Personal Finance
Student loan forgiveness expectations may fuel borrowing
Although the fate of federal student loan forgiveness is up in the air, college students may be borrowing more for the coming year in part because of the expectation that their debt may get forgiven, recent research suggests.
With few families able to shoulder the sky-high tuition tab, students and their parents are increasingly leaning on student loans, according to Sallie Mae’s annual How America Pays for College report. Roughly half of families, or 49%, reported borrowing for college for the 2023-24 academic year, up from 41% the year prior. Sallie Mae surveyed 1,000 parents of undergraduate students and 1,000 undergraduate students ages 18 to 24 this spring.
Education debt, which now exceeds $1.7 trillion, is at an all-time high. Over the past 15 years, the total balance has more than doubled, even outpacing the rising cost of college.
Nearly half — 48% — of student loan borrowers anticipate debt forgiveness after they finish college, Sallie Mae also found. Of those who expect forgiveness, 37% plan to work in public service, while 7% say their future employer will pay for their loans. The biggest share, 47%, think the government will forgive student loans.
“Borrowing is up; at the same time, half of students expect their loans to be forgiven,” said Rick Castellano, a spokesperson for Sallie Mae. “You have to wonder, is there a correlation there?”
If the expectation is that loans are going to be forgiven, that could encourage more borrowing, he said.
According to a separate report by NerdWallet, 31% of student loan borrowers have slowed their repayments because they hope to see their loans reduced or forgiven by the federal government and 23% have stopped their student loan payments altogether for the same reason. NerdWallet polled more than 600 adults with student loans in July.
It’s still too soon to get an accurate read on how expectations of federal student loan forgiveness may filtering down to decisions about education debt, according to Sameer Gadkaree, president of the Institute for College Access and Success, a nonprofit organization that promotes college affordability.
“Given that the debt relief plans have been tied up in courts, it’s unclear how that would affect student borrowing,” he said.
The status of student loan forgiveness
‘A confusing climate’ for borrowers
“With so much litigation pending, it’s a confusing climate for student loan borrowers,” said NerdWallet loans expert Kate Wood.
For borrowers taking on new debt, consider both choice of major and future earnings potential, experts often say. Often, a good rule of thumb is not to borrow more than you expect to earn as a starting salary.
Most experts also caution against taking on student loan debt you may not be able to afford in anticipation that it will be wiped out.
For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including economic hardship and unemployment deferments, while the income-based student loan repayment plan, known as SAVE, is currently on hold.
“Those considering repayment options should try to find the best option for them based on what’s available now, not on what they think might happen in the future,” Wood said.
Israel Sebastian | Moment | Getty Images
The fourth-quarter estimated tax deadline for 2024 is Jan. 15, and missing a payment could trigger “unexpected penalties and fees” when filing your return, according to the IRS.
Typically, estimated taxes apply to income without withholdings, such as earnings from freelance work, a small business or investments. But you could still owe taxes for full-time or retirement income if you didn’t withhold enough.
You could also owe fourth-quarter taxes for year-end bonuses, stock dividends, capital gains from mutual fund payouts or profits from crypto sales and more, the IRS said.
More from Personal Finance:
At the start of 2025, nearly half of credit card users are carrying debt
As natural disasters intensify, affected student loan borrowers have options
Your paycheck could be slightly bigger in 2025 due to tax bracket changes
Federal income taxes are “pay as you go,” meaning the IRS expects payments throughout the year as you make income, said certified public accountant Brian Long, senior tax advisor at Wealth Enhancement in Minneapolis.
If you miss the Jan. 15 deadline, you may incur an interest-based penalty based on the current interest rate and how much you should have paid. That penalty compounds daily.
Tax withholdings, estimated payments or a combination of the two, can “help avoid a surprise tax bill at tax time,” according to the IRS.
What to know about the ‘safe harbor’ rules
One way to avoid penalties is by following the “safe harbor” rule, which means “you’re meeting that [IRS] pay-as-you-go requirement,” according to Long.
To satisfy the rule, you must pay at least 90% of your 2024 tax liability or 100% of your 2023 taxes, whichever is smaller.
The threshold increases to 110% if your 2023 adjusted gross income was $150,000 or higher, which you can find on line 11 of Form 1040 from your 2023 tax return.
However, you could still owe taxes for 2024 if you make more than expected and don’t adjust your tax payments.
“The good thing about this last quarterly payment is that most individuals should have their year-end numbers finalized,” said Sheneya Wilson, a CPA and founder of Fola Financial in New York.
How to make quarterly estimated tax payments
Sdi Productions | E+ | Getty Images
Nearly 3 million individuals are poised to see their Social Security benefits increase, thanks to new changes signed into law by President Joe Biden this week. But with the higher checks could come additional tax burdens.
The Social Security Fairness Act — which passed by a bipartisan majority in both the House and Senate — ends reductions of Social Security benefits for certain individuals who also receive pension income from work in the public sector as firefighters, police officers, teachers and local, state and federal employees.
Those beneficiaries are set to see an increase to their monthly benefit checks. Because the legislation applies to benefits paid throughout 2024, they will also receive lump-sum payments to make up for that time.
The details of how those increases will be implemented are now being determined, according to the Social Security Administration.
In total, the benefit increases will cost $196 billion over a decade, according to the Congressional Budget Office. The additional outlay will move Social Security’s trust fund depletion dates six months closer. The program’s combined trust funds may pay full benefits until 2035, at which point just 83% of scheduled benefits may be payable, the program’s trustees projected last year.
