Student Loans Explained: A Complete Glossary for Borrowers (2026 Guide)

Why Student Loans Feel So Confusing

Discussing student loans is hard. In my latest Great Day Louisiana TV segment, the host, Malik Mingo, hit me with a “now he’s throwing all the acronyms at us.” I’m not going to lie. It hurt. That’s not who we want to be as a financial planning firm. Our mission is to eliminate the jargon and financial alphabet soup that the suit and tie, corner-office, picture of spouse on a jet ski gatekeepers have historically thrived on, keeping confusion high and their fees higher. We just want to speak to our audience plainly and relatably. 

When it comes to student loans, that might just be impossible. Federal student loans were created in 1958 by the Eisenhower administration, and almost every administration since has put its hands on them. Drastic changes have occurred every 4 to 8 years, shaping the modern-day economics of borrowing, seeking forgiveness, and/or repaying. The terms you understood to be true (if you understood them at all) will be different from the ones you’ll need to know when you go to pay them back. And then it will change again, and again, and again. Exhausting! Honestly, it’s like driving somewhere in New Orleans. Just random construction, potholes, street closures, parades, second lines, stray dogs, school zones, and train crossings have you rerouting like the frantic start of every zombie apocalypse movie.

It’s an unfair system for consumers. Put aside what you think about the cost of education, the “dignity” of repayment, or taxpayer-subsidized forgiveness. At the very least, borrowers deserve to understand their options, make informed decisions, avoid being forced to change every few years, and use what was already promised to them when the loans were disbursed. 

Instead, borrowers face a system where changes are politically charged and convoluted. The Department of Education and loan servicers themselves can barely keep up and point you in the right direction. Repeatedly, the technology on their websites, which you rely on for accurate information, proves to be false. It leaves borrowers completely scarred. They never want to look at their loans again. Then, there are the interest rates that the government is charging over the life of these loans. As of this publication date, current loan rates for the 2025-26 school year are 6.39% for undergraduates, 7.94% for graduate students, and 8.94% for PLUS loans. These are predatory rates. Far from an “investment” in our future. 

So please know you are not alone. Nothing frustrates me more than hearing a friend explain their student loan situation and realizing they’re losing money. The fix is simple, yet they remain stuck in inaction. I conduct seminars for perhaps the smartest people in the city – the doctors at Ochsner (no offense, friends at the bar!). It’s the same situation. So I’m here to try to untangle this once and for all. A glossary to help readers better understand their loans and repayment options.

Financial Aid Terms

FAFSA: The Free Application for Federal Student Aid form is completed annually and determines your eligibility for federal aid, such as grants and loans. The FAFSA opens regularly on October 1st of the year before the award year. The federal deadline for each award year is June 30th (end of the award year). State deadlines tend to be earlier. 

Grants: Financial aid provided as a gift that does not need to be repaid. Free money! Grants usually come from limited funds, meaning not everyone who qualifies will receive one. They are often distributed on a first-come, first-serve basis or require very specific eligibility requirements. 

Student Loans: Financial aid in the form of loans involves borrowing money that typically accrues interest and must be repaid. These loans are accessible to undergraduates, graduate students, and parents of dependent undergraduates. The loan terms are set by the lender, whether federal or private. Federal loans are standardized, meaning the options and eligibility are generally uniform for all applicants. Private loans are subject to underwriting and lender-specific provisions.

Types of Student Loans

Private Loans: Issued by a bank, credit union, or state-affiliated organization – not the federal government. Repayment schedules and interest rates are determined by the lender at origination. There is no forgiveness, and discharge at death is up to the lender. Once loans are private, they can not be refinanced or consolidated into a federal loan. Private loans are between you and that specific lender, and you are no longer eligible for any relief or programs provided by the federal government on that borrowed amount. 

Federal Loans: Direct loans offered by the U.S. Department of Education. Types of Federal Loans:

  • Direct Subsidized: Available to undergraduate students with financial need, which is determined after completion of your FAFSA. The government pays your interest while you are in school and other qualifying periods, most notably the 6-month grade period. 

