Read The Transcript Below:

Steven (00:49):

Hello everyone and welcome to the next episode of the Retirement Tax Services Podcast, Financial Professionals Edition. I am your host, Stephen Jarvis CPA, and today we’re going to talk about something a little different. My guest is Fred Amrein from payfored.com. And we’re gonna talk about, instead of pending tax rule changes, we’re gonna talk about some upcoming changes that are going to impact anybody remotely connected to student loans. So Fred, welcome to the show.

Fred (01:16):

Steven, thanks for having me. I really appreciate the opportunity to talk to everybody.

Steven (01:20):

I’m really excited to have you on like a, as kind of indicated there, this isn’t maybe the top of people’s list of, Hey, I’m gonna go listen to a tax podcast so I can hear about student loans. But there’s a couple of reasons I was excited to have you on one, this impacts so many different people and there definitely are some ties into, you know, some considerations that go along with taxes. But more than anything, this is an area for advisors where if you’re proactive and intentional, you can have a big impact on your clients’ lives. Because similar to taxes, this is gonna create a lot of confusion, a lot of headaches, probably a lot of panic for people as things change later this year. So I want to kick it over to you to talk about why you’re kind of sounding the message on, hey, people need to be paying attention to this.

Fred (02:03):

Yeah, I think the biggest change there’s three big changes that are happening and the taxes are probably one of the biggest that people are not recognizing. And I’ve been talking to the CPAs, I’ve been talking to enroled agents and the financial planners and financial advisors. What’s gonna happen sometime in mid-July this year, at least according to that’s the last we’ve heard, is that the IRS data that your taxes are done will directly feed into the Department of Ed systems. So what’s ever on file is what’s gonna happen and you’ll have no control over that. So this is where the advisors that are planning on taxes or trying to be proactive or your CPAs or enrolled agents or tax professionals, they will now basically be the gatekeepers to financial aid and student loan payment. And so that’s a big deal.

(02:53):

We’re also gonna have the restart that’s coming up. We don’t know what that outcome looks like. But we’re anticipating the restart of student loans will happen by either September 1st or October 1st. And that will be using what’s everyone filed from 2022. And I’ll explain the penalties or risks that we have there. And then the third piece is we have also fast pacification and you’ll not be able to get your financial aid positioning unless you commit or consent to let the data come in. There’s currently a process in the FAFSA system’s called DRT. Now it’s basically the same process, but again, I’m not a lawyer here by any means. The data that’s gonna come into the FASA was a copy that you gave the IRS permission to bring across under the new rules. It actually has the legal sticker and it now has, it’s considered IRS status.

(03:43):

So it has a lot more teeth than if someone misuses that. So let me step and tell you how that’s all gonna come together and let’s focus on the student learning payment piece. Say I have a married couple that got married during covid and we haven’t had payments. So the tax efficient method would be, I should file my taxes maried joint and let’s say one has debt. Let’s do debt. And maybe one of them say as a school teacher’s what we use in our demo and it’s qualifying for public loan forgiveness. So they have to use an income driven repayment. So the tax professional or the advisor sitting there is gonna be saying, listen, we have to fire our taxes and married separate because if we file married in separate, it’s gonna cost you $2,000 additional taxes by filing den separate cuz we’re losing credits. There’s a few things, alt man, whatever it may be. Now comes their renewal for the repayment that won’t start until February 1st. But let’s fast forward that out. And now you filed married and joint and now before their payments, before they got married, that person’s payment was $350. But because they use IDR, they’re gonna use both incomes and now that payment’s going to 800. So now because we can’t file married and we can’t amend married in joint married and separate, you just cost that client $500 a month for the next year. 

Steven (04:57):

So, Fred, are you saying that timeline’s already passed that hey, whatever we filed for 2022 we’re stuck with. So this is more of a recognizing what we’re gonna be dealing with as opposed to something we can actually change at this point?

Fred (05:07):

Well this is where you’re on the student loan repayment side. As I said, there is a window here that we have recertifications, everything will stay the same until after February 1st of next year. There’s some people that have annual reverse dates, that could be a problem because it takes about three to five weeks for if you submit it electronically to cross over. We haven’t seen that yet. But that’s how DRT typically works the official way. Now what will happen though, say I have a person has an anniversary date, an IDR anniversary date, which is on their file, and we promote that in our system and say it’s May 1st. All right, now that client that you know what’s on file and their taxes are married and joint, you’d want to get them in for 24, get their taxes done by say March 1st. So what’s in the system by April 1st is the right format. So when it comes up to renew in May, they’re in good shape where if you delay it and until it’s April 15th, you’re gonna have that problem happen. So again, it’s really gonna depend on the timing of the taxes and their anniversary date. And the same thing could happen on the good side is we can do extensions to use that anniversary date to our advantage or disadvantage.

