Category: Paying for Education/College

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Financial Planning Insurance Paying for Education/College

When the Clock Strikes 21: Navigating TRICARE Coverage Changes for Military Dependents

A young adult stands beside a clock, an ACA healthcare card, and an American flag, representing the TRICARE coverage deadline military dependents face at age 21.

For military families, TRICARE is one of the most valued benefits of service. But when a dependent child turns 21, the coverage landscape shifts dramatically, and many families are caught off guard. Understanding what changes, what options remain, and how to plan ahead can make a significant financial difference during this transitional period.

What Happens at Age 21?

Under current TRICARE rules, standard dependent coverage ends on a child’s 21st birthday. This isn’t a grace period or a soft deadline.  On that day, the dependent loses eligibility for the family TRICARE plan unless a specific exception applies.

There is one important exception for students: if a dependent is enrolled full-time at an approved institution of higher learning and the military sponsor provides more than 50% of the child’s financial support, TRICARE coverage can continue until the child’s 23rd birthday or graduation, whichever comes first.

This extension is not automatic. The family must contact an ID card office and provide a letter from the college registrar’s office confirming full-time enrollment. The sponsor must also document that they supply the majority of financial support.

Key Action Item: Begin this documentation process before your child’s 21st birthday to avoid any gap in coverage.

If a dependent leaves school before turning 23 or before graduating, coverage ends immediately upon withdrawal – not at the end of the semester or school year.

The College Student Path (Under 23)

For full-time students who meet the financial support test, the transition at 21 is relatively seamless; coverage simply continues under the existing family plan, whether TRICARE Prime or TRICARE Select (after visiting the ID card office). However, families should mark the calendar carefully: coverage will end the day the student turns 23 or the day they graduate, whichever is earliest.

This creates a gap that often surprises families. A student finishing a four-year degree who turns 23 in December, three semesters before graduation, loses coverage months before their peers, regardless of enrollment status at the time.

When the student either graduates or turns 23, the same coverage choices apply as for any dependent who aged out at 21: TRICARE Young Adult, employer-sponsored coverage (if applicable), or an ACA Marketplace plan.

The Non-Student (or Post-Graduation) Path: Your Options

Once standard TRICARE eligibility ends, at 21 for non-students or at 23/graduation for students, families have several coverage options to evaluate. None of them are as seamless or affordable as the standard family plan, which makes early planning essential.

Option 1: TRICARE Young Adult (TYA)

TRICARE Young Adult is a premium-based program designed specifically for military dependents who have aged out of regular TRICARE. Eligible young adults must be unmarried, under age 26, and not eligible for an employer-sponsored health plan. TYA offers two plan options that mirror the standard TRICARE structure:

  • TYA-Prime: Works like TRICARE Prime, with care managed through a primary care manager and referrals required for specialty care. The 2026 monthly premium is $794.
  • TYA-Select: Works like TRICARE Select, allowing visits to any TRICARE-authorized provider without referrals. The 2026 monthly premium is $363.

Both options include medical and pharmacy benefits. However, TYA explicitly excludes dental coverage, and vision benefits are limited. Young adults needing dental or comprehensive vision care must purchase those separately.

TYA premiums have increased dramatically over the past decade, a 250% increase since 2015, making this option increasingly difficult to afford, especially for young adults still establishing themselves financially. 

Enrollment tip: You have 90 days after coverage ends to enroll in TYA. When first enrolling, two months of premiums must be paid upfront, with subsequent payments made by automatic bank transfer or recurring credit/debit card.

Option 2: Employer-Sponsored Coverage

If one of the parents has access to an employer plan, it may cover dependent children up to age 26. Even if the family hasn’t been using that coverage, it’s worth exploring as a child ages out of standard TRICARE.  It could be significantly cheaper than TYA.

If the young adult is working and their employer offers health insurance, that is typically the most cost-effective path. One important rule to know: eligibility for an employer-sponsored plan disqualifies a dependent from TYA enrollment. It’s not a choice between the two.  If employer coverage is available, TYA is off the table.

For young adults in early-career roles, part-time jobs, internships, or gig work, employer coverage may not be immediately available or may have a waiting period. TYA can serve as a temporary bridge during that gap.

Option 3: ACA Marketplace Plans

The Affordable Care Act Marketplace (healthcare.gov or state-based exchanges) is another avenue worth exploring.

Medicaid is the first stop for young adults with limited income. In states that have expanded Medicaid (currently 40 states and Washington, D.C.), adults with annual incomes at or below 138% of the Federal Poverty Level, approximately $21,597 for a single adult in 2026, may qualify for free or very low-cost coverage. This is a realistic scenario for many young adults who are in school, working part-time, or just starting out.

For those with income above the Medicaid threshold, premium tax credits on the Marketplace can meaningfully reduce monthly premiums. For 2026, tax credits are generally available for individuals earning between 100% and 400% of the FPL. 

ACA enrollment generally occurs during the annual Open Enrollment period (typically November 1 – January 15). However, losing TRICARE coverage due to aging out is a qualifying life event, which triggers a Special Enrollment Period of 60 days. Contact your local Beneficiary Counseling and Assistance Coordinator (BCAC) to obtain a loss-of-coverage letter, which may be required when applying for commercial coverage.

The Bottom Line

The coverage transition at age 21 (or 23) is one of the most consequential and most overlooked financial planning moments for military families. Starting the conversation 12 to 18 months before the cutoff gives your family time to gather documentation, compare costs, and avoid the scramble of a last-minute decision. A few things to keep in mind as you prepare:

Keep DEERS current. Your child’s address and enrollment status in DEERS must be up to date. Outdated information, especially for college students living away from home, can affect TRICARE region designation and Prime eligibility.

Budget for the gap. TYA Select at $363/month adds up to more than $4,300 a year.  That’s real money for a college student or new graduate. Build this into your family’s budget well in advance, or have a clear alternative plan ready.

Watch the Medicaid income cliff. A young adult who qualifies for Medicaid today may lose eligibility mid-year with a new job or a raise. Income changes should be reported promptly to avoid coverage surprises or repayment issues.

Understand TYA’s lockout rule. If TYA is voluntarily dropped without qualifying for employer coverage, there is a one-year lockout period before re-enrollment is allowed. However, there is no lockout when leaving TYA because employer-sponsored coverage became available.

The gap between military dependent coverage and civilian standards, where children can remain on a parent’s plan until 26 at no extra cost, remains a real financial burden for military families. Until Congress acts to close that gap, the best protection is a plan made well before the clock strikes 21.

Working with a financial planner who understands the unique challenges and benefits of military families can prove invaluable. The financial planners at Military Financial Advisors Association understand your life and can help you develop a personalized financial plan, navigate complex financial decisions like healthcare choices, and stay on track toward your family’s goals.

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Investing Paying for Education/College

Saving For Your Kids – Do They Need A Trump Account?

Piggy Bank standing on some dollars with article title "Do Your Kids Need A Trump Account"

Did someone say free money? Yes! And if your child qualifies, opening a Trump account is a no-brainer. What if they don’t qualify for the free money? Is that still the best place to save?

Spoiler: It depends. Let’s look at your options.

The One Big Beautiful Bill Act created a new retirement investment account for kids under 18. You can think of it as being like a Traditional IRA, but without the requirement for the child to have qualifying income. Additionally, children born between January 1, 2025 and December 31, 2028 will get $1000 from the government when they open Trump account. Some private donors have also indicated they will also fund initial deposits for some other children.

I’m always a fan of free money so if your child qualifies, it makes sense. For others, there might be better ways to save based on your goals.

