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Big Moment For Student Loan Forgiveness Is Just Around The Corner

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The saga of President Biden’s signature one-time student loan forgiveness initiative is about to enter the next phase, as the Supreme Court prepares to hear oral arguments next week to decide the fate of the program.

Here’s the latest.

Supreme Court Hearing on Biden’s Student Loan Forgiveness Program is Next Week

Last year, Biden announced an unprecedented one-time initiative to enact mass student loan forgiveness. Under the program, up to 40 million borrowers could receive up to $20,000 in cancellation of government-owned federal student loans. Over 26 million borrowers had applied for debt relief, and over 16 million were approved, before federal courts shut down the initiative last fall in response to multiple legal challenges.

The Biden administration has appealed those rulings, and the Supreme Court has scheduled what is sure to be a blockbuster hearing on February 28th. In one case, a coalition of Republican-led states is arguing that the Biden administration’s one-time debt relief program would deprive states of revenue by encouraging borrowers with commercial FFELP loans, which are guaranteed by some state-affiliated organizations, to consolidate those loans into the government’s Direct lending program. In the other case, a conservative-leaning organization representing two student loan borrowers has argued that the Biden administration acted arbitrarily in how it established program eligibility, and violated federal rules governing the issuance of new regulations.

The Biden administration has maintained that the program is legal and was established properly under federal rules that allow the Education Department to respond to national emergencies, such as the Covid-19 pandemic. In a legal brief filed with the court last month, Justice Department attorneys argued that, “Several provisions of the HEROES Act [of 2003] underscore Congress’s intent to authorize the Secretary to respond quickly and fully to national emergencies… The lower courts’ orders have erroneously deprived the Secretary of his statutory authority to provide targeted student-loan debt relief to borrowers affected by national emergencies.”

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The administration has also argued that the challengers have failed to establish that they have “standing” to sue — meaning they are unable to demonstrate a concrete injury sufficiently related to Biden’s debt relief plan. Attorneys for the administration, and allies who have submitted supporting briefs, argue that the link between Biden’s program and state revenues is tenuous at best.

All of these arguments will come to a head at next week’s hearing. The issue of standing could prove critical, as the program could be upheld even if the Supreme Court justices question its ultimate legality if they determine that the challengers are unable to demonstrate that they have standing. The comments and questions made by the justices during the hearing may reveal how they are leaning, and could provide clues about how the Court will ultimately rule.

Groups Planning Demonstration Supporting Student Loan Forgiveness to Coincide with Court Hearing

Advocacy groups for student loan borrowers are planning a demonstration next week on the same day as the hearing. Dubbed the “People’s Rally for Student Debt Cancellation,” several high-profile civil rights, consumers protection, and labor organizations are encouraging people to attend. Co-sponsors of the rally include the American Federation of Teachers (AFT), the Center for Responsible Lending (CRL), the Debt Collective, MoveOn, the NAACP, the National Consumer Law Center (NCLC), and the National Education Association (NEA).

Many of these organizations filed amicus curiae briefs with the Supreme Court last month, urging the justices to uphold the Biden initiative. “The briefs represent the breadth of communities that stand to benefit from student debt relief, including working people, borrowers of color, veterans, older people, people of faith, along with cities and states across the country,” said the Student Borrower Protection Center (SBPC) in an earlier statement. “Together, these briefs showcase the broad support, strong legal foundation, and urgent economic necessity underpinning President Biden’s effort to cancel student debt for 40 million Americans.”

What’s Next for Borrowers Seeking Student Loan Forgiveness

While the Supreme Court could issue a decision at any point after next week’s hearing, it is widely expected that the decision will be released in June. In the meantime, the Biden administration has extended the ongoing student loan payment pause to 60 days after either June 30 or the date that the Supreme Court issues a ruling.

Further Student Loan Forgiveness Reading

Republican Senators File Bill To End Student Loan Pause, Stop Loan Forgiveness

Student Loan Update: Big Changes To Interest Are Coming

Student Loan Forgiveness: Biden Administration Updates Form For New, Easier Bankruptcy Process

Student Loan Forgiveness: These Deferment And Forbearance Periods May Count

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Bonds See 2023 Recession, Stocks Aren’t So Sure

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The yield curve is one of the most robust recession predictors and has signaled a recession may be coming since mid 2022. In contrast, U.S. stocks as measured by the S&P 500 are up materially from the lows of last October and only just below year-to-date highs, seemingly rejecting recession fears. Yet, fixed income markets see the Fed potentially cutting rates by the summer, perhaps reacting to a U.S. recession.

The Evidence From The Bond Markets

The recessionary evidence, at least from fixed income markets, is mounting. The 10 yield Treasury yield has been below the 2 year yield consistently since last July. That is is called an inverted yield curve and has signaled a recession fairly reliably when compared to other leading indicators.

