Wealth Management

A 2023 survey revealed a notable shift in public opinion over the past decade about the value of a college degree: 56% of Americans think a four-year college degree isn’t worth the cost due to students graduating with significant debt and a lack of specific job skills vs. 42% who believe college is worth it. The survey numbers have almost reversed from ten years ago, while college enrollment has declined by about 15% over the same period. (1,2)

A big reason many Americans are foregoing college is the cost. For the 2022-2023 year (most recent data available), the average one-year cost for tuition, fees, room, and board was $23,250 for in-state students at a four-year public college, $40,550 for out-of-state students, and $53,430 at a four-year private college. (3) But many schools, especially “elite” private colleges, cost substantially more, with some over the $80,000 mark. (4)

Causes and Consequences

Public misgivings about college intensified during the pandemic, when academic instruction moved online, and students had to pay large tuition bills despite missing out on the positive aspects of campus life. During the 2022-2023 school year, 62% of high school graduates enrolled in college, down from 66.2% in 2019-2020. (5)

Sky-high costs and growing skepticism are not the only factors playing into enrollment declines. A hot job market and higher earnings for less-educated workers has made it easier for high school graduates to justify skipping college and head straight into the workforce. At the same time, alternative forms of job training, such as apprenticeships and certificate programs, have become more prevalent and are increasingly seen as viable educational paths toward a good job. (6)

There has been a surge of interest in public colleges, particularly state flagship universities, many of which offer robust academic and student life opportunities comparable to their private counterparts at a lower cost. Conversely, lower student enrollment is putting financial pressure on many small schools and forcing some to close their doors. (7)

FAFSA Changes Coming Soon

The Free Application for Federal Student Aid (FAFSA) typically opens every year on October 1 for high school seniors planning to attend college in the following year and for returning college students. However, due to an extensive redesign of the FAFSA, the filing season for the 2024-2025 school year will be delayed until December.

The simplified FAFSA will have fewer questions — 46 compared to 108 previously — and the direct transfer of financial information from the IRS to the FAFSA will now be mandatory. A new student aid index (SAI) will replace the current expected family contribution (EFC) terminology, and a raft of changes to the formula could impact the amount of need-based aid offered to students.

For example, the simplified FAFSA will expand Pell Grants to more low-income students and will link eligibility to family size and the federal poverty level. The income protection allowance for parents will increase by 20%, and the income protection allowance for most students will increase by 35%, which will shield more income from the needs analysis formula.

The new FAFSA will no longer provide an advantage to parents with multiple children in college at the same time. The current FAFSA divides the EFC by the number of children in college, but the new FAFSA does not. This could decrease aid eligibility significantly for middle- and high-income students.

Cash support and other money paid on a student’s behalf by grandparents or other relatives will not need to be reported on the new FAFSA, so they can help with college expenses without affecting the student’s eligibility for financial aid based on the FAFSA. (Grandparent gifts will likely continue to be counted by the CSS Profile, an additional aid application typically used by private colleges when distributing their own institutional aid.)

The Specter of Student Loans

Even with a discount on the sticker price, many students need to take out federal, and sometimes private, loans to cover college expenses. About 54% of the class of 2021 graduated with student debt averaging $29,100. (8)

Interest rates on federal student loans are based on the rate for the 10-year U.S. Treasury note and reset each year. For the 2023-2024 school year, rates have increased again and are now the highest in a decade.

In August 2022, an executive order cancelled up to $10,000 in federal student loans ($20,000 for Pell Grant recipients) for borrowers with incomes below certain limits, but the order was struck down by the U.S. Supreme Court in June 2023. (9)

As a result of the action from SCOTUS, The Department of Education recently launched the most generous federal student loan income-driven repayment (IDR) plan to date — the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan includes multiple new benefits for borrowers, some of which take effect now and others that will take effect in July 2024 when the plan is fully implemented. Learn more here and here.

Nine repayment pauses have been in effect since the pandemic began in March 2020, but payments will soon start again in October — a sobering reality for millions of borrowers after three-and-a-half years of reprieve.

Will College Pay Off?