Trump Account Overview

  • Must be opened before a child turns 18
  • Contributions limited to $5,000 per year before the year they turn 18
  • Contributions are made with after tax dollars, but grow tax free
  • Employers can contribute up to $2,500 per year and these contributions don’t count as taxable income to the parent or student.
  • Investments in eligible mutual funds and Exchange Trade Funds (specific details aren’t available at this time)

Withdrawals

In general, withdrawals may not be taken from Trump Accounts. Once the child turns 18, the account will need to be converted to a Traditional IRA. At that point, Traditional IRA withdrawal rules will apply.

The accounts will most likely have a mix of both after-tax contributions and pre-tax funds (earnings, tax-free charitable or employer contributions) withdrawals will be taxed in proportion to these amounts. Additionally, withdrawals taken before 59 ½ will be subject to a 10% penalty unless they meet a qualifying exception.

Conversion to a Roth IRA

Depending on the size of the Trump account and the mix of pre-tax and after-tax dollars, it could make sense to convert the account to a Roth IRA once they turn 18. Most 18- year-olds don’t have a significant amount of income so their tax rate may be very low or even 0. Converting would allow the account to continue to grow and be withdrawn tax free (subject to Roth IRA withdrawal rules).

The Questions To Ask First

There are no shortages of ways to save and invest for your children’s future. It really depends on what your goals are and how and when you believe the children will use the money. Here are three questions to shape your decision:

  • What is the money for…Future education, a head-start in life, a future house down payment, their ultimate retirement?
  • How much control do you want in the future?
  • How much are you planning to give them?

529 Plans – If education is the goal, 529s are hard beat. Tax-free growth and withdrawals for qualifying education expenses. Many states also offer tax breaks for contributions. This may be less of a factor for military depending on your state of residence and whether you’re actually paying state taxes while on active duty. It is something to consider after retirement or separation. Secure 2.0 also introduced the ability to roll unused 529 funds into a Roth IRA for the beneficiary subject to some limitations.

Pros:

  • Tax-free growth and tax-free withdrawals for qualified education expenses
  • Many states offer a tax deduction for contributions
  • High contribution limits
  • SECURE 2.0 allows rolling unused funds (up to $35,000) into a Roth IRA for the beneficiary after 15 years
  • Beneficiary can be changed to another family member which is useful if one kid gets a scholarship or doesn’t go to college
  • Minimal impact on financial aid compared to other accounts

Cons:

  • Withdrawals for non-education expenses are taxed plus a 10% penalty
  • State tax deductions may only apply to your home state’s plan
  • Many military members don’t pay state taxes while on active duty
  • Limited to investment options of the plan you choose

UTMA/UGMA Accounts – These accounts provide the most flexibility for investments, but the money is your child’s once the account is funded and can’t be taken back. You manage it until 18, 21, 25 (depending on state law), but at that point they can do whatever they want with the money.

Pros:

  • No restrictions on how the money is used – college, car, house, anything
  • No contribution limits
  • Simple to open and manage
  • Can hold a wide range of assets – stocks, bonds, ETFs, even real estate in some cases

Cons:

  • No tax advantages – gains are taxed, and the “kiddie tax” can apply, meaning above a threshold the gains are taxed at the parent’s rate
  • Once the child hits the age of majority it’s legally their money
  • Counts as a child asset for financial aid so less ideal for saving for education

Roth IRA –Once your child has earned income, they can open and fund a Roth IRA.

It’s subject to standard annual limit or what they earned, whichever is lower. The takeaway here is the funding doesn’t have to come from your child’s actual earnings.

I knew my daughter didn’t want to work and put all her money into an IRA. She was making only a few thousand dollars working at a bookstore and doing some work for me. So, I funded her Roth account. This money will have 40+ years to compound tax- free. Do this and your kids will surely thank you in the future.

Pros:

  • Tax-free growth and tax-free withdrawals in retirement. The time horizon here is extraordinary
  • Contributions (not earnings) can be withdrawn anytime penalty-free, giving some flexibility
  • Teaches the concept of investing early and connects work to wealth-building
  • The power of an extra 5-10 years of compounding is fantastic

Cons:

  • Requires earned income. Your child has to actually have a job, and contributions can’t exceed what they earned that year
  • Low earning years mean low contribution limits in practice
  • Doesn’t help with shorter-term goals like college or a first car
  • Parents can’t contribute on the child’s behalf beyond what the child earned — no workarounds
  • It’s their money at 18 so they could take all the money out of the account

Parent-Owned Brokerage Account (Gifted Later) – Using a parent-owned taxable brokerage account as a savings and investment vehicle for your child is another option.

This could be done by opening a separate account or just in a brokerage account you have. This option give you the maximum flexibility. It can be gifted in the future for education, house down payment, to help a child start a business. It can also be used for your own needs if something changes in your situation.

Pros:

  • Complete parental control. You decide when and if to transfer, and under what conditions
  • No restrictions on investments or withdrawals
  • Flexible. You can redirect the money if life changes
  • Can be a meaningful estate planning tool
  • No age-of-majority forced transfer — you gift it on your timeline

Cons:

  • No tax advantages — dividends and capital gains are taxed at your rate annually
  • Gifting large amounts (over $19,000 per person per year in 2026) may trigger gift tax reporting – not tax, just reporting
  • Capital gains at the time of gifting can be a tax event depending on how it’s structured
  • Requires discipline to actually earmark and protect the money from other financial pressures over the years

Trump Accounts – Described above

Pros:

  • $1,000 government seed money — genuinely free
  • Forces early investing habit
  • Tax-advantaged growth
  • Simple, set-it-and-forget-it structure

Cons:

  • U.S. stocks only — concentration risk and no international diversification
  • Completely illiquid until age 18 with no exceptions
  • Implementation details still unclear — program could change
  • $5,000/year contribution limit is lower than other options
  • No flexibility on purpose — unlike a 529 rollover or Roth, you can’t redirect this money

So What’s Best?

A few thoughts. If you’re eligible for free money for a Trump account, take it. That could be the $1,000 in seed money from the government, matching from an employer, or funding from a donor. Taking free money is always a good move.

If you’re saving for education, the 529 is a great option especially if you get a tax break.

You keep control and the Roth transfer option and ability to change beneficiaries is great. If your child gets scholarships or maybe attends a service academy, you can take out the money without the penalty. You’ll still pay tax on the earnings, but you got tax free growth so it’s better than the taxable brokerage account.

If you want maximum flexibility, the taxable brokerage account in your name is the best.

Yes, you’ll pay taxes on capital gains and dividends each year but those are lower than your marginal tax rates. Also if you’re not buying and selling all the time or in an income-producing investment, those taxes are likely to be relatively small. You also have some flexibility on whether you or your child the taxes in the future.

You don’t have to pick just one type of account. Stack them intentionally. Get the free Trump account money if you qualify, use a 529 if education is the goal, and open a Roth as soon as they have earned income. I don’t know exactly what my daughter will do with the money in her Roth IRA in the future. But, she’ll have some options. Whatever account you choose, you’re giving your kids a head start.

Have questions about saving for your children’s future or your own?  The advisors at MFAA can probably help.  Check them out here.

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Financial Planning Paying for Education/College

Should Military Families Open a Trump Account?

Cartoon comparing options for saving for your children include the new Trump accounts

For my friends who live under a rock as far as tax law goes, the recent passage of the OBBBA spending bill creates a new type of child-focused investment account, literally named a “Trump” account. It might have been possible to come up with a more polarizing name for a savings vehicle, but I’ll leave that musing for another time. Let’s focus on what these accounts are and whether you should consider them or not. 

Trump Account 101

These accounts won’t be available until mid-2026, so cancel panic and anxiety about them for now.  They are essentially non-deductible Traditional IRA accounts, but the list of known unknowns regarding them is long and distinguished. Here are the basic known features:

  • $5K Annual contribution limit, until age 18, starting in 2026, with inflation increases starting in 2027. 
  • $1K one-time government contribution (tax-free) for children born between 2025 and 2028.
  • No tax deduction for contributions, but the contributions are not taxable when distributed.
  • Earnings are taxed at ordinary income rates: 10% to 37%.
  • Distributions are not allowed prior to age 18, but after that, there is no 10% penalty like with other IRAs. 