  • Direct Unsubsidized: Available to undergraduate, graduate, and professional students. Financial need not necessary. Interest begins accruing immediately and continues to accrue during repayment grace periods. 

  • Direct Consolidation Loans: Combining multiple federal education loans into a single loan. Although this is one loan, it will still be separated into subsidized and unsubsidized amounts. The interest rate is a weighted average of the underlying loans being consolidated. 

  • Parent PLUS: Available to parents of dependent undergraduate students. Interest begins accruing immediately. 

  • Grad PLUS: Previously available to graduate/professional students. Interest accrues immediately. Grad PLUS loans are being eliminated for new borrowers on July 1, 2026, although students can still borrow unsubsidized loans for graduate and professional school under new borrowing limits as explained below. There is an interim exception period for eligible existing Grad PLUS borrowers to continue. 

Previous loans offered include Stafford, Perkins, and FFEL. Which repayment plan these loans are eligible for (if not consolidated) depends on the loan itself. 

Student Loan Limits (Effective July 1, 2026)

Does not cover limits for students whose parent cannot secure a Parent PLUS loan.

Annual Loan Limit: Maximum amount per loan each academic year.

  • Dependent Undergraduate:
    • First Year: $5,500
    • Second Year: $6,500
    • Third Year+: $7,500
  • Graduate Students: $20,500
  • Professional Students: $20,500
  • Parent PLUS: $20,000 per student

Aggregate Loan Limit: Maximum cumulative amount of combined direct subsidized and unsubsidized unpaid principal balance that you are allowed to have outstanding at any point in time.

  • Dependent Undergraduate: $31,000
  • Graduate Students: $100,000
  • Professional Students: $200,000 (includes loans received as a graduate student)
  • Parent PLUS: $65,000 per student

Lifetime Maximum Loan Limit: Total amount a borrower can ever receive in loans, regardless of amounts repaid and grade level.

  • Combined Dependent Undergraduate, Graduate, Professional Loans: $257,500
  • Parent PLUS: $65,000 per student

Definition of “professional degree” per the Department of Education website:

Key Student Loan Terms

Award Year: A 12-month period running from July 1 through June 30th is used to determine annual loan limits, financial aid, and disbursement. Your FAFSA from each year is used to determine your financial aid for the following award year. 

  • Example: The 2026-27 FAFSA became available on September 24, 2025. The application deadline is June 30, 2027, but in reality, you need to apply much sooner. This FAFSA determines your eligibility for the 2026-27 award year (fall 2026 and spring 2027 semesters). 

Interest Rate: The rate at which interest accrues on the unpaid principal of the loan. For federal student loans, the interest rate is fixed at the time of disbursement and will not change over the life of the loan unless the loan is consolidated. Interest accrues daily.

Accruing Interest: Interest accrues based on the principal balance of the loan. While unpaid interest can be forgiven (more on that later), it is not added to the principal of loan. It is a separate line item that needs to be repaid or possibly forgiven. If you have a $20,000 loan at a 7% interest rate, about $4 in interest would accrue daily ($125 per month). However, if your balance grew to $23,000 because you were in forbearance, deferment, or in a grace period, interest would still accrue only on the original $20,000. 

Subsidized Interest: Interest that does not accrue and is paid by the federal government. There are two (2) ways to benefit from this. You have a direct subsidized loan and are either enrolled in school at least half-time, in a 6-month grace period after graduating or leaving school, or in an eligible deferment period. Or, you are on an eligible repayment plan. As of this publication date, the only repayment plan that allows interest to be subsidized is the Repayment Assistance Plan (RAP), which is set to start on July 1, 2026. 

Interest Capitalization: Unlike interest that accrues or is subsidized, when your interest capitalizes, it is added to your loan’s unpaid principal balance (which is bad). Your interest is then recalculated based on that higher amount. In other words, you are paying interest on interest. Interest capitalizes on unsubsidized loans after deferments or upon leaving the Income-Based Repayment (IBR) repayment plan. 

Repayment Cap: Under the Income-Driven Repayment plans of PAYE and IBR, your monthly repayment amounts are capped at the 10-year standard repayment plan amount. This is generally helpful when you are seeking forgiveness and, later in your loan term, your income exceeds your total balance.

