs on the heels of Nvidia’s blowout earnings: They now again comprise about 30% of the S&P 500. Throw in the remainder of the top 10 stocks (Berkshire Hathaway, Lilly, and Broadcom) and the concentration rises to about 33% of the S&P 500.
At the recent ETF conference in Miami Beach, Registered investment advisors were eager for advice on how they might get their clients to stop pestering them to invest more money in the Magnificent 7.

There was much handwringing about the dangers of over-concentration. RIAs worried that just like they get blamed for not being in the Mag 7 rally with sufficient zest, they will get clobbered by clients blaming them when (and if) they bubble bursts.
The hope of the RIAs was the market rally would broaden out.
Fat chance. That was two weeks ago, during a brief lull in the relentless march of Nvidia and the Magnificent 7.
But Nvidia’s earnings have killed the last hope of the “diversify” crowd. The numbers speak for themselves:
Major Sectors YTD

Van Eck Semiconductor ETF (SMH) up 20% (25% Nvidia!)
Roundhill Magnificent 7 ETF (MAGS) up 14% (14% Nvidia!)
S&P 500 up 5% (4% Nvidia!)
S&P 500 Equal-Weight ETF (RSP) up 2%
Is over-concentration really a risk?
On the surface, it sure seems that way. The comparisons are getting silly.
At the ETF conference, Dimensional Fund Advisors noted that the Magnificent 7 stocks were now just as large as the entire combined stock markets of Japan, UK, Canada, France, Hong Kong/China combined:
Magnificent 7 vs. The World
(MSCI All Country World Index weighting)
Entire U.S. stock market: 63%
Japan, UK, Canada, France, Hong Kong/China combined: 17.5%
Magnificent 7: 17%
Source: Dimensional Funds
That seems crazy, no? And yet, it’s not at all unusual to see concentration like this in prior periods. And it’s mostly around tech.
High concentration levels have happened often
It’s true concentration has risen in the last 10 years. As late as 2015, the top 10 stocks in the S&P 500 were only 17.8% of the index, according to a 2023 study by FS Investments.
But that was a low point. Most of the time, the concentration of the top 10 stocks has been far higher.
For example, in the mid-1960s the concentration of the top 10 was over 40% of the S&P 500.
The domination of the so-called “Nifty 50” stocks (which included IBM, American Express, General Electric, Polaroid and Xerox) in the 1960s and early 1970s regularly kept the concentration of the top 10 stocks over 30%.
It slowly declined over the next 20 years, settling between roughly 17% and 20% of the market capitalization of the S&P 500 between the 1980s and the late 1990s.
It shot up again during the dotcom and Internet boom, which again pushed the concentration of the top 10 to over 25% in the late 1990s.
It’s not just a U.S. issue
Other countries like China, France, and Germany have far higher concentration in the top 10 names than the U.S.
The broadest China ETF, the iShares MSCI China ETF (MCHI) has over 600 stocks. But the top 10 stocks, which include Tencent, Alibaba and Baidu, comprise 42% of the entire ETF.
Same with Germany: The iShares MSCI Germany ETF (EWG) has 57% of its weighting in 10 stocks, with 22% in just two stocks, SAP and Siemens.
Same with the United Kingdom: The iShares MSCI UK (EWU) has 50% in the top 10 holdings, with nearly a quarter in three stocks, Shell, AstraZeneca, and HSBC.
Same with France: The iShares MSCI France (EWQ) has 57% in the top 10 with just two companies — LVMH and Total — comprising 20% of the weighting.
And same with Canada: The iShares S&P/TSX 60 Index (XIU) has 45% in the top 10 holdings.
Concentration of top 10 stocks in country indexes
China 42%
Germany 57%
UK: 50%
France: 57%
Canada 45%
U.S.: 33%
Concentration has helped U.S. and index investors
You may worry about it, but concentration has been a boon to index investors and to U.S. investors in general.
We all know the majority of the gains in the last year can be attributed to a small number of mostly tech stocks. Investors who own the S&P 500 don’t have to pick those winners; they just go along for the ride.
Second, U.S. stocks are global market leaders, and when a small group becomes market leaders it almost always means the U.S. stock market outperforms the world.
That is exactly what has happened. The U.S. stock market, which was roughly 40% of the global market capitalization a short while ago, is now roughly 50% of global market capitalization.
U.S. investors in broadly diversified indexes have been richly rewarded for their “concentration risk.”
Sit back and relax a little
Here’s what it all means: Concentration is a characteristic of market cap-weighted indexes. These indexes reward the winners and penalize the losers.
The reason the Magnificent 7 has done so well is that these are the most profitable companies in the world. They are at the cutting edge of transformative technologies, particularly AI.
That’s the primary reason they are the leaders. There are also secondary reasons: globalization, which made supply chains more efficient, and the long decline in interest rates (which has come to an end).
But the bottom line is that in an era where growth has been hard to come by, these companies have plenty of it. And investors are willing to pay up.
What about comparisons to the dot-com era? The stocks at the top contribute a far greater amount to the earnings of the S&P 500 than they did in the 1990s. And the cash flow is much higher.
There’s already been a correction: It was called 2022
At the ETF conference, the big worry among the RIAs was, “But what if there’s a big correction in the Magnificent 7?”
Uh, sorry, but they already corrected. Nvidia went from roughly $292 at the start of 2022 to $112 by October of that year, a drop of 62%. The other Magnificent 7 stocks all had big drops then.
Of course they could all correct again. But the AI revolution is very real.
Nvidia’s sales tripled. Profits were up 800%. That is a very real revolution. More