At face value, these accounts seem like a good way for military families to stash away additional savings to help their kids get ahead. Grandparents could help with the funding, too. 

But let’s take a look at some of the pros and cons of these new savings vehicles.

Trump Account Pros and Cons

Any tax-advantaged savings vehicle is worth exploring, but there’s no free lunch. Pros of these new accounts include:

  • $5K more of tax-advantaged savings per kiddo is on the table.  
  • IRA/Roth IRA contributions are still allowed.
  • UTMA/UGMA contributions are still allowed.
  • 529 contributions still allowed. 
  • Free $1K for kids born in one 4-year period of time…
  • Accounts must invest in low-cost, US-focused index funds. 

We’ll look at tradeoffs in a minute, but let’s consider the Trump account cons, acknowledging the triple-entendre there…

  • The tax treatment is the same as a non-deductible Traditional IRA, which means:
    • You must track the basis until the account is emptied, or you could pay tax twice on the contributions. (Remember how much fun it’s been tracking basis in your Traditional IRA?)
    • Earnings will be taxed as ordinary income, which could be much higher than capital gains rates or the potential 0% rate of a Roth IRA, UTMA, or 529. 
  • Lack of diversification. While I’m a fan of US equities as a core holding of young retirement savers, and this rule is meant to keep insurance-sales-foxes out of the hen house, it’s a bit “big government.” What’s more, being forced into US equities during certain periods (2000-2010) was pretty toxic to returns. Hopefully, this will get a re-look. 
  • Uncertain financial aid and other government aid treatment. It’s likely that these accounts will look like an IRA for the education financial aid process, but it’s also possible these accounts will weigh against low-income families for other aid programs. 
  • Uncertain Roth Conversion. Usually, we want to Roth convert non-deductible Traditional IRAs as soon as practical to get tax-free earnings going.  It’s uncertain if this will be allowed for these accounts. 
  • The $5K contribution would compete with the $19K gift limit, thus lowering what could be contributed to a 529 account or UTMA/UGMA. (Gift splitting from a couple would mitigate this.)
  • Naming… Trump tends to be a love him or hate him personality. You can probably call it a Section 408f account (like a 529 account) you aren’t a fan. 

Now that we know the ins and outs, let’s take a look at alternatives and potential COAs. 

Trump Account Options and Alternatives

An entry into this merge starts with answering some of the following questions:

  • Do we/I actually have extra money to save after taking care of retirement, college, and other savings? If not, no need to consider these accounts. Put your own mask on before helping others…
  • Are we hoping to help Junior with lifetime wealth transfer? “Twenty’s Money” to start a business, buy a home, or dodge debt? Are we trying to run up the scoreboard on what accounts can be in Junior’s name? Is education funding our priority?
  • Will we proactively manage the tax consequences of the account? 

Alternative accounts to consider include:

  • UTMA/UGMA: The contribution limits are essentially $19K per parent, the first $1,350 of income is tax free and the next $1,350 taxed at the child’s rate, often 0%. Tax-gain harvesting can whittle away at a potential tax bill. Earnings are at capital gain rates, which are usually lower than ordinary income rates. There are no penalties for early withdrawal nor RMDs.  

 

As a child-owned asset, they “harm” education financial aid considerations. The main downside of a UTMA/UGMA is that it must be turned over to the child at the state’s age of majority, usually about 21, but ranging from 18 to 25. Also, while a high enough balance to cause a “kiddie tax” is somewhat uncommon for middle-class families, the income above $2,700 is taxed at the parents’ capital gain rate, probably 15% to 23.8%. 

 

  • Roth IRA: If a child is working, then a Roth IRA should probably be first in the order of operations. Contributions can be withdrawn tax and penalty free at any time, and assuming these dollars are for retirement, the earnings should be tax free after age 59.5. The main downside is that many kids don’t earn income outside the home or in a family business. 

 

  • Teen Brokerage Account: Fidelity (not a recommendation) offers a brokerage account that is not a UTMA, but has parent guardrails until 18.  It would not offer UTMA/UGMA tax provisions, and would also “harm” financial aid, but if you’re in the Fidelity ecosphere, it’s a consideration. 

So, to simplify, let’s say a family has $7K to help a child out financially in the future, a good order of operations might look like:

Retirement Focus

  1. Roth IRA if the child is working and qualifies to contribute. 
  2. If Roth IRA isn’t an option, then $5K into a Trump account and $2K into a UTMA whilst planning to tax-gain harvest and hopefully Roth Convert the Trump Account after age 18. 

Twenty’s Focus

  1. $7K into a UTMA/UGMA would seem straightforward, but if the Trump account could be Roth converted after age 18, it’s possible the tax bill on earnings would be lower over a series of Roth Conversions than it might be significant capital gains later in life. 
  2. Focusing on the UTMA/UGMA account requires intentionality. Gains should be harvested when the tax bill will be $0 so that the account has the highest possible basis when it’s needed for “Twenty’s Money.”
  3. A hedge would be to put $5K into the Trump account and $2K into the UTMA/UGMA. This could lower any workload from tax gain harvesting in the UTMA/UGMA and defer any tax gymnastics on the Trump account until age 18 or later. 

Education Focus

  1. A 529 account is already the gold standard for education savings. Some states offer a tax deduction for contributions; the money grows without taxation; and the list of ways to use the money without paying any taxes is, you guessed, long but distinguished and growing each time Congress tinkers with the tax code. 
  2. A UTMA/UGMA is a sound second place for education, primarily if families are allergic to the education focus and restrictions of a 529 account. Because UTMA/UGMA accounts must eventually be turned over to the child, mind the risk of pouring gas on a future fire. 
  3. A Trump account is in last place here.  The funds can’t be used for K-12 education, and the child has full control at 18. Most UTMA/UGMAs can be extended to age 21+, so a young adult who’s off the path could start doing some damage a few years earlier while starting a bogey-gathering turn for the taxman. 

Cleared to Rejoin

The intersection of investing, saving, and taxes is literally what brought me to my second career, so anytime a new financial tool arrives, I’m admittedly excited.  The Trump accounts are a bit of a head scratcher, but they do offer some opportunities, especially to wealthy families on the hunt for tax strategies.  Expect to learn more about them as they become available in mid-2026. Until then, if you have $5K to save for junior, no need to wait!

Do you need help figuring out how you should save for your children or for your own retirement?  The MFAA Advisors are an excellent resource to help you answer these questions or any other financial topics you’d like to discuss.  Find an MFAA advisor here.

Fight’s On!

Categories
Paying for Education/College

Scrubs and Student Loans: Financial Planning for Military Medical Professionals

Scrubs and Student Loans: Financial Planning for Military Medical Professionals

You’ve put in the hours, the degrees, the residencies, and the deployments. You’ve juggled patients and PCS orders, clinic charts, and field gear. Now your financial life should be easier, right?

Except it’s not.

If you’re a military medical professional, you know the grind is real. What you might not know is how uniquely complicated your financial life is compared to both your military and civilian peers. Between student loans, special pays, frequent moves, and an eventual transition that no one prepares you for, your financial plan needs more than a budget spreadsheet and a shrug.

Let’s talk about what’s actually going on and what smart planning looks like for people in scrubs who also wear a uniform.

While Reserve and Guard medical professionals face many of these same issues, this piece focuses primarily on active duty providers.

The Financial Realities of Military Medical Professionals

Military medical professionals often come to the service with six figures of student loan debt, wrapped in a bow of HPSP obligations, SLRP incentives, or PSLF eligibility. You’re tracking CME hours, juggling licensure renewals, and trying to make sense of incentive pays that are taxed but not well-explained. Oh, and then the Army/Navy/Air Force moves you just as you finally found a decent housing market.