Steven (06:18):

So Fred, I’m doing this a little outta order here cuz I’m so excited to dive right in. Let’s take a step back and why don’t you share for the audience your background as to, I mean, what is it that’s put you in a position where you’re the one that’s going around helping people realize, well, what they should be doing on this? Cuz we’re all about reality and not theory and you’ve got some really extensive background. This is not your first time where you said, Hey, there’s a change. So maybe I should just jump into this and see what happens.

Fred (06:42):

Yeah, so this business, I started, I left corporate finance. My background was in corporate modeling and budgeting and things like that, and left corporate and started my own RIA and a CPA friend of mine said, Hey, this college thing’s getting all outta control between 529 plans, financial aid da that. Then we had the evolution of all these income driven repayment methods and forgiveness. And so I took my college planning thing and I had a build in Excel to, in 2015, said, Hey, let’s bring these models to the web, which again, I have a modeling background. And we did that. And so we had our courses approved by the CFP back in 2017. And so we have both the software and we’re the only one that has a complete solution. So we take you from middle school trying to plan for college to, I’m a high school senior.

(07:28):

That’s our first tool. It’s called the analyzer. Then the second tool is I’m in school making ongoing decisions. I transfer, I drop a course, I change majors. There’s a financial consequence we don’t look at and plan for, or my child needs grad school, I’ve paid for undergrad, I’m not paying for graduate school. How do we do this the right way for the financial advisor? And then I have the student debt. How do I pay this back? I get married, there’s changes that happen. So we have software that handles all that. Then we have training courses that, you know, help advisors learn how to do that on their own. And we also have outsourcing. And now one of the other things we also have with now all the new legal changes is a platform for employers. So any advisors are working with 401k 403 retirement planning, you know, sponsorships and things like that. The new hot benefits gonna be student loan assistance. And in anticipation of the restart, what’s gonna happen there is the loan service are not ready. And this is gonna be a great opportunity for you to bring this new service, new lunch and learns, attract new clients and really, you know, help your business owners improve retention and recruitment through that process.

Steven (08:31):

Well, Fred, I’m certainly glad that there are resources available and this through your company, it’s a payfored.com. I mean, as you started going through the initial description, there’s so many acronyms in there, there’s so many dates and, different pieces of this that I’m sure it can feel really overwhelming to anyone who unlike you, hasn’t spent just years and years and years focused on this. So as listeners are trying to just digest what you’re saying here, I mean, what, you broke this into three different pieces that are going to be changing here soon. And we started with the loan repayments. I mean, but try to break this down even further for us. I mean, who needs to be paying attention to this? I mean, where does an advisor start with which of my clients are gonna be impacted by this?

Fred (09:15):

I think there’s two separate groups You need to be looking at the typical Henry’s, this would be your high net high earning not rich people yet, which are your dentists, your veterinarians, your doctors. I mean, there’s a really big market there. And if you look at the total debt they’re the ones that have the largest debt. I think, so that’s one group. If you’re looking for those young professionals and then carry them through that process and then into their lifespan, I think there’s another really great opportunity that’s coming that’s not really out there. We’re probably gonna see this pretty quickly which ties closer to the retirement planning is that people over the age of 50 right now are the fastest growing student debt borrowers. If you look at the evolution, people are having their children later in life.

(09:57):

And what we’re starting to see from the advisors on our platform is they’re seeing clients walking in ready to retire who, you know, have a million dollars in assets, but also have two, $300,000 of plus loans. And they’ve come to now the realization, well, I kind of listen to nobody because when you make your college funny decisions, you know, you’re told you don’t need help. It’s all free. And now, you know, if it was that simple, then we wouldn’t have 1,000,007 in student loan debt and 45 million people that have it. But what happens here is I think there’s a really great opportunity for the financial advisors and it’s, you know, just a parent evolution basically. You know, maybe I get my youngest child that’s a freshman, sophomore in college, we know where you are, we’re past that now.