Loan Statuses

Forbearance: An approved pause allowing you to temporarily stop making payments without penalty. Although interest can still accrue during this time. Types of forbearance are general (financial hardship), mandatory (service-related), or administrative (local/national emergencies). 

Grace Period: The amount of time you are provided before having to repay your student loans due to leaving school or dropping below half-time enrollment. Eligible loans typically carry a 6-month period. Depending on the loan type, interest may still accrue. 

Deferment: A wide range of approved reasons may qualify you to temporarily pause payments on your student loans. Depending on the type of deferment, interest may still accrue during the deferment period and capitalize at the end of that period if not paid. 

Delinquent: Nonpayment of student loans when not in an eligible deferment or forbearance. After 90 days, you may receive a ding on your credit score. After 270 days, you’re considered to be in default. 

Default: After 270+ days of delinquency, you are considered in default on your student loans. This is not good, and there is a scary list of possible consequences and penalties that the loan servicers or the government can use to negatively impact your finances or to collect the debt owed. Once again, this does not apply to borrowers in approved periods of forbearance or deferment. 

Repayment: Actively making your monthly required payments.

Student Loan Forgiveness Programs

There are more, but I will cover only the most common ones here. 

Public Service Loan Forgiveness (PSLF): Only available for employees working in the government or non-profit sector. If you satisfy the four (4) key components listed below, you will have the balance on your student loans forgiven. PSLF is a common path for occupations such as teachers, nurses, physicians, public attorneys, nonprofit employees, and government employees. Generally speaking, pursuing forgiveness makes sense if you are employed by a qualified employer and have a high student debt-to-income ratio. As in, you owe more than you earn annually. The four (4) key components:

  1. Have Direct Federal Loans

  2. Make 120 Qualifying Payments (do not need to be consecutive)

  3. Work for a Qualifying Employer (including when you submit your final PSLF form)

  4. Made Payments On Any Income-Driven Repayment Plan or the 10-Year Standard Plan (switching IDR plans does not reset your repayment progress)

Income-Driven Repayment Forgiveness: Accessible to all federal borrowers, no matter their occupation, who have consistently made payments under an income-driven repayment plan. One notable exception is Parent PLUS borrowers who have not consolidated their loans before July 1, 2026 and selected an IDR payment plan by July 1, 2028. IDR forgiveness may make sense if your loan balance is excessively high or if you expect to have a very low income and a correspondingly low repayment amount for the duration of your loan. Each Income-Driven Repayment Plan has its own repayment period toward forgiveness, and the remaining forgiven balance is TAXABLE as income for the tax year.

  • New IBR Plan: 20 Years

  • Old IBR Plan: 25 Years

  • PAYE Plan: 20 Years

  • ICR Plan: 25 Years

  • RAP Plan: 30 Years

Student Loan Repayment Options

When making monthly student loan payments, you are either on a “fixed payment” plan or an “income-driven repayment plan.” 

Fixed Payment Repayment Plans: Monthly repayment amount is determined by how much you owe, the interest rate, and the loan maturity. Payments are calculated to ensure your loan is paid in full. Unless on a specific 10-Year Standard Repayment plan, you do not accrue credits toward forgiveness. 

Fixed Payment Repayment Plans (For Existing Borrowers BEFORE July 1, 2026)

  • Standard Repayment Plan: Fixed payments for 10 years for individual loans or 10 to 30 years for Consolidation Loans based on balance.
  • Graduated Repayment Plan: Payments increase gradually every two years on the same maturity schedule as the Standard Repayment Plan. This allows for lower payments early after graduating from college, with higher payments later. Sounds great in theory, but this is typically a costly option. 
  • Extended Repayment Plan: If eligible, it extends your standard or graduated repayment plan beyond 10 years and up to 25 years for non-consolidated loans. 

Fixed Payment Repayment Plans (For New Borrowers ON/AFTER July 1, 2026)

Definition of “New Borrower”: If you have a single loan, including a consolidation loan, that is disbursed on or after July 1, 2026, you’ll lose eligibility for any repayment options available to existing borrowers prior to that same date on ALL YOUR LOANS. 