It’s not just a career; it’s a logistical and financial obstacle course.

What Military Medical Professionals Should Know About Scholarships and Loan Repayment Options

Your branch of service/agency and medical specialty determine which (if any) loan repayment or scholarship options are available to you, but here are some to certainly check out:

  • Health Professions Scholarship Program (HPSP): This program is a fantastic opportunity. It typically covers full tuition, fees, and books, along with a monthly stipend. In exchange, you incur a service commitment, which is usually a minimum of one year for every year of scholarship received. Keep in mind that your service commitment starts after your training and may be longer depending on your specialty.
  • Student Loan Repayment Program (SLRP): Offered for specific medical professionals and is branch-specific. The amount paid varies by branch and recruiting needs. For example, the Army’s program can pay as much as $50,000 per year. However, this is a taxable bonus, and a portion will be withheld for income tax. These payments are typically made directly to your loan servicer and require a service agreement.
  • VA’s Education Debt Reduction Program (EDRP): For those planning to move into VA employment, this program can provide up to $40,000 per year with a maximum of $200,000 total in loan repayment. This is a highly competitive and discretionary program, so eligibility is not a guarantee.
  • Public Service Loan Forgiveness (PSLF): Military service counts as qualifying employment. To earn forgiveness after 120 qualifying monthly payments, you must be on a qualifying repayment plan (usually an income-driven repayment plan). A key trap to avoid is assuming the process will happen automatically. You must actively submit an Employment Certification Form (ECF) annually to track your progress and ensure your payments are being counted.
  • Federal Student Loan Repayment Program (via OPM): This program is a benefit offered by some federal agencies, including those within the DOD. It provides up to $10,000 per year with a lifetime cap of $60,000. It’s important to remember that this is a discretionary benefit, not an entitlement, and your specific agency may not offer it.

Each of these programs comes with its own fine print, and none of them work automatically. You have to apply, track, and manage them actively.

Common Traps

Here are a few of the traps I see all the time:

  • Deferring student loans year after year and waking up in year seven wondering what happened
  • Thinking PSLF will “just work itself out” (it won’t)
  • Believing SLRP or bonus pays will eliminate the debt without reading the fine print
  • Planning for your civilian career about 15 minutes before your ETS or retirement date

None of this is because you’re careless. It’s because your financial life is a minefield of fine print, acronyms, and policies that barely make sense to the people administering them.

What Strategic Planning Looks Like

Strategic planning doesn’t mean spreadsheets for fun. It means:

  • Choosing the right repayment plan or plans for your loans based on your income trajectory, not just what a .gov site spits out
  • Syncing your PSLF strategy with your military commitment and any future VA or civilian hospital employment
  • Planning around taxes when you get bonuses, incentive pays, or decide to moonlight
  • Laying groundwork for credentialing and licensure before you transition, not after
  • Coordinating finances with your spouse if you’re a dual-medical or dual-military household (hello, chaos)

Case Study: Loan Confusion in Action

A Navy nurse I worked with was receiving SLRP but had also enrolled in PSLF without realizing the two couldn’t overlap cleanly. Their loan servicer had been applying payments, but the qualifying payment count under PSLF wasn’t progressing because they hadn’t submitted annual certification. Meanwhile, their SLRP payments were being made directly to the lender, reducing loan principal but potentially disqualifying those months from PSLF tracking. We untangled the mess, created a clean repayment strategy, and set them up for both targeted loan payoff and PSLF eligibility in the future.

You’re Not Behind, You’re Just Unarmed

You are a highly educated professional with a vital skill set. But when it comes to personal finance, the system has set you up to wing it. You were handed complex benefits, obscure repayment options, and a rotating cast of finance officers who may or may not know what’s going on.

The result? You feel behind. You’re not. You just need someone in your corner who understands your world and can help you cut through the noise.

How a Planner Can Help

A good financial planner doesn’t sell you products. They ask smart questions, create clarity, and help you make decisions that match your life and values. For military medical professionals, that could mean:

  • Mapping out loan strategies that actually get you to forgiveness
  • Building a tax plan that avoids surprise bills in April
  • Helping you prepare for a smooth civilian transition years in advance
  • Creating a system so your finances can run in the background while you do your job

Let’s Talk

If you’re a military medical professional who knows you need to do something but haven’t had the time, brain space, or trustworthy person to guide you, talk with a Military Financial Advisor Association member.

 

Categories
Paying for Education/College Reserve Component

GI Bill for Guard and Reserve

Book on a table with some coins & a graduation cap stacked on it highlighting GI Bill for Guard and Reserves

Navigating the many GI Bill For Guard and Reserve options

I have been a member of the Air National Guard for almost 25 years at the time of writing this article. During that time, I have served as a Drill Status Guardsmen, a Title 32 Dual Status Federal Technician, and now as an Active Guard Reserve (AGR). Each status has had an impact on the education benefits I was eligible to receive. I’ve used the G.I. Bill towards my own education. I served several years as a Retention Office Manager where I helped unit members apply for, use, and transfer G.I. Bill benefits. Now I talk to military members and veterans about ways to optimize the GI Bill for Guard and Reserve benefits as part of a holistic Financial Plan. If you are in the reserve (guard) component it is important for you to understand what you may be eligible for and how to weigh those unique options.

Which chapter of GI Bill for Guard and Reserve are you on?

When I strike up a conversation about education benefits, service members will often proudly claim “I have THE G.I. Bill”, and get confused when I ask, “Which G.I. Bill?” Many folks are unaware of just how many different G.I. Bill options exist.  The genesis of the G.I. Bill began with a single program known as the Servicemen’s Readjustment Act of 1944 following World War II that sunset in 1956. Congress has since created many new programs of educational benefits for veterans under Title 38 of the United States Code with each unique program found in its own Chapter, enough to fill an entire book! You can go right to the source at the VA site but I’ll give you a brief overview.

Chapter 1606 Montgomery G.I. Bill for Selected Reserve

  • This is a free benefit that members of the Guard and Reserve become eligible for with a 6-year service commitment.
  • A tax-free monthly stipend is paid directly to the member based on course load. Rates can be found here, currently $439.
  • Can be stacked with an additional “Kicker” offered by the service component if eligible.
  • Use or lose. Once you separate you can no longer use this benefit and will lose it forever after a one-year break in service.
  • You can still obtain eligibility for this benefit if you started your career on Active Duty and then transferred to a reserve component and agree to the service commitment.

Chapter 1607 Reserve Educational Assistance Program (REAP)

  • Another no-cost benefit, the precursor to the Post 9/11 GI Bill
  • Tax-free monthly stipend for reserve members that served on Title 10 orders after September 11th, 2001.
  • Rates were based on CH 30 MGIB and length of service:
    • 40% of MGIB for 90 days up to 1 year.
    • 60% of MGIB over 1 year but less than 2 years
    • 80% of MGIB for anything over 2 years on orders
  • Could be stacked with Kicker if the member already established eligibility.
  • This program was closed to new enrollments in 2015 and sunset for current enrollments in 2019.

Chapter 30 Montgomery G.I. Bill Active Duty (MGIB-AD)

  • Eligibility is based on Active Duty, AGR status, or lengthy mobilizations, after at least 2 years, with some unique other requirements.
  • Sorry, this one will cost you $100 per month for a year ($1,200).
  • A much more generous tax-free monthly stipend is paid directly to the member. Rates can be found here, currently $2,210.
  • You can supercharge this benefit with an additional “buy up” with an 800% ROI!
    • $20 will get you an additional $5 per month ($180)
    • $600 will get you an additional $150 per month ($5,400)
  • Can be combined with a Kicker incentive.
  • You could continue to use this benefit after you are separated from service for up to 10 years.