How Social Security benefits may change
About 2.1 million beneficiaries — those who were affected by the Windfall Elimination Provision, or WEP — may see $360 more in monthly benefits on average, according to CBO estimates as of December 2025. The WEP, which has now been eliminated, reduced Social Security benefits for workers who also had pension or disability benefits from jobs where they did not pay Social Security payroll taxes.
More from Personal Finance:
Biden signs Social Security Fairness Act
Big changes to expect from Social Security and Medicare in 2025
73% of workers worry Social Security won’t be able to pay benefits
Additionally, about 380,000 spouses would see average benefit increases of $700 and 390,000 surviving spouses would see an average of $1,190 more, according to CBO’s estimates for December 2025.
Those beneficiaries were affected by the now-defunct Government Pension Offset, or GPO, which reduced Social Security benefits for spouses, widows and widowers who also receive their own pensions from public sector work.
The elimination of the provisions in many ways simplifies retirement income planning for affected beneficiaries, financial advisors say.
“For the people who are affected by this, you’re looking at a pretty significant increase, in many cases, of what their retirement income is going to be,” said Michael Daley, director of marketing at HealthView Services. “It’s good news for them.”
For financial planners and their clients, the challenge now is gauging how much of a benefit increase to expect and when to expect it, said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.
The extra income may also present some complications when it comes to affected beneficiaries’ taxes and Medicare premiums, experts say.
Beneficiaries could see higher taxes on benefits
Social Security beneficiaries may have their benefits taxed if their income falls over certain thresholds, experts say.
The additional money may also push some affected beneficiaries into higher tax brackets, according to HealthView Services.
Notably, President-elect Donald Trump has said he wants to nix taxes on Social Security benefit income, though it remains to be seen whether that change will be put into effect. However, per current rules, up to 85% of Social Security benefit income may be taxed.
The income thresholds upon which those levies are based are not adjusted annually for inflation. Consequently, more beneficiaries are subject to those taxes on benefits over time, including middle class households, Daley said.
Those levies are determined based on a formula called combined income — the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.
Individuals pay taxes on up to 50% of their benefits if their combined income is between $25,000 and $34,000, or for married couples with between $32,000 and $44,000.
Individuals may pay taxes on up to 85% of their benefits if their combined income is more than $34,000; or for married couples with more than $44,000.
“Because Social Security benefits are taxed differently than everything else, people are going to really want to pay attention to their other sources of income,” Elsasser said of the anticipated benefit increases and lump sum payments.
For example, if a retiree has both a taxable account and traditional individual retirement account, they may want to prioritize withdrawals from the taxable account because only the gains would be taxed rather than the entire withdrawal, Elsasser explained. In the event the lump-sum payment of retroactive Social Security benefits is not distributed, they may take an IRA withdrawal later in the year.
Beneficiaries may see higher Medicare costs
Additional benefit income for individuals affected by the Social Security Fairness Act may also result in higher income-based surcharges for Medicare Parts B and D.
Medicare beneficiaries with higher incomes must pay what’s known as income-related monthly adjustment amounts, or IRMAAs, for their Part B and Part D premiums.
“If you get a lump sum but you’re not paying attention to your other incomes, you could unwittingly be pushed into higher Medicare premiums two years down the road,” Elsasser said.
That will mostly be a concern for people who are on the cusp of the income thresholds, he said.
In 2025, Medicare Part B beneficiaries who file individual tax returns with $106,000 or less in modified adjusted gross income — or married couples who file jointly with $212,000 or less — pay a standard monthly premium of $185 per month.
Beneficiaries above those income thresholds pay higher Part B premium payments, based on an IRMAA. This year’s rates are based on income on tax returns filed in 2023.
In 2025, Part D beneficiaries over the $106,000 threshold for individuals and $212,000 for married couples are also subject to income-related monthly adjustment amounts in addition to their plan premiums. Those monthly premiums are also based on yearly income reported on tax filings for 2023. In 2025, the national base Part D premium is $36.78.
Steps to take now
Beneficiaries who are affected by the Social Security Fairness Act should consider consulting with a financial advisor to assess the implications of the change on their personal financial circumstances, said Ron Mastrogiovanni, chairman and CEO of HealthView Services.
Additionally, it would help to sit down with a certified public accountant when filing their taxes to plan for 2025, he said.
The Social Security Administration also plans to provide more guidance on the new law as more details become available.
For now, the agency recommends verifying that direct deposit and mailing address it has on file is still accurate. To update that information, the Social Security recommends changing it online or calling or visiting a Social Security office in person.
Some individuals may now become eligible for Social Security benefits for the first time, now that the WEP and GPO provisions have been eliminated.
To file for benefits, the Social Security Administration recommends either filing online or scheduling an appointment with the agency.
Trump allies fret tax-cut plans at risk with GOP infighting in Congress
Missing quarterly tax payment could trigger ‘unexpected penalties’
Extra tax filing time granted for Carter remembrance
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoHomelessness rises to a record level in America
-
Personal Finance6 days agoHow to rebalance your portfolio after lofty stock returns in 2024
-
Personal Finance1 week agoAs ETF assets top $10 trillion for first time, here are trends to watch
-
Personal Finance1 week agoHere’s how to decide on the right student loan repayment plan for you
-
Economics1 week agoJimmy Carter reshaped his home town
-
Accounting5 days agoDepreciation of Assets and Key Strategies for Accurate Valuation
-
Finance7 days agoKen Griffin’s flagship hedge fund at Citadel climbs 15.1% in 2024
-
Personal Finance1 week agoHere are steps you can take to avoid overspending next holiday season