Many people go to college because they want to pursue a lucrative career and/or qualify for a specific occupation that requires a bachelor’s degree or higher. One smart approach is to treat college choices like any other business decision — by considering the potential return on investment (ROI).

A Georgetown University analysis of public data from the U.S. Department of Education’s College Scorecard found wide disparity in lifetime earnings among college graduates. The average difference between a high school and college graduate’s lifetime wages is about $1 million, but the difference between the lowest- and the highest-paying majors is $3.4 million. Degrees in science, technology, engineering, and mathematics (STEM) had the highest ROI, followed by business and health majors. (10)

Whether a student aspires to be an engineer or a teacher, it’s important to take a hard look at earning potential when assessing the value of any academic program. Students who plan to enter lower-paying fields may fare better if they can keep their costs down and hold borrowing to a minimum.

Tips for Managing Costs

To help avoid overborrowing, here are some ways for students to reduce college costs: pick a college with a lower net price (use the net price calculator on every college’s website); focus on in-state colleges and/or attend community college for one or two years and then transfer to a four-year college; aggressively seek out need-based and merit aid; live at home or become a resident assistant to get free housing; work part time throughout college and budget earnings wisely; and if possible, use college credits earned in high school to graduate from college early.

Sources:

1-2, 5-6) The Wall Street Journal, March 31, 2023, and March 29, 2023

3, 8) The College Board, 2022

4) Harvard University, 2023; Stanford University, 2023

7) CNBC, June 17, 2023

9) The New York Times, June 30, 2023

10) Georgetown University, 2015 (most current data)

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

When considering making energy-saving home improvements, it may be helpful to have a home energy audit done. A home energy audit is an inspection and written report for a dwelling located in the United States. Fortunately, there is a federal income tax credit available equal to 30% of the amount paid for home energy audits, up to $150 per tax year. There are also credits available for many other energy-saving expenditures. The IRS has now provided some guidance on what is required to claim the credit for a home energy audit.

Background

The credit for home energy audits is part of the energy efficient home improvement credit, which allows up to 30% of the sum of amounts paid for certain qualified expenditures. There are a couple of aggregate dollar limits for certain categories of expenses as well as specific dollar limits for certain types of costs. An annual $1,200 aggregate credit limit applies to all building envelope components, energy property, and home energy audits. Building envelope components include exterior doors, windows, skylights, and insulation or air sealing materials or systems. Energy property includes certain central air conditioners, water heaters, furnaces, and hot water boilers. A separate annual $2,000 aggregate credit limit applies to electric or natural gas heat pump water heaters; electric or natural gas heat pumps; and biomass stoves and boilers.

There is also a residential clean energy property credit available for 30% of expenditures (with no overall dollar limit) for solar panels, solar water heaters, fuel cell property, wind turbines, geothermal heat pump property, and battery storage technology.

Here is a credit comparison chart for reference.

Home Energy Audit Tax Credit

As noted, the credit for home energy audits is limited to 30% of the cost of a home energy audit, up to $150 per year (30% of $500 would equal $150). It is also subject, along with building envelope components and energy property, to the annual $1,200 aggregate limit for certain items. If you claim the credit, the home energy audit should be kept as part of your tax records.

The home must be owned and used by the taxpayer as a principal residence and the audit must meet certain requirements.

• The audit must identify the most significant and cost-effective energy efficiency improvements, including an estimate of the energy and cost savings for each improvement.
• The inspection must be conducted or supervised by a qualified home energy auditor.*
• The written report must be prepared and signed by a qualified home energy auditor.
• The audit must be consistent with certain Department of Energy and industry guidelines.

The Department of Energy maintains a list of home energy auditor qualified certification programs at energy.gov.

*A home energy auditor is not required to be a qualified home energy auditor for audits conducted before January 1, 2024. For now, the credit can be claimed even if the auditor was not a qualified home energy auditor if the other requirements are met. The home energy audit tax credit cannot be claimed for home energy audits conducted after December 31, 2023, unless the audit is conducted by a qualified home energy auditor.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

The Department of Education recently launched the most generous federal student loan income-driven repayment (IDR) plan to date — the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan comes after the U.S. Supreme Court blocked federal student loan cancellation in June and before payments are set to restart in October after   more than three years of payment pauses. The SAVE Plan will be implemented in phases, but eligible borrowers can sign up online now with a “beta version” of the application.