Chapter 31 Veteran Readiness and Employment

  • Eligible for benefits with a service-connected disability rating of 10% or more as a veteran or 20% or greater while still serving.
  • Up to 48 months of entitlement to the various programs.
  • This does not diminish entitlement from any other chapter of the GI Bill you may still have, but the use of other VA education programs is deducted from CH31 VR&E entitlement.
  • Provides a suite of rehabilitation programs found here.
  • Dependents may qualify for benefits as well.
  • Also provides a subsistence allowance, rates can be found here.

Chapter 32 Veterans Educational Assistance Program

  • This one is for the old timers, who must have entered active duty between 1977 and 1985.
  • The government matches $2 for every $1 contributed from military pay, up to $2,700.

Chapter 33 Post 9/11 Veterans Educational Assistance Act of 2008

  • Andrea Clark, CFP®, AFC® published a great, in-depth post about this benefit here.
  • A free benefit with tiered payments based on the cumulative amount of qualifying active-duty time after 9/11/2001.
  • Tuition and Fees up to 100% for public in-state institutions, paid directly to the school.
  • Basic Allowance for Housing (BAH) based on the school’s zip code or separate rate for online-only programs.
  • Tax-free book stipend paid to users up to $1,000 per year.
  • Additional coverage under the Yellow Ribbon program for participating schools once the 100% tier is reached.
  • The only benefit you can transfer to dependents, but is limited by time in service requirements and incurs a service obligation.

Chapter 35 Survivors’ & Dependents’ Educational Assistance Program or Fry Scholarship

  • Eligibility is for dependents based on the 100% service-connected disability or line of duty death of the veteran after 9/11/2001.
  • DEA is paid directly to the dependent.
  • Fry Scholarship is similar to CH 33 Benefits.
  • You cannot use this benefit as a servicemember, but make sure your family is aware of this program in the unfortunate event they become eligible.

Chapter 36 Mars Colonist College Fund 

  • Ok, I made this one up! The point is, you never know when a new program might be implemented based on the needs of the DoD that could be more valuable than the one you may be using now!

Wait, 36 + 36 + 36 = 48?

Each chapter of the GI Bill you establish eligibility for comes with 36 months of entitlement. In my case, I was eligible for three different chapters of the GI Bill (and could have bought into a fourth), so I could have amassed 108 months (or 144) right? Unfortunately, you cannot collect them like baseball cards so each time you apply for a new chapter of the GI Bill you must relinquish (permanently) the current version of the GI Bill you are using. The good news, you can start over with up to 36 months of the new GI Bill. The bad news, you cannot exceed 48 months of total entitlement when the different chapters are combined.

This limitation is one of the key planning factors when you run a scenario analysis for what GI Bill benefits to use, how much to use, and when to use it. I’ll show you a very personal example.

My story

A young 17-year-old Sam Lewis joined the Delaware Air National Guard (DANG) in 1999. At the time of my enlistment the State of Delaware paid up to 100% of in-state tuition for Delaware National Guard members to attend public schools and an equivalent amount for private schools. I was eligible for Chapter 1606 GI Bill ($276 per month) once I graduated from Basic Military Training. About a year into my contract the Kicker was introduced, and I agreed to extend (basically restarted my 6-year commitment) and would now earn another $350 tax-free per month. So, I was getting my school bill paid 100% plus $626 a month tax-free plus my regular drill weekend checks. Somehow, I always found a way to spend all of it. It can’t get any better than that right? 

I ended up getting activated in 2004 and spent just shy of a year on orders including a deployment to Iraq. When I returned to civilian life and school I was now eligible for Chapter 1607, so I relinquished my remaining 14 months of benefits under Chapter 1606 and now received $690 per month, still topped off with the $350 Kicker, 100% Tuition Reimbursement, and now E-5 monthly drill check. Somehow, I always found a way to spend all of it. It can’t get any better than that right?

I used 13 months of benefits to finish my bachelor’s degree in 2007 and did not give much thought to the remaining months of entitlement. I was unmarried and childless and not giving adequate thought to future planning. I also became a full-time Title 32 Dual Status Federal Technician that year. Although I worked full-time and wore the uniform every day, I was not eligible for the Chapter 30 GI Bill at the time based on my status, although some folks I worked alongside were. I heard mention of the Post 9/11 Veterans Educational Act of 2008, but it sounded like an Active Duty program or a benefit for folks that had deployed much longer than I had, and in my naivete, I did not investigate further.

In 2012 I became a Title 32 AGR and had to make an election within the first two weeks on a DD 2366 on whether I wanted to buy into Chapter 30 MGIB or not. I had no immediate plans to return to school and did not want to pay $100 a month for a limited benefit that I may never use, so I declined it.

In 2013 I was selected for a promotion to a new position as the Retention Office Manager (ROM) for my wing. I would help members with career irritants, explore their career change options, pay them large sums of bonus money, and help them understand and access their educational benefits. I quickly had to become the resident expert on all things GI Bill. I also married the love of my life in 2013, and quickly had to become a future planner!

The more I learned about the GI Bill the greater appreciation I had for how rewarding the benefits could be.  In 2011, the DoD made the determination that Title 32 AGR would now count towards establishing Chapter 33 Post 9/11 GI Bill benefits. This is the only benefit that could be transferred to my dependents, known as the Transfer of Education Benefit (TEB). With my current AGR time and prior periods of mobilization, I would be eligible at the 100% tier. I quickly made the election to relinquish my remaining months of CH 1607 for CH 33. Sadly, I would only have 11 months of entitlement remaining before I reached the 48-month limit. 

Since I was already at 14 years’ time in service, I quickly transferred all 11 months to my wife as soon as she was enrolled under me in DEERS. She is a law school graduate with no plans to go back to school but I wanted to start the four-year service obligation as soon as possible to get it over and done with. We welcomed our twin daughters into the world in 2016. Again, as soon as they were enrolled under me in DEERS I “took back” 10 months of benefits from my wife (she agreed) and gave each daughter 5 months of benefits. There is no new service commitment required, that is a one-time obligation. I now have the flexibility to transfer months between each daughter, my wife, and myself as we play the GI Bill shell game to best meet our needs. Do not wait until your dependent needs to use the benefits. Consider transferring now, even if you are not positive your dependent will use it, you can always pull it back until it is used.

In our fire safe at home, in the “personnel file” for each child I have a copy of the Defense Manpower Data Center letter verifying my approval for the transfer of benefits and obligation end along with my Certificate of Eligibility from the VA documenting my entitlement for 100% tier of CH 33 payments. These are filed right next to their birth certificates and 529 account information for safekeeping until they graduate high school. Again, putting on my ROM hat, don’t just say you’ve transferred your benefits to your dependents – be able to prove it!

What do I wish I could have done differently? Obviously, I look longingly at months of CH 1606 and CH 1607 I used on myself that would be much more valuable had I saved those for CH 33 and transferred them to my kids. Had I known then, I would have paid more out of pocket.  As Brian P. O’Neill, CFP®, often says, “My crystal ball was cloudy” so I made the best decision I could, based on the information I had at the time.

What questions do you need to ask?

If you first enter the military as an enlisted member, CH 1606 is probably the first GI Bill you get familiar with. If you commission after paying for college under your own steam, you could still be eligible for this benefit with a six-year commitment but it might not be as heavily touted – so ask!

If you contemplate your career beyond the initial six, you should start to ponder:

  • Do I anticipate still needing this benefit to achieve my goals? 
  • Will I be able to afford my education plan if I lose access to these benefits upon separation?
  • Do I anticipate accruing active duty periods that might make me eligible for increased benefits under other chapters?

Generally, you can use up to 12 months of this benefit without cutting into the months of entitlement of other programs in the future, so don’t leave money on the table unnecessarily.