(10:38):

I got retirement, I got social security. What are the decisions I’m making on this own stretch? And this is where they’re coming back to the advisors saying, okay, I need, finally, I need advice. I can’t do it myself anymore. So I think there’s a great opportunity for advisors and two things happen there. You get assets under management and you’re gonna be providing that, you know, expertise on loan repayment, which there’s a really good market of that’s coming. That’s not really, we’re just starting to see this, the cutting edge of that right now, I think for advisors as an opportunity to know this part of it can be really beneficial for the business.

Steven (11:09):

Interesting. This might just be the nerdy part of me, but go back to what you were talking about. One of these changes you highlighted is that effectively later this year, the essentially the IRS data is going to be just, you know, automatically available for the loan servicers. And so how, I guess talk about how that’s different than what goes on now because it’s always been the case that your tax or that there’s information from your tax return that gets used in those considerations. But, there’s some kind of change that’s happening that’s gonna make this something worth paying attention to.

Fred (11:43):

Yep. So on the student learning payment side, it’s a manual process that you had. It’s called IR Recertification. It was a manual process that you had to complete the forms under the new process, the system or the Department of Education’s student loan, re-payment system is just gonna legally go in, get whatever tax returns on file, it’ll go back as far as 18 months and pick whatever’s up in that format. So again, if you file married, whichever on file, that’s what they’re gonna be using. So you can use that to your advantage or disadvantage depending on your timing of your anniversary date. So that’s how it’s gonna work for student loan. Your payment. And that’s where the timing of the anniversary date and what’s on file with the IRS is gonna be really important from a planning standpoint. Outside of the other, you know, tax planning you have to do, which way do I file?

(12:28):

Because in that example, I explained to you there was a $202,000 penalty for that client that we had, but the savings there was over $500 a month. So the net net, which included the penalty or the extra tax cost was a net savings of $6,000 a year for that client in pocket. Now, so that’s the student loan payment side that it’s just gonna happen automatically. The recertification, if you didn’t re-certify, there was penalties. If you didn’t do that, that’s all going away because of its automation. Now, on the FAFSA side, which that’s being delayed, that’ll be another problem till December of this year. But that is not gonna have as much in effect except for yours divorced and separated couples. So, now it doesn’t really matter for our taxes when we claim our dependents and their exemptions, but now with this automation, it will, so who’s submitting the facet form? There is a chance we haven’t seen everything where wherever that child’s sitting is, what will be picked up.

(13:28):

So, you know, if you have a divorce situation, you have one family that there’s a pretty big difference in the EFC in their academic, their financial positioning. That could be a big deal. So maybe one is claimed the child, but they that got remarried and it just caused the divorce decree said they could, and that’s gonna raise their EFC and that’s not the parent that we wanna submit the FT form. Now there’s some rules around submission there, but this is where you have to have some discussions when you’re working with those divorce couples, maybe going against the divorce decree from a planning standpoint of why you wanna do it. And that’s where this automation’s going to make a difference. Now, we’ve always recommended who’s ever gonna submit the FAFSA form that they should have them on their taxes. But now with this new rule, it’s kind of all almost mandated that you should do it that way.

Commercial (14:15):

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Steven (14:42):

Now, you mentioned that some of these rules are still pending. We’re expecting this to be finalized later this year. Well, I don’t spend as much time on the loan side things as I do on the tax side of things. So I know where I go when I’m looking for updates and the final rulings on things. Where’s the best place to follow along to make sure that for advisors who have clients impacted by this, that they’re staying current on what the latest is in these issues.

Fred (15:05):

So one would be incentive for our newsletter. We write three or four articles a month on this topic. We have newsletter. We don’t bombard people. We send it out usually the third Sunday of the month. So it’s, you know, kind of off hours if you’re a software user, we have a monthly meeting, things like that. And then we have two designations also that if you wanna really get into this business, you can learn more about it if that’s the case. As far as that, it’s actually been really hard to do because the Department of Education has been sending out stuff, but it’s really hard to you know, to understand what they’re saying unless you have the really knowledge there. So again, it’s to say there’s one spot to find it that there’s not a place I would say, cause really the Department of Education, you know, is highly dependent on the tax code.

