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.