If you have deployed or been hired as an AGR you may wonder:

  • Do I need to convert and begin using CH33 now or should I wait until I accrue more duty towards a higher tier?
  • What tuition assistance do I have access to now that will allow me to save up on my VA benefits?
  • Is it a smart play to use months of CH33 while I’m still on orders and receiving BAH?

If you establish eligibility for CH33 and have dependents:

  • How do I think these benefits will be used by my spouse and children?
  • Should I give at least one month of benefit to each dependent to make sure they will have access if our plans change?
  • Will I need to use these benefits for my own use to further my career?
  • Will an even better GI Bill be coming out in the future?

How Do I Explore The Right Strategy For Me? 

As you can see, no two service members will have the same GI Bill scenario 100% of the time. There are a lot of variables that come into play based on the educational goals of you and your family, the benefits you have earned, outside resources, and other planning factors. 

If you need more help understanding how your benefits incorporate into your financial picture and deciding which path is right for you reach out and connect with an advisor at the Military Financial Advisors Association!

 

Categories
Paying for Education/College

Student Loan Update- Where are we now?

Young Woman sitting at a desk with her hands on her face staring at her computer

For many student loan borrowers, the CARES Act, which paused student loan repayment and drove interest rates to 0.0%, was an extraordinary gift. Since that time, student loan borrowers have been on a wild rollercoaster ride. From expanded forgiveness under the Limited PSLF Waiver program that ended in October of 2022, to the IDR Account adjustment, to the promise of one-time forgiveness. It’s enough to make your head spin. So, what’s the status of loan forgiveness now? Unfortunately, we are still waiting to find out.

  • Many borrowers are still waiting for forgiveness under the PSLF waiver program as applications continue to be processed.
  • Many borrowers are still waiting for forgiveness or a payment count adjustment under the IDR Account Adjustment.
  • And I think all of us are waiting to learn the fate of student loan forgiveness under Biden’s one-time forgiveness plan.

The Limited Public Service Loan Forgiveness Waiver- Ended October 31, 2022

The application period for the Public Service Loan Forgiveness (PSLF) Waiver closed October 31, 2022. The waiver expanded what was counted as a “qualifying payment” making many borrowers suddenly eligible for forgiveness. The purpose was to correct many of the management errors that plagued the Public Service Loan Forgiveness program. Unfortunately, many borrowers are still wondering when they will see their payment count updated or receive confirmation that they qualify for forgiveness.

Public Service Loan Forgiveness is a federal program that forgives the remaining balance on Direct Loans for borrowers who are employed in certain public service jobs and make 120 qualifying payments on their loans. This program is designed to encourage individuals to pursue careers in public service.

As mentioned, the Limited PSLF Waiver expanded eligibility for forgiveness under PSLF. While borrowers still had to make 120 qualifying payments and work full-time for a qualifying employer, the program allowed for the following changes:

  • Borrowers could consolidate non-qualifying loans into a Direct Consolidation Loan and thereby qualify all their loans for forgiveness
  • Past periods of repayment while you were employed for a qualifying employer were counted even if you were not in a qualifying repayment plan
  • Periods of forbearance of greater than 12 months or 36 months cumulative were counted
  • COVID-19 forbearance periods count towards the 120 required payments

Below is a great chart summarizing the changes from StudentAid.gov:

Normal PSLF Requirements Limited PSLF Waiver
·       Receive credit only on Direct Loans ·       Receive credit for periods of repayment on Direct, FFEL, or Perkins Loans
·       Repay under the 10-year Standard Plan or an income-driven repayment plan ·       Periods of repayment under any plan count
·       Make on-time payments ·       Periods of repayment on loans before consolidation count, even if on the wrong repayment plan
·       Work full time for a qualifying employer to receive credit ·       Periods of repayment where payments were late or for less than the amount due also count
·       Must work for a qualifying employer at the time of application and forgiveness ·       Periods of repayment on loans before consolidation count, even if paid late or for less than the amount due
·       If you got Teacher Loan Forgiveness, the period of service that led to your eligibility cannot count toward PSL ·       Can get forgiveness even if not employed or not employed by a qualifying employer at the time of application and forgiveness
·       If you got Teacher Loan Forgiveness, the period of service that led to your eligibility can count toward PSLF if you certify PSLF employment during that period

If you submitted your application for PSLF prior to October 31, 2022, the Department of Education will review your loan history and application under the expanded rules.

If you missed the October 31, 2022 deadline (and meet all the other qualifications) does that mean you are out of luck? Not exactly…

The Income Driven Repayment Count Adjustment- A One-Time Fix

Income-Driven Repayment (IDR) is a type of student loan repayment plan that bases your monthly payment amount on your income and family size. While there are benefits to these repayment plans, they also increase the total interest paid and can ultimately leave you owing more. Income Driven Repayment Plans are designed for the remaining balance to be forgiven after 20-25 years of repayment. Unfortunately, many borrowers did not understand the rules of qualifying repayments and ended up not receiving forgiveness even after paying on their loans for decades.

To address these issues, the Department of Education announced the Income Drive Repayment Count Adjustment. This lesser-known account adjustment allows the Department of Education to make a retroactive credit to payment counts for borrowers in Income Driven Repayment plans. Under the program, time in repayment that is counted towards forgiveness will include:

  • Any months in a repayment status, regardless of the payments made, the type of federal loan, or the specific repayment plan;
  • 12 or more months of consecutive forbearance, or 36 or more months of total forbearance;
  • Any months spent in economic hardship or military deferments after 2013;
  • Any months spent in any deferment (except for in-school deferments) prior to 2013;
  • Any time in repayment on earlier loans prior to consolidation of those loans into a consolidation loan.

While the changes above apply to Direct Loans, borrowers with non-Direct Loans or FFELP loans can still benefit from the program. Borrowers have until May 31, 2023, to consolidate from non-Direct Loans or FFELP loans into a Direct Consolidation Loan.

Can the Income Drive Repayment Count Adjustment help borrowers pursuing Public Service Loan forgiveness, even if they missed the PSLF Waiver deadline?

The short answer is yes. This one-time adjustment counts towards time-based forgiveness and Public Service Loan Forgiveness. The Department of Education will review borrower accounts and automatically update payment counts to include payments eligible under the expanded rules. If you are pursuing PSLF, and have questions, reach out to an advisor as soon as possible. It’s not too late.

Repaying student loans and navigating repayment plans gets complicated. If you have student loans and aren’t sure what you may qualify for, reach out for assistance. The best thing you can do is talk to an experienced professional.

One Time Forgiveness

Judge's GavelAfter a lot of waiting, media announcements, and more waiting, the application for one-time student loan forgiveness opened in October 2022. The legality of blanket forgiveness was promptly challenged in court. Currently, the fate of receiving between $10,000-$20,000 of forgiveness on student loan debt rests with the Supreme Court.

The Supreme Court began hearing arguments February 28, 2023. A verdict is expected by June of 2023. For now, we will wait.

Repayment and Interest Rate Pause

In the meantime, remember that pause on federal student loan interest and payments that started back in March of 2020? The pause on repayment and reduction of interest rates to 0.00% has been extended multiple times.  It’s been extended again and the latest extension reads like this:

“The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that. We will notify borrowers before payments restart.”

Where Things Stand

We are all still waiting—waiting for payment counts to update, waiting for PSLF forgiveness applications to process, waiting for payments to resume, and waiting for the Supreme Court decision on forgiveness. For now, start planning for payments to resume. You can check your income certification dates by logging into your loan servicer website. You can calculate your payments under different repayment plans by logging into StudentAid.gov. As always, if you have questions, don’t hesitate to contact one of our advisors.

