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HSAs and Student Debt Update

Dear Clients & Friends,


For this Weekend Reading, we’re updating everyone on some material

changes to Health Savings Accounts and student loan rates. For no particular

reason, let’s start with HSAs.


Updates on Health Savings Accounts


The IRS recently released the 2024 contribution limits for health savings

accounts (HSAs) as well as the 2024 minimum deductible and maximum outof-

pocket amounts for high-deductible health plans (HDHPs). They are below.

A quick recap: an HSA is a tax-advantaged account from which you can pay

medical costs that your insurance doesn’t cover, like co-pays. Contributions

are tax deductible, and withdrawals that are used to pay qualified medical

expenses are tax free. You can contribute to an HSA if you are enrolled in a

high-deductible health insurance plan.


There’s a catch - if withdrawals from an HSA are not used to pay for qualified

medical expenses, you have to pay taxes on the withdrawal, because you

never paid taxes on the deposit. That’s fine, but you also have to pay a 20%

penalty. So, discretion is advised.


Here are the new rates:

Student Loans and Student Debt


Three important developments have occurred in the last few weeks: the

Supreme Court blocked an executive order that offered loan cancellation to

certain borrowers, Congress set an expiration date on the payment

moratorium that has been in effect since March 2020, and new student loan

interest rates have been set for the 2023–2024 school year.


Loan Cancellation Blocked


In August 2022, President Biden signed an executive order that cancelled up to

$10,000 of federal student loan debt ($20,000 for Pell Grant recipients) for

borrowers with incomes below certain limits. This policy directive made its way

to the U.S. Supreme Court. On June 30, 2023, the Court announced its

decision to strike down that order, ruling that the Biden administration had

overstepped its authority, and that Congressional authorization was required

for mass debt cancellation. Nearly 26 million borrowers had applied to have

some of their debt erased.


Payment Pause Ending


In June, as part of an agreement on the debt ceiling, Congress ordered an end

to the student loan payment moratorium that had been in effect since the

start of the pandemic. The Department of Education subsequently clarified

that federal student loan payments will resume in October 2023, with interest

scheduled to resume accruing in September.


The resumption of monthly student loan payments after a 3.5 year break is

likely to be sobering for the millions of Americans with student debt. According

to the Department of Education, 30 million borrowers deferred their federal

loans during the payment moratorium, while about 300,000 kept paying.


Higher Interest Rates for 2023–2024


Borrowing funds for college and graduate school will cost more for students

and parents in the 2023–2024 academic year. Every May, interest rates on

federal student loans are recalculated for the upcoming school year. The rates

are determined by combining the yield on the 10-year U.S. Treasury note plus

a fixed spread set by Congress.


Based on this calculation, interest rates on federal student loans are set to

increase by about half a percent for the 2023–2024 school year. This marks

the third straight year of increases. The increased rate applies to new federal

student loans that are issued from July 1, 2023, through June 30, 2024. The

interest rate is fixed for the life of the loan.


As it did last year, continuing inflation has played a part in the rate hikes.

Beginning last May, the Federal Reserve initiated a rapid series of hikes in the

federal funds rate. As a result, the yield on the 10-year Treasury note

increased, which led to higher student loan interest rates.


Here are the new rates:

Ok - so maybe this isn’t the most exciting economic update we’ve ever

written. But many of our clients have HSAs, and many of our clients’ children

and grandchildren have at least some student debt. Heck, some of our

physician clients in their 40s still have some student debt! God bless America,

right? So, we hope that you appreciate this update.


Have a great weekend, everyone.


-Matthew

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