  • Tiered Standard Repayment Plan: Fixed and equal payments over a 10 – 25 year period based on outstanding principal balance. Payments do not count toward loan forgiveness. 
    • Less than $25,000: 10 Years
    • $25,000 – $50,000: 15 Years
    • $50,000 – $100,000: 20 Years
    • $100,000+: 25 Years

Income-Driven Repayment Plans (IDR): Monthly repayment amount is determined by household income and size. IDR plans are eligible for certain types of forgiveness. Whether you would benefit from pursuing forgiveness depends greatly on your specific situation. As previously mentioned, if you qualify for Public Service Loan Forgiveness (PSLF), all IDR plans require 120 qualified payments (10 Years). 

Income-Driven Repayment Plans (For Existing Borrowers BEFORE July 1, 2026)

For simplicity, I am not including the Income-Contingent Repayment Plan (ICR) or the Pay As You Earn Plan (PAYE), since these options will be phased out completely for all borrowers by July 1, 2028. There’s only one obscure reason you might hang on to the ICR plan, which is that you’re a Parent PLUS borrower who never consolidated by the July 1, 2026 deadline and are therefore ineligible for other IDR plans. As for PAYE, there’s a chance you’d benefit from being on this plan if you’re only eligible for the Old IBR Plan (borrowed before July 1, 2014). 

  • Old IBR Plan (2009): 
    • Eligibility: 
      • First Borrowed Before July 1, 2014 
      • No New Loans After June 30, 2026
    • Repayment Amount: 15% of Discretionary Income
    • IDR Repayment Period for Forgiveness: 25 Years
    • Subsidized Interest: No
    • Repayment Cap: Yes
  • New IBR Plan (2014): 
    • Eligibility: 
      • First Borrowed After July 1, 2014 
      • No New Loans After June 30, 2026
    • Repayment Amount: 10% of Discretionary Income
    • IDR Repayment Period for Forgiveness: 20 Years
    • Subsidized Interest: No
    • Repayment Cap: Yes
  • RAP Plan (July 1, 2026): 
    • Eligibility: Federal Loans (unless they include Parent PLUS)
    • Timeline: Starts July 1, 2026
    • Repayment Amount: Tiered % based on AGI (Adjusted Gross Income) and the following income brackets:
      • < $10,000: $10/month
      • $10,001 to $20,000: 1% of AGI
      • $20,001 to $30,000: 2% of AGI
      • $30,001 to $40,000: 3% of AGI
      • $40,001 to $50,000: 4% of AGI
      • $50,001 to $60,000: 5% of AGI
      • $60,001 to $70,000: 6% of AGI
      • $70,001 to $80,000: 7% of AGI
      • $80,001 to $90,000: 8% of AGI
      • $90,001 to $100,000: 9% of AGI
      • $100,001+: 10% of AGI
    • IDR Repayment Period for Forgiveness: 30 Years
    • Subsidized Interest: Yes
    • Repayment Cap: No
    • Miscellaneous: $50 reduction for each monthly payment per dependent

One of the key distinctions between IBR and RAP is how the repayment amount is calculated. 

IBR uses a percentage (%) of “Discretionary Income” and RAP uses a percentage of your actual “Adjusted Gross Income”. Discretionary Income is defined as your Adjusted Gross Income Minus the Federal Poverty Level Multiplied by 150%. Here are some monthly repayment examples, assuming one borrower per household and no repayment caps:

Household 1: Individual with $80,000 of Adjusted Gross Income (AGI)

  • New IBR Plan: ((($80,000 – ($15,960 x 150%)) * 10%) / 12 → $467/mo
  • Old IBR Plan: ((($80,000 – ($15,960 x 150%)) * 15%) / 12 → $701/mo
  • RAP Plan: ($80,000 * 7%) / 12 → $467/mo

Household 2: Married + 2 Dependents with $400,000 of Adjusted Gross Income (AGI)

  • New IBR Plan: ((($400,000 – ($33,000 x 150%)) * 10%) / 12 → $2,921/mo
  • Old IBR Plan: ((($400,000 – ($33,000 x 150%)) * 15%) / 12 → $4,381/mo
  • RAP Plan: (($400,000 * 10%) / 12) – $100 → $3,233/mo

Final Thoughts

Congratulations, you’ve made it to the end! Bookmark this for future updates, and we’ll continue to relink any updated versions. Ultimately, the best student loan advice we could ever give anyone is to get a clear plan from an expert if you don’t have one! It might be the best money you’ve ever spent, not just for the money you save, but for the peace of mind it brings.