 

Categories
Financial Planning Paying for Education/College

SECURE Act 2.0: Expanded College Savings & Roth IRA Opportunities for Military Families

Female student in cap and gown holding a diploma

SECURE Act 2.0: Expanded College Savings & Roth IRA Opportunities for Military Families

Leading into the New Year, Congress passed a $1.7 Billion spending package which included a bill known as the SECURE Act 2.0.  This bill includes more than 90 targeted changes to the tax code intended to encourage Americans to save more for retirement.  One of these small but powerful changes will allow parents to transfer excess funds from their child’s 529 college savings plan to a Roth IRA.

Beginning in 2024, parents who have excess college savings in their child’s 529 plan will be allowed to roll over up to $35,000 of those funds to a Roth IRA.  The intent is to encourage parents to contribute to 529 college savings accounts as their child grows up without the fear that they will be penalized if the funds are not needed for college expenses.  Generally, if a family takes 529 distributions outside the strict IRS definition of education expenses, they face additional taxes and penalties. 

Military families who transfer Post 9/11 GI Bill education benefits to their dependents often find they have leftover 529 savings when their child graduates from college, especially if their child attended a college that participated in the generous Yellow Ribbon Program.   Under the new rules, parents have an opportunity to repurpose these excess savings to fund their child’s Roth IRA or potentially their own Roth IRA.

The Requirements

To meet the new requirements, the 529 account must meet a few specific requirements:

  • The 529 account must have been open for at least 15 years;
  • The Roth IRA receiving the funds must be in the same name as the named beneficiary of the 529 account;
  • There is a lifetime limit of $35,000 than can be moved from each 529 account to a Roth IRA;
  • The annual IRS limit for IRA contributions will still apply (for example, 2023’s IRA limit is $6500);
  • Any contributions (and associated earnings) from the previous 5 years are ineligible to be moved to the Roth IRA.

An Example

Here’s an example of how military parents might use this new 529 to Roth IRA option:

Mary is a Veteran who saved diligently from birth through age 18 for her only daughter Susie’s college education using a 529 College Savings Plan.  Because Susie was able to use her mother’s Post 9/11 GI Bill Education Benefits to fund most of her college expenses, her 529 Plan account balance is $30,000 when she graduates in 2024.   Mary decides to use the leftover 529 Plan funds to jump-start Susie’s Roth IRA. 

In 2024, she transfers $6,500 from Susie’s 529 to her Roth IRA, staying within the IRS limit for IRA contributions that year.  From 2025 through 2029, she continues to transfer up to the IRS contribution limit each year until Susie’s 529 account is empty.  

In this example, Mary has successfully met all the IRS requirements to avoid any taxes or penalties on their transfer:

  • The beneficiary name on the 529 Plan and Roth IRA accounts match, they are both in Susie’s name
  • Susie’s 529 Plan has been open for more than 15 years
  • All their 529 contributions were made at least 5 years before the transfer
  • In total, they transfer less than $35,000
  • They contribute up to but not more than the annual IRS limit on IRA contributions each year.

Secure Act 2.0 – What We Don’t Know

One provision that will require additional guidance from the IRS is whether changing the 529 account’s named beneficiary would trigger a new 15-year waiting period.  We anticipate the IRS will provide additional guidance before January 1, 2024 when this new pathway to a Roth IRA becomes available.

Here’s where this strategy gets interesting.  As it currently stands, an owner of a 529 account can change the beneficiary to any number of family members at their discretion, including themselves or their spouse. If parents are permitted to transfer the named beneficiary to either their own name or their spouse’s, then they would be able to leverage the excess college savings funds to contribute to their own or their spouse’s Roth IRA. 

It will take the IRS months to detail how it intends to implement the changes introduced with Secure Act 2.0, and financial professionals even longer to unwind all the nuanced strategies to take advantage of them; but for now, this change provides a viable alternative for military parents saving for college in a 529 plan.

Financial planning for military families is unique.  The financial planner members of the Military Financial Advisor Association understand your life and can help you navigate your finances and optimize your opportunities.

 

Categories
Paying for Education/College

5 Mistakes To Avoid When Splitting the GI Bill

Picture of college buildings
Photo by Dorian Le Sénéchal on Unsplash

5 Mistakes To Avoid When Splitting the GI Bill

The Post 9/11 GI Bill is a fantastic benefit for those who served in the military after 9/11/2001.  The ability to transfer the benefit to military dependents makes it even better.  It also makes the planning to use it most effectively much more challenging.  Many people decide to simply split their benefit between multiple children.  Here are 5 mistakes you should consider before doing that.

Background

The Post-9/11 Veterans Educational Assistance Act of 2008 provides military members who served at least 90 days on active duty after September 10, 2001 and received an honorable discharge Post 9/11 GI Bill benefits.  These include tuition and fees (up to the 100% cost of in-state tuition), monthly housing allowance, and a book stipend.  The Services created rules allowing this benefit to be transferred to dependents as a retention tool.  [MFAA published a great primer on the Post 9/11 GI Bill so if you need a refresher check that out.]

Cost of College

When determining how to effectively use the GI Bill, especially if you’re splitting it, it’s important to understand what you would have paid out-of-pocket without the GI Bill.  You can then compare the value to determine how to use it.  Determining what you’ll actually pay can be a challenge, but it starts with the Free Application For Student Aid (FAFSA).  [MFAA has a great post on FAFSA]  You’ll get your Expected Family Contribution (EFC) from the FAFSA.  There are numerous calculators that will estimate your EFC including this one from the US Department of Education.  Schools also have a Net Price Calculator which will give you an estimate of what you’d end up paying.

Armed with this information, you can start to build your plan.  Here are 5 mistakes or considerations you should understand as you do that.

Mistake 1:  Not using the benefit for you or your spouse

If you or your spouse could use the GI Bill and meaningfully improve your income over the rest of your lives, that may be a better plan than giving it to your children.  If you believe you could improve your salary by $30,000 per year for 20 to 25 years, you’d earn an additional $600,000 to $750,000.  The difference in earnings could be used to pay for college for your children and also improve your quality of life.

Mistake 2:  Not understanding how your Expected Family Contribution could change with your income

The biggest factor in whether you’ll qualify for financial aid is the parent’s income.  If your income will increase significantly in the future, it may make sense to wait to use the GI Bill.  Let’s look at an example:  E-7 with 2 children (Sr in high school, 7th grader) & spouse who is not currently working outside the home.  The income used for the FAFSA will be basic pay and any bonuses, but it does not include BAH so the oldest child is likely to qualify for some need-based aid.  Fast forward 5 years, the E-7 recently retired and has gotten a job that pays 20% more than their military salary.  They also get retirement pay and the spouse has also returned to work.  Their income is much higher and if the retiree qualified for VA disability payments, those will be added also.  The EFC for the younger child will be (significantly) higher.  Splitting the GI Bill evenly would mean the family will pay more out of pocket for the second child.

Mistake 3:  Not understanding the school’s financial aid model

Colleges operate based on a few different funding models. Some schools provide assistance primarily based on financial need while others offer scholarships based on student achievement. Let’s look at a few examples:

Ivy League & elite private schools

These schools typically have huge endowments and operate “need-blind” meaning if you can get in they’ll typically provide aid for costs above your EFC. This can be a great deal for lower-income families. They don’t offer merit scholarships so you’ll pay if their formula calculates you can afford it.

Smaller Private Schools & some State Schools

These schools are typically competing for the best students so high-achieving students can get significant merit aid. Attracting top student talent allows them to move up the rankings so they can compete better. Many schools publish their SAT/ACT and GPA matrix that will show you exactly what type of scholarship you are likely to receive.  The goal here is to be in the top 25% of admitted students to get the most merit aid.

Public Schools

In-state tuition typically has a lower listed price than private schools, but they may not be as generous with either need-based or merit aid. Attending a public school out of state maybe even more expensive than a private school because they are less likely to meet the out-of-state need or offer merit scholarships.