(15:51):

And, I feel bad, I’ve been doing a lot of presentations for the CPA organizations around, and you guys are overwhelmed with the COVID stuff. And, now this is not even on your radar screen. And I’ve been yelling and screaming since last year once they said it, knowing that it was coming. And now I think the financial advisors can be a really great help here in the sense that they know the details and they can talk to the CPAs. Cause we’ve already worked with some of the financial advisors and they raise it up to their CPAs and their CPAs goes, what are you talking about again? And I being on those panel discussions, I realize how much stuff you guys have to know and God bless you.

Steven (16:28):

Well, thank you. I appreciate that. But you’re absolutely right that there are so many different moving pieces that become the CPA’s responsibility from a reporting standpoint. But to your point, as an advisor, you can’t assume that that means the CPA is being, or the taxpayer enrolled agent, whatever they are. You can’t assume that that means that they’re being proactive and they’re thinking about these things ahead of time. So often we’re, as a tax professional, we’re bombarded by so many changes in so many different areas that might be impacted that it’s only when we get to tax filing season, we’re trying to report what happened in the past that we really get a chance to dig into these things. So it creates an incredible opportunity for advisors to be on the forefront of this, to be proactive with it, to not only help your client and deliver a lot of value to your client, but this is, we talk on the podcast all the time about developing better relationships with CPAs. This is a great opportunity to bring these things proactively to the tax repairs your clients work with to say, Hey, just listening to a podcast, I know that these things are coming. Well, whatever the source you’re gonna reference is, but to have these conversations ahead of time because now in tandem with the CPA, you can be heroes to the client and you’ve built this great relationship. 

Fred (17:37):

And I think, you know, on the CPA side, your goal, and I think this is what we’re trying to bring to the CPA or the tax professional side, is your primary focus to lower the tax burden, where the financial advisors is really looking more holistic in most cases of, you know, what’s that financial future look like? And the goals are really different. What we’re trying to do on the tax repair side is just, you know, if you have you know, understand that someone’s in their own repayment, you gotta take one more step to look at that on the financial advisory side because you know, now 54% of student debt dollars and that will be growing are repaid using what’s called an income driven repayment method or idr, which all ties into taxes. But that now looks into, well if I am using, so that example I gave you, you know, if that’s the school teacher, we’re gonna try to move everything over to that client’s pre-tax.

(18:30):

And get that AGI down to as low as we can because that’s gonna lower our monthly payment. So again, this is where that holistic approach, right, you know, we talked about at the very beginning is, you know, you have one piece of it, but the financial advisor has a much broader piece of their pie and your goal is really to lower that taxes. And it may in some cases be a contradiction because now they’re looking to say, well, if I we’re gonna take the $2,000 penalty because I’m saving ’em five net on the other side, five or six. So this is where, again, the team approach can be very beneficial with the knowledge that the advisor has if the CPA does not know it.

Steven (19:03):

Fred, as you’re describing through all this, I mean there’s a lot to unpack here. I mean especially for advisors who maybe don’t spend as much time in this arena, where do you start? I mean, how do you start? I mean, what are actions that advisors are gonna take to meaningfully help their clients with this? I mean, this is great conversation, but for an advisor listening, what do I do tomorrow?

Fred (19:25):

So I think, you know, you can look into our courses. You know, there’s one or two courses out there on the student loan repayment side that would be, we’re actually currently running a student loan repayment bootcamp. So you could get our designations, a FINRA designation, it’s CFP that you get with it. That would be probably one of the best places to learn or start. Cuz you have to know that detail. And I think that’s the opportunity with the restart gonna happen either nine one or ten one, the loan servicers can’t provide the advice legally they cannot either give the advice. So that’s one of the problems that many clients will be having. They’re expecting that the loan servicers can provide this advice, but the loan servicers and the colleges cannot give any tax advice or personal financial advice. As I just said a few minutes ago, everything’s managing AGI. So this is where, as an example, I’m an employee, I can max out on my 401k 403b and I’m lowering that age. If I can live that off the household. So this is where that really brings in the whole picture that both the financial advisor can bring in and the tax professional working as the team to benefits the family overall.

