You should know more about the Public Service Loan Forgiveness Program (PSLFP), especially if you have been paying off student loan debt.
The requirements are complicated, so be sure to read the article below, provided by Commonwealth Financial Network.
Another one of our feature articles below gives some tips on how to save for retirement. The main message is "start now!," but the story is more detailed than that and we're sure you will benefit from a read.
We were interested to learn that the FBI is urging everyone to reboot routers. Learn why in our What's Happening Now column to the left.
Have a wonderful summer.
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New developments in the public service loan forgiveness program
The Public Service Loan Forgiveness Program (PSLFP) began in 2007 with a simple idea: provide debt relief to borrowers in critical but often low-paying careers after they make 10 years of timely student loan repayments. The U.S. Department of Education cited law enforcement and emergency management personnel, public school teachers, and legal aid attorneys as examples of those who would be eligible for the PSLFP. Sounds great, right? But in spring 2017, many individuals who chose public service and nonprofit careers learned that their federal student loans may not qualify for the PSLFP after all. Here, we'll take a deeper dive into the qualifications for this program, plus new developments that may bring welcome relief to some borrowers.
To qualify for the PSLFP, a student loan must meet four criteria:
- The loan must be a Direct loan.
- The repayments must be on time and for the specified amount.
- The repayment plan must be income based.
- The borrower must be employed at least 30 hours per week by a government entity or a nonprofit organization.
Running afoul of any of these criteria will disqualify a borrower from the PSLFP.
What's the confusion?
There are several causes for the confusion surrounding the PSLFP. Many borrowers did not understand that Perkins, Stafford, and Federal Family Education loans are not Direct loans. Others unwittingly repaid more than the required amount and then discovered that excess payments actually
disqualified the payment for PSLFP. Some borrowers were not told that they didn't have an income-based repayment plan, which is a plan that caps the repayment amount at a certain percentage of the borrower's income (e.g., Revised Pay As You Earn, Pay As You Earn, Income-Based, and Income-Contingent). Still other borrowers, especially those working for nonprofit organizations, submitted employer certification forms each year only to be told later that their employment was not eligible for the PSLFP.
The complicated details and absolute rules are especially difficult for borrowers who received erroneous information from a third-party student loan servicer. Common circumstances involve this sequence of events: A borrower regularly contacts the loan servicer; the loan servicer confirms that the borrower's repayment plan qualifies for the PSLFP; the loan servicer subsequently informs the borrower that his or her payment did not qualify for the PSLFP.
Relief in sight?
Potential relief may come from a somewhat unexpected source: the $1.3 trillion omnibus spending bill signed by President Trump in March 2018. The bill includes a $350 million fund that will give borrowers in a repayment plan that is not income based a chance to get retroactive credit for their payments. Let's take a look at the details.
First, borrowers must make the full 10 years of repayments before they can apply for loan forgiveness. Second, the fund provides relief only if a payment was disqualified because the borrower did not have an income-based repayment plan. This means that the borrowers with the wrong type of loan or in the wrong kind of employment cannot seek relief from the fund. Also, a payment in excess of the scheduled amount will be disqualified even it is made in an income-based repayment plan. Third, although $350 million is a substantial sum, the fund is finite and will provide relief on a first-come, first-served basis. Once the fund is depleted, it will not be replenished unless Congress makes an additional appropriation.
U.S. Department of Education guidance?
Adding to this confusion and uncertainty is the lack of guidance from the U.S. Department of Education about how the fund will work. To date, the department has not provided any information about how to apply for loan forgiveness and to receive relief via the new fund. As of this writing, the
Federal Student Aid
website features the following message:
Consolidated Appropriations Act, 2018 provided limited, additional conditions under which a borrower may become eligible for loan forgiveness if some or all of the payments made by the borrower do not qualify under current requirements for Public Service Loan Forgiveness (PSLF). The U.S. Department of Education is assessing the newly enacted law and will explain the new forgiveness conditions to customers on this page as soon as more details are available. We encourage you to check back periodically.