Building on that, fixed income markets see almost a nine in ten chance that the Federal Reserve cuts rates by September of this year. That’s something the Fed has repeatedly said they won’t do on their current forecasts. Yet, a recession could cause it to happen.

The Stock Market

In contrast, the stock market shows some optimism. The S&P 500 is up 7% year-to-date as the market has shrugged off fears of contagion from recent banking issues. In particular, tech stocks have rallied.

In contrast, more defensive sectors such as healthcare, utilities and consumer goods have lagged in 2023. This suggests that the stock market is taking more of a ‘risk on’ position and is perhaps less worried about the economy.

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That said the stock market is a leading indicator of the business cycle, it may be that stocks see a recession, but are now looking past it to growth ahead and are factoring in the lower discount rates that a recession might bring as interest rates decline. Also, the U.S. stock market is relatively global, so the fate of the U.S. economy is a key factor in driving profits, but not the only one.

What’s Next?

Monitoring unemployment data will be key. Though the yield curve is a good long-term forecaster of recessions it is less precise in signaling when a recession starts. Unemployment rates can offer more accurate recession timing. Unemployment edged up in February, suggesting a recession may be near, but we’ve also seen monthly noise unemployment. Two similar monthly unemployment spikes during 2022 both proved false alarms.

However, if we see a sustained move up in unemployment from the low levels of 2022 that may be a relatively clear sign that a recession is here. Economist Claudia Sahm estimates that a sustained 0.5% increase in unemployment rate from 12-month lows is sufficient to trigger a recession. Unemployment rose 0.2% from January to February 2023, so maybe we’re on the way there. Of course, the jobs market performed better than expected in 2022 and it could do so again. Still, fixed income markets do suggest a 2023 recession is coming. Stock markets don’t necessarily share that view.

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Which States Have The Highest And Lowest Life Expectancies?

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There’s a wide variance of life expectancies among the 50 states in the U.S., according to a recent report prepared by Assurance, an insurance technology platform that helps consumers with decisions related to insurance and financial well-being.

Figure 1 below shows the 10 states with the highest life expectancy, starting with Hawaii, the state with the highest life expectancy.

Figure 2 below shows the 10 states with the lowest life expectancy, starting with Mississippi, the state with the lowest life expectancy.

Assurance scoured life expectancy data prepared in January 2023 by the U.S. Centers for Disease Control and Prevention (CDC). With this data, Assurance created several easy-to-understand graphics that offer information about life expectancies.

Life expectancies are a basic measure of well-being

As measured by the CDC, life expectancies are a basic measurement of well-being in a broad population and not a prediction of how long an individual might live. The CDC measures the expected lifespan for a person born in the year of measurement. This measurement is calculated based on the assumption that the individual will live and die according to the rates of death that are prevalent in the measurement year for each age. There’s no assumed improvement or backsliding in the assumed mortality rates in future years for each age in the life expectancy calculation.

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By contrast, an estimated lifespan for an individual would consider their current age, their gender, and some basic lifestyle information. It might also attempt to project future improvements or backsliding in mortality rates based on key factors.

Significant influences on life expectancy calculations

Leading causes of death in the U.S. are heart disease, cancer, and accidents in that order. These immediate causes are significantly influenced by factors in the population such as poverty rates, educational attainment, rates of obesity and smoking, access to healthcare, prevalence of violent crime, and the support people receive from federal, state, and local governments. All these factors can vary widely among different states, which can be a key reason why life expectancies vary by state.

When you think about it, all these factors also have the potential to influence a person’s quality of life. The measured life expectancy rate rolls up all these factors into one objective measurement of well-being that’s based on population data.

In addition to the factors listed above, mortality rates increased and life expectancies decreased in the past few years due to the Covid-19 pandemic. A recent article titled “Live Free And Die” summarized recent research results that show that life expectancies in most countries around the world rebounded after the Covid-19 pandemic but that they continued to decline in the United States. Many of the reasons cited in the article for the continued decline in U.S. life expectancies are the same or similar to the factors listed above.

NPR‘Live free and die?’ The sad state of U.S. life expectancy

Why should retirees care about the life expectancies reported here if these measures don’t predict your own lifespan? Life expectancy calculations indicate the general well-being of the entire population in your area. While the living conditions in your area can influence your own lifespan and quality of life, retirees should focus on their remaining life expectancy given their age. They should also consider how the factors listed above that influence life expectancies in the population might apply to them.

You can obtain customized estimates of your remaining life expectancy at the Actuaries Longevity Illustrator. Part of your planning for retirement is understanding how long you an an individual might live, instead of relying on generalized information about larger populations you see in the media.