What should I know about the SAVE Plan?

The SAVE Plan is an income-driven repayment plan that calculates a borrower’s monthly payment based on income and family size. It replaces the current Revised Pay As You Earn (REPAYE) Plan (which, before SAVE, was the most generous IDR plan).

The SAVE Plan includes multiple new benefits for borrowers, some of which take effect now and others that will take effect in July 2024 when the plan is fully implemented.1

Benefits that take effect now:

• The amount of income protected from loan payments under SAVE will increase from 150% of the federal poverty level to 225%. For a single borrower, this equates to earning less than $32,800 a year ($67,500 for a family of four). Borrowers under the threshold will have their loan payments set to $0.
• Unpaid monthly interest outside of a borrower’s monthly payment will no longer accrue, so loan balances won’t increase if borrowers make their monthly payments as required under SAVE (even in cases where a borrower’s monthly payment is set to $0).
• Married borrowers who file their taxes separately will no longer be required to include their spouse’s income in their payment calculation for SAVE. These borrowers will also have their spouse excluded from their family size when calculating payments.

Benefits that will take effect in July 2024:

• For undergraduate loans, monthly payments will be capped at 5% of discretionary income (compared to 10% of discretionary income under REPAYE), and graduate loans will be capped at 10% of discretionary income. Borrowers who have both undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based on the original principal balances of their loans.
• For borrowers with original principal  balances of $12,000 or less, remaining loan balances will be forgiven after 10 years of payments. For original loan balances over $12,000, the maximum repayment period will increase by one year for every additional $1,000 borrowed. For example, a $13,000 loan will be forgiven after 11 years of payments, a $14,000 loan will be forgiven after 12 years, and so on. (Under REPAYE, loan balances were forgiven after 20 years of payments.)

How do I enroll in SAVE?

There are different ways to enroll in the SAVE Plan.

• Borrowers who are already enrolled in the REPAYE plan will be automatically enrolled in the SAVE plan, and their monthly payments will be adjusted automatically with no action needed on their part.
• Borrowers who want to enroll in SAVE (or switch from another plan besides REPAYE) will need to log in to the federal student aid website to fill out an application. The application is estimated to take less than 10 minutes to complete, and borrowers will need their FSA ID, financial information, personal information, and spouse’s information (if applicable). The current SAVE application is a beta version, but according to the Department of Education, borrowers who apply using the beta version will have their applications processed and will not need to resubmit another application later.
• Borrowers who are in default on their federal student loans will need to get their loans back in “good standing” before being eligible for SAVE.  Default borrowers can do this through the government’s Fresh Start Program.
• Borrowers who are enrolled in the Public Service Loan Forgiveness Program will have their remaining loan balances forgiven after 10 years, regardless of which IDR plan they are enrolled in.

For more information about the new SAVE Plan, and to see estimated monthly payments based on income and family size, visit the federal student aid website.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Sources:

1) U.S. Department of Education, 2023

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

If you’re covered by Medicare, here’s some welcome news — Medicare drug coverage can help you handle the rising cost of prescriptions. If you’re covered by Original Medicare, some Medicare Cost Plans, Medicare Private Fee-For-Service Plans, or Medicare Medical Savings Account Plans, you can sign up for a Medicare Prescription Drug Plan (Part D) offered in your area by a private company or insurer that has been approved by Medicare.

Although prescription drug plans vary, all provide a standard amount of coverage set by Medicare. Every plan offers a broad choice of brand name and generic drugs at local pharmacies or through the mail. However, some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others, so you’ll want to choose the plan that best meets your needs and budget.

Most Medicare Advantage (Part C) plans also offer prescription drug coverage.

How much will it cost?

What you’ll pay for Medicare drug coverage depends on which plan you choose. But here’s a look at how the cost of Medicare drug coverage for a standard plan is generally structured. All figures are for 2023.