Until the U.S. Department of Education establishes guidelines for the fund, those in public service careers should monitor the status of their loans and payments. In addition, make certain that your loan meets the qualification criteria and that you have an income-based repayment plan. It's also best practice to contact your loan servicer frequently to confirm that your monthly payments qualify for the PSLFP. Finally, if you ever receive information you believe is incorrect or inconsistent, don't hesitate to seek assistance from your Congressional representatives and senators.
© 2018 Commonwealth Financial Network®
Saving enough for retirement when money is tight
One of the biggest financial challenges for everyone during their professional years is saving for retirement. The idea of needing to save hundreds of thousands of dollars - or even millions of dollars - for a goal that seems incredibly far off in the future feels simultaneously distant and incredibly intimidating, highly important but not at all urgent, like a mountain on the horizon.
It's not even a question - most Americans
save for retirement. Social Security provides only a hand-to-mouth existence and very few companies or organizations today offer a pension plan (if you have one, you're lucky, and I
hope that the pension is secure).
Like it or not, the last thirty years or so have seen the responsibility for retirement income swing almost entirely in the direction of individuals having to be fully responsible for saving money early in life in order to be able to have a great retirement late in life. The traditional "work thirty years for a company and retire with a great pension" has become "work a few years for a company that might have a retirement savings plan of some kind, then move to another company, then move to another company."
If you want a life with options in retirement, you have to save for it.
There's no two ways about it.
At the same time, finances for many Americans are tight. As I've mentioned many times on The Simple Dollar,
78% of Americans live paycheck to paycheck
and more than 10% of Americans making $100,000 or more a year can't make ends meet. Money is tight for a
In other words,
the important long term goal of saving for retirement looms on the horizon for pretty much everyone, but the immediate realities of life push as hard as possible away from saving for retirement.
How does a person navigate this apparent conflict? With money so tight, what can a person do to squeeze out space for retirement savings? Here are some strategies that actually work.
Make Automatic Contributions
Here's the neat part about automatic contributions to retirement: they never show up in your checking account (or, if they do, they show up for a day or so and then disappear). The money is just automatically moved for you. The only change that you really notice is that there's just a bit less money in your checking account.
Well, isn't that "bit less money" a problem? What actually happens for most people is that they simply make unconscious changes to spend a little less than before. When you check their account balance and find a little less money in it, you won't choose to go without important things - rather, you'll choose to go without minor spur of the moment things.
In other words, your retirement savings will be funded by things like not going into a convenience store when gassing up or not buying a spur of the moment extra book at a bookstore - the kinds of forgettable purchases that we all make when we have some extra money. Those purchases really add up.
How do you automate your contributions? If you have a workplace retirement savings plan, it's pretty easy - just fill out a form to have contributions taken automatically from your check straight into your retirement account. If you're managing your own account - say, a Roth IRA - just log onto the website for your account and set up an automatic transfer from your checking account that lines up well with your paydays.
In any case, the money will either never grace your checking account at all or only be in there for a moment. The magical part? You'll barely notice it at all. It's easy to think that you'll definitely notice the change, but the truth is that the difference will be noticed in the form of buying fewer quickly-forgotten spur of the moment items.
Get Every Dime of Matching
One of the most efficient ways to save for retirement is to
gobble up every single dime of employer matching if your employer offers it.
Many companies and most public employers offer some form of matching of your retirement contributions. They usually take the form of matching you dollar for dollar up to a certain amount of contributions. For example, some employers will match your contributions up to 5% of your salary, so if you put 5% of your salary away in your retirement plan, they'll kick in 5%, too. That
doubles your money.
Gobble up every dollar of matching.
It's free money, or, at the very least, a part of your salary that will go unclaimed if you don't take it. Do
leave it sitting on the table (unless you enjoy throwing money away, that is).