80% of consumers have used a payment app, according to a survey by NerdWallet.
Democratic lawmakers are supporting a proposed rule by the Consumer Financial Protection Bureau that would require federal oversight of digital wallets and payments, forcing them to comply with federal funds transfer, privacy, and other consumer protection laws. 
Payment apps charge fees for the convenience of instantly transferring money or linking their credit cards to the app if they use Apple Cash, CashApp, PayPal or Venmo.

Close up of a woman’s hand paying with her smartphone in a cafe, scan and pay a bill on a card machine making a quick and easy contactless payment. 
D3sign | Moment | Getty Images

Payment apps have come under scrutiny by lawmakers and regulators as their usage skyrockets.
It only takes a tap to instantly send money to friends and family. Customers also use them to quickly buy goods online.

That ease of use has 80% of Americans using mobile payment apps, according to a recent survey by NerdWallet. What’s more, 50% of those respondents said they use these apps at least once a week. 
Transaction volume across all payment app service providers in 2022 was estimated at about $893 billion, according to the Consumer Financial Protection Bureau.
That agency also estimates tap-to-pay transactions from digital wallets will soar by 150% between now and 2028.
Meanwhile, there are growing concerns about financial safety for consumers.
The CFPB is focused on “erecting guardrails and some requirements and obligations for non-traditional players who are offering services very similar to a bank-based product,” said Amy Zirkle, the CFPB’s senior program manager for payments.   

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To that point, greater oversight of mobile payment apps may be coming.
Democratic lawmakers on Capitol Hill are supporting a proposed rule by the CFPB that would require federal oversight of digital wallets and payments, forcing them to comply with federal funds transfer, privacy and other consumer protection laws that they are not currently required to follow. 
Lawmakers are also calling on payment app companies to clarify their reimbursement policy if consumers get scammed and to make it easier for users to report fraud. 
“People lose their money because payment apps and banks don’t put enough measures in place to protect their customers,” said Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee, at a hearing earlier this month on scams in the banking industry. 
Still, new regulations take time to be put in place. In the meantime, experts say that consumers need to understand how these apps work, the fees that may be charged and the risks involved in storing money in a mobile payment app. 