Frequently Asked Questions About Student Loan Terms

Q1: What is student loan interest capitalization?
A1: Interest capitalization happens when unpaid interest is added to your loan’s principal balance. Once capitalized, future interest accrues on the higher balance, increasing the total cost of repayment over time.
Q2: What is the RAP student loan repayment plan?
A2: The Repayment Assistance Plan (RAP) is a new federal income-driven repayment plan scheduled to begin July 1, 2026. Payments are based on a percentage of adjusted gross income (AGI), and unpaid interest may be subsidized by the federal government.
Q3: How does Public Service Loan Forgiveness (PSLF) work?
A3: PSLF forgives remaining federal student loan balances after 120 qualifying monthly payments while working full-time for an eligible government or nonprofit employer under a qualifying repayment plan.
Q4: Will federal student loan repayment plans change after July 1, 2026?
A4: Yes. Borrowers receiving new federal loans on or after July 1, 2026 may lose access to some existing repayment plans and become subject to the newer RAP and Tiered Standard repayment structures.
Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Missed Tax Deductions? How to Review Your 2025 Tax Return for Overtime, Tips, and Car Loan Interest (OBBBA Guide)

Why You Should Double-Check Your 2025 Tax Return

Unlike me, you probably filed your taxes weeks ago. You know, that thing you do where you take a weekend and go all Adam Scott *severance* at your computer. Now, I’m going to ask you to try to *reintegrate* with that moment and review that return for accuracy. Whether you delegate to a CPA or file your own taxes, it’s highly possible you left money on the table. Provisions of the One Big Beautiful Bill Act (OBBBA) in 2025 might have led you to overlook certain tax deductions that differ from those in previous years. If you received overtime pay, tips, or bought a new vehicle in 2025, you could have qualified for certain savings. In addition to the legislative changes made in the middle of last year, we’ll also provide some of the more common (and easily fixable) tax mistakes we see each year. 

OBBBA Tax Changes That May Not Be Automatic

This is not an exhaustive list of tax-related changes enacted by last year’s legislation. Some of those changes will automatically flow through your return. For instance, the senior bonus deduction. Individuals age 65 or older can deduct an additional $6,000 of income, and married couples age 65 or older can deduct an additional $12,000 of income from their federal taxable income if their modified adjusted gross income is less than $75,000 for individuals or $150,000 for joint filers. Because it’s age-based, tax-filing software will catch this automatically, assuming you list that correctly. 

However, there are three (3) new tax deductions that your tax-filing software may NOT catch automatically and may require additional information or documentation.

  • Overtime Pay Deduction 

  • Tip Deduction

  • Car Loan Interest Deduction

Overtime Pay Deduction: What to Know

If you receive compensation for overtime hours, most commonly “time and a half”, you are likely eligible for the overtime pay deduction unless your household income is too high, as noted below. 

Overview

  • Effective for Tax Years 2025 – 2028
  • Maximum Annual Deduction
    • Individuals: $12,500
    • Married Filing Jointly: $25,000
  • Income Phaseout
    • Individuals: $150,000
    • Married Filing Jointly: $300,000

Eligibility

  • Employees with a Social Security number who are covered by the Fair Labor Standards Act and considered overtime-eligible (non-exempt). 

Employer Reporting Requirements

Because of the mid-year legislative changes, employers are NOT required to itemize overtime compensation on employee W-2s for 2025. However, this is a requirement for tax years 2026 – 2028. If your employer added this to your 2025 Form W-2, it would be listed in Box 14. However, there’s no need to fret if you know you worked eligible overtime and Box 14 is blank. You can refer back to your last pay stub of the calendar year, which will provide you with your Year-To-Date (YTD) total overtime compensation for 2025. 