Let's say you make $1,000 per paycheck. If your employer offers full matching of the first 5% of your contributions, start contributing 5%. Your pay goes down to $950, but you're actually adding $100 per paycheck to your retirement savings. That's well worth a 5% drop in your pay.
Start Young! (Meaning Start Now!)
The longer you wait to start saving for retirement, the more you're going to have to save each and every pay period to make it to a decent retirement.
That might be obvious at first glance, but it's actually even more intense than that. See, the earlier in your life that you contribute to retirement, the more years your contributions have to grow in value.
For example, let's say you put money into retirement that's going to grow at 7% a year until you're 65.
If you put in $100 a month starting at age 25, your total contributions will be $48,000 over the course of those forty years ($100 times 12 times 40).
On the other hand, if you put in $200 a month starting at age 45, your total contributions will also be $48,000 when you reach age 65 ($200 times 12 times 20).
The difference comes in the investment returns.
If you start with $100 per month at age 25, your retirement account will be worth $247,946.81 (given the 7% annual return mentioned above).
On the other hand, if you start with $200 per month at age 45, your retirement account will only be worth $101,832.80 (again, given the 7% return mentioned above).
In both cases, the total contribution by the account holder is $48,000, but by starting earlier, the contributions end up working a lot harder for you, resulting in
far more money
saved up for retirement.
What does that mean?
Start at the absolute first second you can. The longer the money sits there, the better off you'll be.
Hands down, the single best decision I made during my twenties in terms of my finances is to contribute to my retirement plans, enough to get full matching from my employer. Because of that, my retirement accounts are already multiples of my current salary and I barely have to contribute any more throughout my adult life to have enough to retire at around age 65 or 70. Anything else I contribute just allows me to retire even earlier or add a bit of panache.
What if you're older?
Every month you wait, the harder the path becomes to a good retirement. You need every possible year between now and retirement for your savings to grow, so start today.
Markets start to spring back
Markets rebounded in April after two turbulent months, and all three major U.S. indices began the second quarter in the black. The S&P 500 Index gained 0.38 percent, the Dow Jones Industrial Average was up 0.34 percent, and the Nasdaq Composite rounded out the pack with a 0.08-percent return.
The rebound was supported by strong fundamentals. According to FactSet, as of the end of April, the first-quarter earnings growth rate for the S&P 500 was estimated to be 23.2 percent. If companies do as well as expected, this would be the highest earnings growth rate since the third quarter of 2010 and more than twice the consensus forecast of 11.4 percent as of December 31, 2017. Clearly, businesses are benefiting from the lower corporate tax rates introduced by the Tax Cuts and Jobs Act.
Though fundamentals remained strong, technical factors were more mixed during the month. The Dow and Nasdaq stayed comfortably above their 200-day moving averages, but the S&P 500 closed below this threshold on April 2-the first time since 2016. Although the index quickly moved back above this important risk indicator, further tests of the trend line will be worth watching.
While U.S. markets crept forward, international markets were mixed. Developed markets were strong in April, with the MSCI EAFE Index up by 2.46 percent. Much of this improvement was due to decreased political risks in Europe and continued stimulus from the European Central Bank. Technical factors also remained supportive for the index during the month.
Emerging markets pulled back, though. The MSCI Emerging Markets Index declined 0.29 percent in April, due largely to the strengthening dollar, which hurt markets' competitiveness. Technical weakness also showed up, as the index closed below its 200-day moving average on April 25. The index finished above the trend line for the month, however.
Fixed income also had a turbulent month. Notably, the 10-year U.S. Treasury yield cracked 3 percent for the first time since 2014. It ended the month just under this threshold at 2.95 percent. As bond prices drop when rates rise, the Bloomberg Barclays U.S. Aggregate Bond Index suffered a loss of 0.74 percent for April. High-yield, which is typically less affected by interest rate volatility, fared better. The Bloomberg Barclays U.S. Corporate High Yield Index gained 0.65 percent for the month.