How payment apps work 

Payment apps like Cash App, PayPal or Venmo store payment information and allow the user to make payments online or in person and send money to friends and family.
Meanwhile, Zelle, a popular peer-to-peer digital payment app, lets users trade money with friends and family directly from a bank account. That program ties directly to a bank or credit union account and transfers funds directly.
Unlike Cash App, PayPal and Venmo, Zelle does not allow a user to carry a balance in the app. 
A digital wallet, such as Apple Wallet or Google Wallet, does double duty as a payment app, using Apple Pay or Google Pay, and a place to store information like health insurance cards and loyalty cards for hotels, airlines and other merchants.

Payment app fees can be costly 

Payment apps sometimes charge fees for the convenience of instantly transferring money or linking credit cards to the app if they use Cash App, PayPal, or Venmo. 
Cash App doesn’t charge to send money that is processed within one to three business days, but instant payments have fees ranging between 0.5% and 1.75%. PayPal and Venmo, which PayPal owns, charge a fee of 1.75% of the transfer value or up to $25 for instant transfers. 

With PayPal and Venmo, the user will not pay a fee if they send money to people using your PayPal or Venmo balance from your bank account or debit card. However, if you send a payment that is funded by your credit card, you’ll be charged a 3% fee for the total amount of the transaction. CashApp also charges 3% for payments tied to credit cards.
Zelle does not charge an extra fee for an instant transfer. However, Zelle recommends confirming with your bank or credit union that there are no fees for Zelle transactions.
About 33% of mobile payment app users link their apps to a credit card, and 24% usually pay the fee to get instant transfers from the payment app to their bank account, according to the NerdWallet survey. Those fees can add up quickly. 

Money sitting in most payment apps is at risk 

Most people who use payment apps keep their money sitting in those apps instead of transferring the funds to a bank account. That’s risky, experts warn. 
“Do not treat this like a bank because it doesn’t give you the same level of protection for your funds,” CFPB’s Zirkle said. 
The money you keep in most payment apps is not Federal Deposit Insurance Corp. insured, which provides protection up to $250,000 if a federally insured bank or credit union fails. 
Because money stored on payment apps is generally not insured, it can be risky to use it for that purpose, the CFPB says.
And, if the app fails, the CFPB warns, “your money is likely lost or tied up in a long bankruptcy process.”
To help protect funds in payment apps, link the app to your bank account and transfer money from the payment app as soon as you receive it, experts say.

Protect yourself from payment app scams

 Payment apps aren’t regulated as heavily as debit and credit cards, so you might still be on the hook for unauthorized payments if a scammer gets control of your account. 
“If you get tricked and send money to a thief, you’ve authorized that transaction,” said Scott Talbot, executive vice president of the Electronic Transactions Association, representing the payments industry. “The industry is focused on educating consumers to prevent them from getting tricked in the first place.”
The Federal Trade Commission advises consumers to never give out their access codes, protect accounts with a PIN or multifactor authentication and to double-check the recipients information before sending money. 
If you get an unexpected request for money from someone you recognize, speak with them to make sure the request is from them — and not a hacker who got access to their account. If you think you may have been scammed, contact the payment app directly and also file a report with the FTC at reportfraud.ftc.gov.
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“Redditors’ participation in this offering could result in increased volatility in the market price of our Class A common stock,” the filing said.
The filing did not say what percentage of the shares would be allocated through the program.
The site’s WallStreetBets chat room was the epicenter of the meme stock craze in 2021, as users urged one another to bid up stocks such as GameStop and AMC Entertainment.

Reddit logos
Dado Ruvic | Reuters

Reddit’s initial public offering will include a quirk that allows some of its most active users to buy the stock. That could make the deal riskier for other investors.
On Thursday afternoon, the social media company’s S-1 filing revealed that some Reddit moderators and other users would get the opportunity to participate in the offering through a directed share program. This is unusual for companies, as IPOs are bought primarily by institutional investors.