Steven (20:30):

Yeah. Just like when we talk about taxes, at the end of the day, when we have these specific areas, whether it’s taxes or student loans, the reason the financial advisor can be so valuable is because they are looking at the whole picture. Cuz even as you sound the warning on the student loan side, that still is never gonna be the only consideration in a person’s life. We’ve gotta make sure that we’re understanding these things and then looking at them as how they fit in the overall plan, the overall picture. And, that’s where the financial advisor plays such an integral role because I didn’t know that on the student loan side, that they weren’t even allowed to provide that kind of advice, but even if they were, they wouldn’t have the whole picture. Just like as I focus on the taxes, I’m not making investment recommendations to clients. That’s not my place, that’s not my expertise. I’m not making recommendations on their estate planning. There’s just, you have experts in certain areas for a reason, but you need somebody to coordinate the whole effort or it doesn’t get done. 

Fred (21:24):

I think another piece that’s coming, as I said earlier is people over the age of 50 are the fastest grown step bars. We’re gonna see this become more of an issue. And you know, my children and I have grandchildren now, but my children are older and the recovery time for, in the proper planning, you’re gonna have people in their late fifties and sixties, they’re still have kids in college and they’re trying to now retire to, and you know, within four or five years. And when you look at, we’re just in the middle of our cost analysis right now. Some of the elite schools are at $85,000 a year. It is the largest purchase we make as a parent without a third party making the approval here under the current rules. So, you know, you have two or three children you wanna go to those private schools, even the state schools, they’re at a hundred, 150,000.

(22:07):

We have three, $400,000 going out the door and we don’t have a third party saying, Hey, you should be doing this. And now I have it later in life. That’s what’s happening. You know, people are not or trusting the system. And when you look at the high schools the systems there are built on access and non affordability. And this is where the French advisor can really come in and say, Hey, I’m just putting the yellow light up going, you know, you’re gonna be 63 when your youngest one gets out, and right now you have, you know, a hundred thousand dollars save and we have a $500,000 bill coming up within the next what X amount of time. And that’s where your debt structure will dictate your loan repayment options going forward. So there are some ways to prevent it if you’re again, trying to do the right thing for the client.

Steven (22:50):

Yeah. That’s definitely a great reminder in there. And we won’t dive all the way down this rabbit hole, but you point out in there that most of the people involved in this system as it relates to talking to people about how much they can borrow, how much they should borrow, where they should go to school, they’re really just focused on, hey, everyone should go to college and go to whatever college you want. I mean there isn’t a conversation of ROI or affordability or any of those kinds of things. And so a lot of times that does leave an advisor in the position of I need to help the client through whatever situation they’ve gotten themselves in. But you’ve gotta understand these rules to be able to do that effectively.

Fred (23:24):

Yeah. If you’re working with a client pre-retirement when their kids are, you know, making those decisions, you can push it into the plans if you’re using whatever. And that’s where our software comes into play. You let the client, it’s very interactive and now you can put in, you know, say I’m a working with a middle school student, you know, they’re trying to save for college. And now what you can do is put in like two, three different options. So I’m gonna look at a Ivy League school, I’m gonna look at a private school, I’m look at state school, I’m looking at out-of-state school and put them in our model and then what they’ve saved and what their cash flows. And it then refines the goal for the client. Cuz you can show them their financial aid positioning. You can show them what their debt’s gonna be or how much debt they’re gonna have to take on or that establishes the new goal that then they can put into their financial, their comprehensive tools and see what that impacts on their retirement plan. So that’s how it gives a much better refines their overall financial plan much better using that type of approach.

Steven (24:19):

Cool. Fred, I really appreciate you coming on and sharing all of this. I’m sure we could spend hours going through the details of this and I mean that’s why you have courses, that’s why you have other resources at payfored.com because this is a deep topic. It’s not a 20 minute conversation that’s gonna make anybody an expert on this. But I appreciate you coming and sharing some of your insight.

Fred (24:35):

I really appreciate the opportunity to hope we just bring us some information and help to advise you speak out to.

Steven (24:40):

Absolutely. And it is certainly a couple of different things you said in there. Certainly reinforces one of the action items I always recommend to our listeners, which is you need to get tax returns for all of your clients every single year. The only way you’re gonna know what filing status they chose last year, what their AGI is, those kinds of things is to pull the tax return. It’s nothing against your clients, but please don’t take their word for whatever they tell you when you ask those questions. You need to see the documents because here, pretty soon those documents are gonna be automatically provided to the Department of Education anyways. So Fred, again, thank you for being here. To all the listeners, thanks for listening in this week and until next time, good luck out there. And remember to tip your server, not the IRS.