A monthly premium. Most plans charge a monthly premium. Premiums vary considerably, but average $31.50.(1) This is in addition to the premium you pay for Medicare Part B. You can have the premium deducted from your Social Security check, or you can pay your Medicare drug plan company directly. If your modified adjusted gross income is above a certain amount, you may also pay a Part D income-related monthly adjustment amount (IRMAA). The Social Security Administration will contact you if you have to pay Part D-IRMAA.

Annual deductible. Plans may require you to satisfy an annual deductible of up to $505. Deductibles vary widely, so make sure you compare deductibles when choosing a plan.

Initial coverage phase. Once you’ve satisfied the annual deductible, if any, you’ll generally need to pay 25% of your prescription costs and your Medicare drug plan will pay 75% of your costs until they total $4,660 (including the deductible).

Coverage gap phase. After the initial coverage phase, there’s a coverage gap (also called the “donut hole”). In this phase, you’ll pay no more than 25% of costs for both brand-name and generic drugs.

Catastrophic coverage phase. Once you’ve spent $7,400* out-of-pocket you enter the “catastrophic” phase. Your Medicare drug plan will then generally cover at least 95% of any further prescription costs. For the rest of the year, you’ll pay either a coinsurance amount (e.g., 5% of the prescription cost) or a small copayment for each prescription, whichever is greater.

Again, keep in mind that all figures are for 2023 only, and costs and limits vary among plans. Not all plans will work exactly this way. For example, some plans may charge a copayment that is smaller than 25% of prescription costs in the initial coverage period or offer even lower costs during the coverage gap.

*Costs that help you reach catastrophic coverage for the year include your deductible, what you paid during the initial coverage period, and what you paid in the coverage gap. The discount you get on brand-name drugs also counts — you get credit for almost the full price of brand-name drugs purchased in the coverage gap, because you get credit for both the discounted price you actually paid (25% of the cost) and what the manufacturer paid to discount the price for you (70% of the cost).

What if you can’t afford coverage?

Extra help with Medicare drug plan costs is available to people who have limited income and resources. Medicare will pay all or most of the drug plan costs of people who qualify for help. If you haven’t already received a letter telling you that you have automatically qualified for help, you can apply online at the Social Security website, ssa.gov, or at your local Medicaid office.

When can you join?

Individuals new to Medicare have seven months to enroll in a drug plan (three months before, the month of, and three months after becoming eligible for Medicare). Current Medicare beneficiaries can generally enroll in a drug plan or change drug plans during the annual election period (also called the open enrollment period) that occurs between October 15 and December 7 of each year, and their Medicare prescription drug coverage will become effective on January 1 of the following year. If you qualify for special help, you can enroll in a drug plan at any time during the year. If you have a Medicare Advantage plan, you can switch to another plan with or without drug coverage or switch to Original Medicare (and join a separate Medicare drug plan) during Medicare Advantage’s open enrollment period that runs from January 1 through March 31 each year. Certain other events may qualify you for a Special Enrollment Period outside of the annual election period when you can enroll in a plan or switch plans.

If you already have Medicare drug coverage, remember to review your plan each fall to make sure it still meets your needs. Before the start of the annual election period, you should receive a notice from your current plan letting you know of any important plan modifications or additional plan options. Unless you decide to make a change, you’ll automatically be re-enrolled in the same drug plan for the upcoming year.

Do you have to join?

No. The Medicare prescription drug benefit is voluntary. However, when deciding whether or not to enroll, keep in mind that if you don’t join when you’re first eligible, but decide to join in a future year, you’ll pay a premium penalty that will permanently increase the cost of your coverage.

There’s an exception to this premium penalty, though, if the reason you didn’t join sooner was because you already had creditable prescription drug coverage, defined as coverage through another source (such as employer health plan) that was at least as good as the coverage available through Medicare. If you have coverage through another source, talk to your benefits administrator, insurer, or plan before making changes to your coverage. If you drop your coverage, you may not be able to get it back.

What happens after you join?