“Our users have a deep sense of ownership over the communities they create on Reddit. This sense of ownership often extends to all of Reddit. We see this in our users’ passion for their communities, their desire for Reddit to be as amazing as possible, and in their disapproval when we let them down. We want this sense of ownership to be reflected in real ownership — for our users to be our owners. Becoming a public company makes this possible. With this in mind, we are excited to invite the users and moderators who have contributed to Reddit to buy shares in our IPO, alongside our investors,” the filing said.
But the so-called Redditors also earned several mentions in the “Risk Factors” section of the filing. In addition to cautionary statements about the reliance of the business on its users, the IPO participation was highlighted as its own risk.
“Redditors’ participation in this offering could result in increased volatility in the market price of our Class A common stock,” the filing said.
Many IPO investors, either formally or informally, agree to a lock-up period, which means they will not sell their allocation of shares right after trading begins. But the Reddit users that participate in the IPO will not be subject to a lock-up agreement, the filing said, which could add to volatility in the stock. The filing did not say what percentage of the shares would be allocated through the program.
Reddit users have already proven that they have a taste for trading volatile stocks. The site’s WallStreetBets chat room was the epicenter of the meme stock craze in 2021, as users urged one another to bid up stocks such as GameStop and AMC Entertainment.
As for which Redditors will be able to participate, the filing said that Reddit will invite eligible users and then allocate shares through a tiered system based on “karma (a user’s reputation score that reflects their community contributions)” as measured by other users. More

The Biden administration has forgiven student debt for millions of people.
Some borrowers have also received large refunds. Here’s what to know.

U.S. President Joe Biden delivers remarks at an event at Culver City Julian Dixon Library, in Culver City, California, U.S. February 21, 2024. 
Kevin Lamarque | Reuters

When Marlon Fox, a chiropractor in North Charleston, South Carolina, got his student debt forgiven last year, he was thrilled. His $119,500 balance was reset to zero.
But the good news didn’t end there. Just two months later, the U.S. Department of Education also refunded him $56,801.

The government is reviewing the accounts of borrowers who have been making payments on their federal student loans for a decade or more, in an effort to identify those eligible for forgiveness. The Education Department has a number of programs that lead to loan cancellation, but many borrowers have missed out on the relief because of confusing rules and lender mismanagement, advocates say.
So far, almost 3.9 million borrowers have gotten their education debt erased, totaling $138 billion in relief. As many as 300,000 people may be eligible for refunds, too, according to an estimate by higher education expert Mark Kantrowitz.
Here’s what to know.

Why are borrowers getting refunds?

Under the U.S. Department of Education’s income-driven repayment plans, student loan borrowers are entitled to get any of their remaining debt forgiven after 20 or 25 years. Yet many are stuck making payments long after that period.
“This is due, in part, to strong financial disincentives for student loan servicers to inform consumers about the program and their ability to qualify for it,” said Nadine Chabrier, a senior policy and litigation counsel at the Center for Responsible Lending.

The Education Department contracts with different companies to service its federal student loans, including Mohela, Nelnet and Edfinancial, and pays them more than $1 billion a year to do so. The companies earn a fee per borrower per month, which advocates say discourages transparency around loan forgiveness opportunities.
The service providers did not immediately respond to a request for comment.
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Even when borrowers are enrolled in these plans, servicers sometimes fail to keep a record of their qualifying payments, experts say.
“Loan servicers were not tracking the number of qualifying payments, and the automatic forgiveness was not occurring,” Kantrowitz said. “As a result, some borrowers have been making payments for years, or even decades, beyond the point at which they should have received forgiveness.”
By the time Fox’s debt was canceled, he’d been in repayment for 35 years.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers, denied that the companies benefit by veering from the government’s orders.
“We are incentivized to meet the requirements that the government sets, which includes giving borrowers the benefits that the law provides,” Buchanan said. “We are audited, and get business or lose it based on meeting those standards.”
As the Biden administration reviews the number of payments borrowers have made under income-driven repayment plans, it is canceling the debt of those who’ve been in repayment for 20 or 25 years, said Persis Yu, deputy executive director at the Student Borrower Protection Center. (The timeline to forgiveness varies by plan.)
And it is also refunding borrowers for payments they made beyond when they were eligible for cancellation.

