As the tax season ramps up, tax preparers have a new opportunity to increase revenue by providing a service that can help millions of people. With over 62% of student debt dollars being repaid using Income-Driven Repayment (IDR) methods, the tax preparers’ role in student loan repayment and forgiveness planning is critical. This is especially true for the tax year 2024 returns. Student loan borrowers have not needed to recertify their income due to COVID for 56 months and will need help.
Since 2016 the number of borrowers using IDR methods has increased by over 169%. This is due to higher college costs, financing of advanced degrees needed for careers, and its required use for loan forgiveness programs. The number of borrowers using IDR methods will continue to increase. This is due to the number of borrowers entering repayment and the increased cost of a college degree.
The PayForED’s Student Loan Repayment software helps tax preparers understand the relationship between tax planning and student loan repayment. With the trends listed above, tax professionals need the tools to properly compare IDR repayment options and manage the borrower’s AGI for both individuals and couples.
Student Loan Repayment Advice Gap
The accelerated number of borrowers using IDR methods creates an opportunity for tax preparers and financial advisors to help millions of student loan borrowers get the right advice. Many of these borrowers are high-income, high-debt professionals. A borrower needs to effectively manage their Adjusted Gross Income (AGI) to maximize the IDR rules and loan forgiveness.
Most borrowers turn to their student loan servicing company for their repayment advice and options. The problem is that loan service support centers cannot answer questions or provide any personal financial advice. With the IDR loan repayment highly dependent on managing the borrower’s AGI and tax filing options, getting all the answers is unavailable through the loan servicers.
Similarly, tax preparers and financial advisors have overlooked this IDR opportunity. A tax preparer focuses on minimizing a person’s or household’s tax exposure. With the growing trend of IDR, tax professionals need to take an expanded view of a client’s tax filing decisions and how they relate to their client’s student loan repayment and forgiveness outcomes. Both groups benefit by including tax planning and student loan insights as part of their services. Tax preparers increase their revenue in multiple ways, and borrowers get the right advice to lower their student loan payments.
This is the significant information gap in the current student loan repayment process.
2024 Tax Return Importance to Student Loan Repayment
Part of the IDR process is the annual recertification of the borrower’s income. Due to COVID and the National Forbearance, most borrowers have not recertified their loans in over 5 years. With repayment starting on 1/1/2025, borrowers will need to confirm their income using their most recent tax information. For recently married couples, this will be critical. If only one of the spouses uses an IDR method and they file their taxes jointly, that borrower’s payment could skyrocket. This occurs because their selected tax filing decision focused only on a lower tax bill.
The income verification review method will allow the loan servicer to use tax information up to 18 months old. As most borrowers’ income recertification process restarts on 3/1/2025, the tax advisor may improve their clients’ situation by adequately using a file timing and extension. The tax professional could review the borrower’s IDR Income Recertification date and determine which tax return should be on file for the IDR recertification.
As mentioned earlier, future tax planning will become more important for student loan borrowers. The IDR recertification will move to an automated renewal process within the next few years. This automated process is optionally this time. Borrowers will require better advice to manage their IDR recertification and taxes to avoid costly mistakes. This is another valuable service to added value that you currently do not provide to borrowers.
Summary of the Tax Preparers’ Role in Student Loan Repayment
The current number of student borrowers in actual repayment is approximately 19 million, and another 20 million borrowers are entering repayment shortly. The role of tax preparers in student loan repayment and forgiveness is growing. This is especially true with the increasing trend of IDR users.
Tax Preparers have a fantastic opportunity to provide a new service that is directly related to their current core business model. PayForED has a complete solution to help tax preparers make this added service easy to implement by having software, training, and outsourcing. You can be part of the solution to the student debt crisis by helping borrowers make the right decision.