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IRS Dirty Dozen Campaign Warns Taxpayers To Avoid Offer In Compromise ‘Mills’

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Owing taxes can be stressful. Unfortunately, the actions of some companies can make it worse. As part of its “Dirty Dozen” campaign, the IRS has renewed a warning about so-called Offer in Compromise “mills” that often mislead taxpayers into believing they can settle a tax debt for pennies on the dollar—while the companies collective excessive fees.

Dirty Dozen

The “Dirty Dozen” is an annual list of common scams taxpayers may encounter. Many of these schemes peak during tax filing season as people prepare their returns or hire someone to help with their taxes. The schemes put taxpayers and tax professionals at risk of losing money, personal information, data, and more.

(You can read about other schemes on the list this year—including aggressive ERC grabs here, phishing/smishing scams here and charitable ploys here.)

Tax Debt Resolution Schemes

“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt,” said IRS Commissioner Danny Werfel.

“This is a legitimate IRS program, but there are specific requirements for people to qualify. People desperate for help can make a costly mistake if they clearly don’t qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own without facing hefty fees.”

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Offers In Compromise

Legitimate is a key word. Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But, as the IRS notes, these “mills” can aggressively promote Offers in Compromise—OIC—in misleading ways to people who don’t meet the qualifications, frequently costing taxpayers thousands of dollars.

An OIC allows you to resolve your tax obligations for less than the total amount you owe. You generally submit an OIC because you don’t believe you owe the tax, you can’t pay the tax, or
 exceptional circumstances exist.

Because of the nature of the OIC—and the dollars involved—the process can be time-consuming. It can also be confusing for taxpayers who may not have a complete grasp on their finances.

First, you must complete a detailed application, Form 656, Offer in Compromise. You must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses, with supporting documentation (generally, bank and brokerage statements and proof of expenses).

You’ll also need to submit a non-refundable fee of $205 and payment made in good faith. The payment is typically 20% of the offer amount for a lump sum cash offer or the first month’s payment for those made over time. Generally, initial payments will not be returned but will be applied to your tax debt if your offer is not accepted. Payments and fees may be waived if the OIC is submitted based solely on the premise that you do not owe the tax or if your total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.

The IRS will examine your application and decide whether to accept it based on many things, including the total amount due and the time remaining to collect under the statute of limitations. The IRS will also review your income—including future earnings and accounts receivables—and your reasonable expenses, as determined by their formula. The IRS will also consider the amount of equity you have in assets that you own—this would include real property, personal property (like automobiles), and bank accounts.

Criteria

Before your offer can be considered, you must be compliant. That means you must have filed all your tax returns and paid off any liabilities not subject to the OIC. After you submit your offer, you must continue to timely file your tax returns, and pay all required tax, including estimated tax payments. If you don’t, the IRS will return your offer.

Additionally, you cannot currently be in an open bankruptcy proceeding, and you must resolve any open audit or outstanding innocent spouse claim issues before you submit an offer.

Representation

You can probably tell—it’s a lot to consider. You may want representation. A tax professional can help marshal you through the process and offer practical guidance, while communicating what fees could look like.

By contrast, according to the IRS, an OIC “mill” will usually make outlandish claims, frequently in radio and TV ads, about how they can settle a person’s tax debt for cheap. Also telling: the fees tend to be significant in exchange for very little work.

Those mills also knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing taxpayers money and time. You can check your eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool.

“Pennies On A Dollar”

What about those promises that taxpayers can routinely settle for pennies on a dollar? Not true. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full through an installment agreement or equity in assets, including your home. That’s why the IRS tends to reject a majority of OICs that are submitted. The acceptance rate is less than 1 in 3, according to the 2021 Data Book.

The IRS will generally approve an OIC when the amount offered represents the best opportunity for the IRS to collect the debt. It’s true that there’s a formula that the IRS uses to figure out how much they think they can collect from you. But there is some wiggle room to account for special circumstances, including a loss of income or a medical condition. It’s worth noting those are the exceptions, not the rule.

Collections

While submitting an OIC may keep the IRS from calling you, it doesn’t stop all collections activities—don’t believe companies that suggest that submitting an OIC will make your tax debt disappear. Penalties and interest will continue to accrue on your outstanding tax liability. Additionally, the IRS may keep your tax refund, including interest, through the date the IRS accepts your OIC.

You may also be liened. In most cases, the IRS will file a Notice of Federal Tax Lien to protect their interests, and the lien will generally stay in place until your tax obligation is satisfied.

Be Skeptical

An OIC is a serious effort to resolve tax debt and shouldn’t be taken lightly. Be skeptical—if it sounds too good to be true, it likely is. If you’re considering an OIC, hire a competent tax professional who understands the rules and is willing to level with you about your chances of being successful—including other options. Don’t fall into a trap that can make your situation worse.

MORE FROM FORBESIRS Urges Those Hoping To Help To Beware Of Scammers Using Fake Charities

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