Once you join a plan, you’ll receive a prescription drug card and detailed information about the plan. In order to receive drug coverage, you’ll generally have to fill your prescription at a pharmacy that is in your drug plan’s network or through a mail-order service in that network. When you fill a prescription, show the card to the pharmacist (or provide the card number through the mail) even if you haven’t satisfied your annual deductible, so that your purchase counts toward the deductible and benefit limits.

What if you have questions?

If you have questions about the Medicare prescription drug benefit, you can get help by calling 1-800-MEDICARE (1-800-633-4227) or by visiting the Medicare website at medicare.gov. The website includes a Medicare Plan Finder that you can use to find information about plans in your area. If you need personalized counseling and assistance, you may want to contact your State Health Insurance Assistance Program (SHIP).

You should compare the details of each plan available in your area before choosing one. You can get personalized plan information at the Medicare website, medicare.gov, or by calling a Medicare counselor at 1-800-MEDICARE.

New for 2023

Part D plans will now offer all covered insulin products at a monthly cost of $35 or less. They will also fully cover recommended vaccines (no copays, deductibles, or coinsurance will apply under Part D).

Choosing a Medicare Prescription Drug Plan

• Start by making a list of all the prescription drugs you currently take and the price you pay for them to see how much you’re spending on prescription drugs.
• Next, compare plans at the Medicare website. Does each plan cover all of the drugs you currently take?
• What deductible and copayments does each plan require?
• What monthly premium will you pay?
• What pharmacies are included in each plan’s network?
• Finally, ask for help. Personalized counseling is available through your State Health Insurance Assistance Program, or you can call a Medicare customer representative at 1-800-MEDICARE.

Sources:

1.  Centers for Medicare & Medicaid Services

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

This past June, the Supreme Court struck down President Biden’s plan to cancel up to $20,000 in federal student loan debt for qualified borrowers.  As a result, millions of student loan borrowers are scheduled to start paying back their loans in October after a three-and-a-half-year reprieve.

Fraudsters and scam artists have already begun to prey on vulnerable borrowers by posing as legitimate debt relief companies, promising to help them repay their loans. Many of them use aggressive tactics, make false claims, and charge unnecessary fees. If you are getting ready to repay your student loans, you may be contacted by companies offering to help you.  Before you act, here are some signs that you might be dealing with a student loan repayment scam.

Up-front or monthly fees

Student loan repayment scams often try to charge an up-front or monthly fee for programs that you can normally access for free. It’s important to remember that you do not have to pay anyone to help you manage your student loans. Student loan forgiveness, discharge, consolidation, forbearance, and deferment are some of the free programs offered by most loan servicers.

High-pressure tactics

Some scam artists will use high-pressure tactics to try to get you to take advantage of an offer or program.  They may instruct you to act immediately or say that your student loan has been flagged.  They may even threaten you with legal action or wage garnishment.  A legitimate company will never use these types of aggressive tactics or pressure you to act quickly when contacting you about your student loan repayment options.

Requests for personal and/or financial information

A scammer may ask you for personal and/or financial information, such as your Social Security or bank account number or your Federal Student Aid (FSA) login information. Never share your personal or financial information with anyone via email, text message, or over the phone.

False claims of affiliation

Scam artists may also falsely claim to be affiliated with your loan servicer or an official organization, such as the U.S. Department of Education. Never use the contact information provided in an email, text, or voice message from an unknown sender, because it may be tied to a scam. Only use the contact information that is provided on your loan servicer’s website or billing statement.

Attempts to come between you and your loan servicer

Be wary of any company that attempts to come between you and your loan servicer.  Scam artists may do this by instructing you to make your loan payments directly to them or by asking you to communicate with them instead of your loan servicer. Always refer to your loan servicer when making payments on your student loans and contact them directly with any questions about your loans or loan repayment.

If you are ever the victim of a student loan repayment scam, be sure to report it immediately to your student loan servicer, the Federal Trade Commission at ReportFraud.ftc.gov, and your state’s attorney general.

Source: Consumer Financial Protection Bureau, 2022–2023

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.