Student Loan Sherpa 2020 Accountability Report

Michael Lux Analysis, Student Loan Blog 0 Comments

When I write about student loans, I prefer to stick to analysis and advice based on the current rules. Occasionally, student loans are a subject of the news, and potential changes get discussed. When this happens, readers want to what is likely to happen and how it will impact them. Covering these topics sometimes requires making predictions. As someone frequently cited as a student loan expert, I think it is important that I take a look back and review what I got right and what I got wrong.

I usually have a strong dislike for talking about myself. This site is about providing you, the reader, with the best possible information. However, in this case, I think it is critical to review my work for the past year as it contained many predictions. You deserve to have a record of my hits and misses.

Let’s get to it.

Student Loan Forgiveness from Elizabeth Warren

Like most student loan borrowers, I was thrilled by the possibility that Elizabeth Warren might forgive some or all of my student loans.

My predictions were not optimistic.

In my analysis, I discussed the many hurdles that stood in the way of forgiveness and how delaying repayment could be an expensive mistake due to the accumulation of interest.

Verdict: Sound Prediction. I called forgiveness as a result of the 2020 election a long shot, and that prediction looks solid in hindsight.

The one area that could have been better was my analysis of the cost of waiting. At the time of the article, Covid-19 was unknown, and we were still many months away from the interest freeze. However, the 0% interest rate has reduced the cost of waiting and hoping for federal loan forgiveness.

Planning for a Bernie Sanders Presidency

At one point, Bernie Sanders was the favorite to win the Democratic nomination for President.

At the time, I thought it was important to discuss his plan to forgive all student loan debt.

I said, “the odds of student debt elimination are increasing, but it is still a long shot.” I also provided a list of steps for borrowers to follow if they thought Sanders would win and deliver on his loan forgiveness promise. The steps were to: sign federal loans up for the IDR plan with the lowest monthly payment, refinance high-interest private loans, and have a backup plan.

Verdict: Shaky Analysis. I ended the article by advising borrowers to “plan with your head, not your heart.” I should have done the same. While it was accurate analysis to call forgiveness a long shot, it was premature to discuss taking steps plan for forgiveness in a Sanders Presidency. The article published on February 25th, and four days later, Biden’s huge win in the South Carolina primary would shift the momentum of the election.

Additional Note: I removed the original article from the site. From a transparency standpoint, the best practice would be to leave the old article posted for review. However, I try to remove items that are no longer relevant so that borrowers do not make decisions based upon the content that is not up to date. Those interested can read the archived version of the original article on archive.org.

Federal Student Loan Interest Freeze Extensions

When Congress passed the first Covid-19 stimulus bill in March of 2020, they suspended federal student loan payments and interest until that October.

Early in that summer, I predicted that the interest freeze would extend beyond the original expiration date. I made this projection because the relief received bipartisan support, the President could extend it via executive order, and Covid-19 showed no signs of slowing.

I also noted that no politician would stand in the way of the interest freeze one month before a big election.

Verdict: Bullseye. Since that first article, the 0% interest and payment forbearance have been extended twice. It is now scheduled to end on January 31st, 2021. It also appears that it will be extended yet again during the Biden administration.

Tax Relief for Employer Contributions to Student Loan Payments

Many companies now support treating employer student loan assistance like 401(k) contributions.

I said that I thought, “it is highly likely that a tax break for student loan contributions becomes a reality. This could be the next significant change coming to student loans.”

Verdict: Mixed Results. The comprehensive program I expected has not yet become a reality. However, as part of the CARES Act, until the end of 2020, employers can contribute up to $5,250 toward an employee’s student loan balance, and the payment will be free from payroll and income tax.

A Biden Executive Order on Student Loan Cancellation

After Biden’s win in the 2020 election, many Democrats called on him to sign an executive order canceling up to $50,000 in federal student loans.

In my legal analysis, I said that Biden might have the authority to cancel the debt in this manner, but it wasn’t a sure thing. I argued that for practical and political reasons, Biden was unlikely to forgive the debt. Specifically, the potential for chaos and Biden’s desire to be unifier were reasons he wouldn’t push executive power in this manner.

I doubled down on this analysis during an interview with Forbes.

Verdict: Bullseye. Biden recently stated that he is unlikely to cancel student debt with an executive order. Of all my predictions, this was the one that worried me the most because it was not a commonly held point of view at the time. However, it was a topic of significant interest and could impact borrower planning.

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