Economic data shows signs of blooming
April's economic news was largely better than expected, easing fears of an economic slowdown. Although consumption growth slowed in the first quarter, consumer confidence remained high and wages continued to grow-a sign that consumers should be able to spend more going forward. Retail sales grew by 0.6 percent in March, even better than already high expectations of 0.4 percent. It appears that the dual tailwinds of tax reform and a healthy labor market are now working, and it would not be surprising to see consumer spending growth pick up steam as the year progresses.
Business investment also improved. Durable goods orders, which are often used as a proxy for business confidence, grew by 2.6 percent in March, against expectations for more modest growth of 1.6 percent. Industrial production also exceeded expectations, growing 0.5 percent on a monthly basis, against an expected 0.3 percent. This result was driven by increasing exports and strong business investment and suggests that the first-quarter weakness may be passing.
We also received the first estimate of economic growth for the first quarter of 2018. It came in at 2.3 percent, above estimates for 2-percent growth. Although this is a pullback from the previous quarter, it is a reasonably healthy growth rate. Further, on a year-on-year basis (which is a better indicator), growth remains at a multiyear high. Combined with the rebound in April's data, this suggests that economic growth may increase moving forward.
Housing erases slow start to year
Housing was another sign of strength, particularly after its slow start. The National Association of Home Builders survey showed that home builders are still very confident, although that confidence may be moderating. The April housing starts figure bore out this confidence with 1.32 million starts-well above expectations of 1.27 million. This is a healthy development, as supply remains constrained while demand is strong and picking up as we enter spring.
This high demand for homes was demonstrated by the stronger-than-expected results for existing and new home sales. Both came in well above expectations, despite bad weather, suggesting that rising mortgage rates have not yet hurt housing demand.
Inflation risk on the rise
With economic growth sound, one of major risks to the financial markets is the recent uptick in inflation, which is driven by that growth. Both producer and consumer inflation came in above 2 percent on an annualized basis in March. Producer inflation was especially notable, as core producer prices grew at their fastest pace in seven years.
From a policy perspective, this is concerning. In fact, for the first time in years, the Federal Reserve's (Fed's) preferred measure of inflation-the core personal consumption expenditures price index-grew by 2 percent on an annual basis in March. This puts inflation at the Fed's inflation target and, along with the upward trend, suggests that the Fed is likely to keep raising rates this year.
The market currently expects two to three more rate hikes in 2018. If inflation continues to rise, however, these expectations could increase to include more rate hikes. This will be important to watch, as higher rates have rattled markets already this year.
Political risks fade, for now
Political risks-in particular, from the Trump administration's proposed tariffs and international trade-led to increased market volatility earlier this year. These perceived risks receded in April, however. Although the tariffs remain a concern, there has been little follow-through since they were announced. In addition, exemptions for many close trade partners have alleviated the immediate concerns of a global trade war.
Tensions with North Korea, another point of concern, appear to have calmed. The meeting between North and South Korean leaders was seen as a step toward further diplomatic efforts. Meanwhile, the potential for a direct meeting between North Korea and the U.S. could help soothe tensions even further. That said, North Korean leaders have made promises to curb their nuclear ambitions in the past, to no avail, so risks certainly still remain.
A good start to second quarter
Overall, April was a good month for the markets and the economy, as both ticked back up after a weak stretch. Looking forward, business and consumer confidence levels remain high, and the major concerns from March-namely, a slowdown in housing and increasing political tension-appear to have diminished. Fundamentals are strong, and the economy appears to be growing at a sustainable pace.
While rising inflation and additional rate hikes may slow growth, and tariffs remain an active concern, continued strong fundamentals should help insulate the markets from external pressures. As we have seen in the past couple of months, though, this month's recovery, while promising, does not guarantee smooth sailing in the future. So, we must continue to watch the risks. A well-diversified portfolio designed to meet long-term goals remains the best way to approach markets going forward.
Co-authored by Brad McMillan, managing principal, chief investment officer, and Sam Millette, fixed income analyst, at Commonwealth Financial Network®.
All information according to Bloomberg, unless stated otherwise.