Understanding your EFC and your student’s competitiveness can allow you to focus on colleges that will meet their needs while not being unaffordable or requiring excessive debt which could allow you to save your GI Bill benefit for another child.

Mistake 4:  Not considering differences between the children

Each child is unique with different talents and ambitions.  This may impact what they choose to do or how they might use the GI Bill.  It is important to factor this into the decision with the school’s financial aid model.  For families whose children have a significant gap in ages, this will be more difficult.  If you have a high-achieving student who might be able to earn significant merit aid it might make sense to not use the GI Bill for them.  That is as long as they aren’t planning to try to go to an elite school (Ivy League and some others) that don’t offer merit aid.

Mistake 5:  Not factoring Basic Allowance for Housing and Yellow Ribbon into the calculation

The Basic Allowance for Housing (BAH) benefit and Yellow Ribbon program at some schools can add significant value to the GI Bill.  BAH for schools in larger cities on the east or west coast will typically be much higher than for a midwestern, small-town school.  Some families will use the GI Bill for tuition for an older child, but make the child pay for their room and board.  They then take the BAH and invest it to use for their younger children.

The GI Bill only covers costs up to the tuition price of the most expensive state school.  Many private schools have higher costs.  Yellow ribbon schools provide additional money (which is matched by the VA).  It can be hundreds of extra dollars up to full tuition.  This can vary from school to school and even programs within a school.  Some schools cap the number of yellow ribbon students they will provide funding for while others are unlimited.  You can find more information here.

The Post-9/11 GI Bill and its transferability is a great benefit potentially worth hundreds of thousands of dollars.  There are many factors to consider when deciding how to best use it especially if you’re trying to stretch the benefit across multiple people.  Understanding these common mistakes should help.  If you’ve got additional questions, consider scheduling a call with one of the MFAA financial planners.  They can help guide you through these considerations and other financial questions you might have.

Categories
Budgeting & Debt Financial Planning Paying for Education/College

Act Now–Become Debt Free!

Act-Now-Become-Debt-Free.

Act Now, Become Debt Free with PSLF!

 

You could save you thousands of dollars thanks to temporary changes to the Public Service Loan Forgiveness (PSLF) program. The Department of Education announced the Limited Waiver Program last fall. But time is running out! Military service members and federal employees need to act before October 31, 2022 to cash in.

 

Who is eligible for PSLF?

 

The PS in PSLF stands for public service. Full time (active duty) service members are all eligible. So are those of you working full time for state governments and most non-profits. This includes hospitals, schools, libraries, emergency services, and public interest law. Public Service depends on the organization you work for, not the actual job you do.

 

What is PSLF?

 

The LF in PSLF stands for Loan Forgiveness. That means as long as you make 120 qualifying student loan payments (that’s 10 year’s worth) you won’t have to repay the rest of your student loan balance. “Poof” your student loan payments disappear! No more debt. And you won’t owe tax on the loan forgiveness benefit you receive either. This can be a massive value depending on your circumstances.

 

How to Participate?

 

You work for a qualifying employer full-time (see above). You have federal Direct Loans. Once you make 120 on-time monthly loan payments to a qualifying loan, you apply for forgiveness.

 

Federal Family Education Loans, Federal Perkins Loans, and Graduate Plus Loans are NOT federal Direct Loans. Loan payments under those programs didn’t count toward forgiveness. To qualify now, you must consolidate those loans into a federal Direct Loan.

 

If you were late to the consolidation party, you may have made months or years of federal loan payments that didn’t count toward forgiveness. Don’t dismay. Read on to the Temporary changes.

 

Why the changes?

 

It turned out in practice, PSLF was an unfulfilled promise. The goal was to provide debt relief to public servants by cancelling student loans after 10 years. But many borrows didn’t understand the requirements, were misled by loan servicing providers, or never even qualified in the first place. The Department of Education denied loan forgiveness to almost all initial PSLF applicants. Recent changes are supposed to correct some of this and fulfill the PSLF promise.

 

What has changed with PSLF?

 

Temporary Change #1 (Almost) All Past Loan Types Can Count

 

Good news. If you consolidate your federal student loans now, any payments you made in the past in will count toward your 120 payments. BUT only if you consolidate to a federal Direct Loan by October 31, 2022. This do over is a limited time opportunity!

 

Don’t know what kind of federal loans you have? Log into your account on StudentAid.gov https://studentaid.gov/fsa-id/sign-in/landing . Go to the My Aid page StudentAid.gov/aid-summary/. Scroll down to the Loan Breakdown section. There, you’ll see a list of each student loan you have borrowed, even if you have paid the loan off or consolidated it into a new loan. Direct Loans begin with the word “Direct.” This is what you want.

 

If you have Federal Family Education Loans (start with “FFEL”) or Perkins Loans (include the word “Perkins”) consolidate–DON’T refinance. Consolidate into a federal Direct Loan by October 31, 2022. Get all the details for consolidation at https://studentaid.gov/app/launchConsolidation.action.

 

Once you consolidate your loans into a Direct Loan, your previous payments will count toward PSLF retroactively. You could have your loan balance forgiven months or even years sooner.

 

Note, Parent Plus loans did not qualify before, can’t be consolidated into a Direct Loan, and still won’t qualify now.

 

Temporary change #2 Any Past Payment Plan Qualifies for PSLF

 

Past payments under any repayment plan now count toward loan forgiveness. You have to enroll in an Income Driven Repayment (IDR) plan like ICR, IBR, PAYE, and REPAYE  payment plans to benefit from PSLF.

 

Now PAST payments made under any repayment plan count toward your 120 payments. These payments are supposed to be automatically recounted, but you’ll want to keep an eye on it.

 

If you’re not in an Income Driven Repayment now, change to one so future payments will also count.

 

Temporary Change #3 All Past Payments Can Count towards PSLF

 

Many previous loan payments did not count toward PSLF due to technical requirements. This includes wrong payment plan, timing, or amount of a payment. Some borrowers missed out because their payments were off by one or two pennies or late by a few days.

 

As a fix, the Department of Education will automatically adjust the count for payments made on or before October 31, 2021 if you have certified some employment. This look back is a temporary benefit. If you have not applied for PSLF forgiveness or certified employment, do it by October 31, 2022 to get all those payments counted.

 

Service members on active duty can qualify for student loan deferments and forbearances. This is to help you through periods where service inhibits your ability to make payments. But often in the past, those same deferments or forbearances did not count toward PSLF. Federal Student Aid is supposed to implement a process to address this and update affected borrowers. Watch out for this too.

 

And one last improvement coming down the pike. The Department of Education announced it will begin automatically giving service members and federal employees credit for PSLF by matching Department of Education data with information held by other federal agencies. So be on the look out for that! In the meantime keep rectifying your employment history.

 

More Help on PSLF

 

Where can you go for more information? You can read the entire Department of Education announcement: https://www.ed.gov/news/press-releases/fact-sheet-public-service-loan-forgiveness-pslf-program-overhaul

 

 

For help with all things PSLF, tons of helpful information, and the PSLF application, go to the official website at https://studentaid.gov/pslf/

 

Act Now to Qualify!

 

#1 You must work for a qualifying employer such as the military, state and federal governments and most non-profit organizations.

 

#2 You must work full-time.

 

#3 You must have federal direct loans. If you have other federal student loans, consolidate into a direct loan before October 31, 2022.

 

#4 You must be in an Income Driven Repayment (IDR) plan. If you aren’t in IDR yet, switch by October 31, 2022.

#4 Make 120 on-time monthly payments. Under the temporary waiver all virtually all past payments will count. This one time boost may help push you over the line sooner than you think!

 

 

The Limited Waiver Program is a major one-time redo to get your PSLF on track for forgiveness. Don’t miss out!