In some cases, borrowers who’ve pursued the Public Service Loan Forgiveness program are also receiving refunds after their debt cancellation.
PSLF, signed into law by then-President George W. Bush in 2007, allows nonprofit and government employees to have their federal student loans canceled after 10 years, or 120 payments. The program has been plagued by problems, however, making people who actually get the relief a rarity.
In 2021, Karen Tongson, a professor at the University of Southern California, got her debt forgiven and was refunded $20,000 by the Education Department.
By then, she had been paying her student loans for 16 years.
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Problems with the new FAFSA have resulted in fewer students applying for financial aid.
But it’s not too late for families worried about paying for college next year to get the help they need.
These strategies are a good place to start.

Getting into college is hard enough, but figuring out how to pay for it is even trickier.
Problems with the new Free Application for Federal Student Aid only add to the stress this year.

“All of these different pieces create a concern about placement and affordability,” said Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm. “People are anxious.”
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Higher education already costs more than most families can afford, and college costs are still rising. Tuition and fees plus room and board for a four-year private college averaged $56,190 in the 2023-2024 school year. Meanwhile, a four-year, in-state public college averaged $24,030, according to the College Board.
For most students and their families, the amount of financial aid offered and the breakdown between grants, scholarships, work-study opportunities and student loans are key to covering those costs.
And yet, fewer students have applied for financial assistance at all. However, it’s not too late for families worried about paying for college next year to submit the FAFSA or reach out to the college financial aid office for more money. These three strategies can help.

1. Apply for financial aid

In ordinary years, high school graduates miss out on billions in federal grants because they don’t apply for financial aid. 
However, problems with the new FAFSA have resulted in even fewer students applying overall. As of the last tally, nearly 4 million students have submitted the 2024-25 FAFSA form so far.  
That’s a fraction of the 17 million students who used the FAFSA form in previous years, according to the U.S. Department of Education.
As of February, only 22% of the high school class of 2024 had completed the FAFSA, according to the National College Attainment Network, down roughly 45% from a year ago.
Submitting a FAFSA is also one of the best predictors of whether a high school senior will go on to college, the National College Attainment Network found. Seniors who complete the FAFSA are 84% more likely to immediately enroll in college. 
“If you’re a student and haven’t completed the FAFSA there is still time to do so and you absolutely should,” said Rick Castellano, a spokesperson for education lender Sallie Mae.
“Ultimately, you want to make the most informed decision as possible when it comes to paying for college so completing the FAFSA should still be a priority — it’s critically important when it comes to qualifying for need-based aid like grants, state-based aid, and scholarships,” he said.

2. Ask for more school aid

For families who have already filed the FAFSA but are still concerned about making ends meet, it is also possible to amend their FAFSA form or reach out to the college financial aid office for help, Greenberg said.
Because this year’s award letters are likely to look a lot different, that also opens the door for families to ask for more college aid.
For example, as part of the FAFSA simplification, families will no longer get a break for having multiple children in college at the same time, effectively eliminating the “sibling discount.”
In that case, you may be able to appeal to the college financial aid office, according to Menaka Hampole, assistant professor of finance at the Yale School of Management. “The question is whether people know that they can.”

If there are needs-based issues beyond what was noted in the financial aid paperwork, such as another sibling in college or changes in your financial circumstances, like a job loss, that should be explained to the school and documented, if possible.
Alternatively, if the financial aid packages from other, comparable schools were better, that is also worth bringing to the school’s attention in an appeal.
“It’s very important for students and families to know that financial aid offices tend to be very approachable,” Greenberg said.

3. Pursue private scholarships

It also makes sense to consider other sources for merit-based aid, Castellano advised. “Of course, continue to apply for scholarships,” he said.
In fact, there are more than 1.7 million private scholarships and fellowships available, often funded by foundations, corporations and other independent organizations, with a total value of more than $7.4 billion, according to higher education expert Mark Kantrowitz.
“Many don’t require a completed FAFSA,” Castellano said, and there are free resources that can match you to available scholarships based on your skills and interests.
Check with the college, or ask your high school counselor about opportunities. You can also search websites like Scholarships.com and the College Board.
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