Claiming the Overtime Pay Deduction

The most important note about claiming the overtime pay deduction is that only the overtime premium is tax-deductible, not the full amount. 

Example: Jon is an individual filer with less than $150,000 of modified adjusted gross income. His normal hourly rate of pay is $30. His overtime premium is “time and a half”, and he receives $45/hr as compensation. He worked 250 hours of overtime in 2025, for a total overtime compensation of $11,250. To calculate how much he can deduct from his federal taxable income, Jon can either take his overtime premium of $15 ($45 – 30) and multiply it by the number of hours worked, or divide the total compensation of $11,250 by 3. Either way, the result is that Jon can now deduct $3,750 of his overtime pay against his 2025 federal income. Suppose Jon can deduct that amount against income in the 22% marginal tax bracket, that would save him approximately $825 in federal taxes. 

To see if the overtime pay deduction made it onto your tax return, taxpayers can refer to page 2 of their Form 1040, Line 13b. And more specifically, they should look directly at Schedule 1-A, Part III, labeled “No Tax on Overtime.” Box 14 will ask you to list your qualified overtime compensation.

So, using the example above, Jon would list $3,750 in Box 14a. This would flow through to boxes 14c and 21.

Tip Deduction: What to Know

Overview

  • Effective for Tax Years 2025 – 2028
  • Maximum Annual Deduction
    • Individuals or Married Filing Jointly: $25,000
  • Income Phaseout
    • Individuals: $150,000
    • Married Filing Jointly: $300,000

Eligibility

  • See the IRS-compiled list of occupations that are eligible because they “customarily and regularly receive tips.”
  • Tips must be voluntary and in cash or charged to a credit or debit card. They include your share of any pooled tips. One notable exception is that mandatory service charges are NOT considered qualified tips for this deduction. 

Employer Reporting Requirements

  • For employees, your employer is supposed to record your income from tips on your Form W-2, and this should be itemized in either Box 7 or 14. 
  • For independent contractors, your 1099 will likely not show tips separately. 

Note that reporting requirements are a two-way street. Employees are required to maintain a daily record of cash and noncash tips and submit them to their employer monthly when the total exceeds $20 for that month. If employers allocate tips to employees in Box 8 of their Form W-2, it’s the employees’ responsibility to maintain records proving they received less income and do not owe taxes on the full amount. For self-employed individuals and 1099 independent contractors, you also have a responsibility to maintain daily records of tip income received, even though this income is not reported to the business where services are rendered. Any tips not reported by your employer on your W-2 must be reported on Form 4137 when you file. In 2026, this will be required to qualify for deducting those tip amounts. 

Claiming the Tip Deduction

To see if the tip deduction made it onto your tax return, taxpayers can refer to page 2 of their Form 1040, Line 13b. And more specifically, they should look directly at Schedule 1-A, Part II, labeled “No Tax on Tips.”

Car Loan Interest Deduction: What to Know

Overview

  • Effective for Tax Years 2025 – 2028
  • Maximum Annual Deduction
    • Individuals or Married Filing Jointly: $10,000
  • Income Phaseout
    • Individuals: $100,000
    • Married Filing Jointly: $200,000

Eligibility

  • Qualified vehicle purchased with a loan originated after December 31, 2024
  • Must have undergone final assembly in the United States, as verified by the National Traffic Highway Safety Administration
  • Vehicle must be for personal use with the taxpayer as the original purchaser

Claiming the Car Loan Interest Deduction

Taxpayers must include the VIN number. You do not need to itemize your deductions to claim the car loan interest deduction. 

To see if the tip deduction made it onto your tax return, taxpayers can refer to page 2 of their Form 1040, Line 13b. And more specifically, they should look directly at Schedule 1-A, Part IV, labeled “No Tax on Car Loan Interest.” 

Example: Stevie and David are joint filers with an adjusted gross income below $200,000. They purchased a qualified vehicle in 2025 for $50,000 and financed $40,000 at 5%. They paid $5,291 in annual interest. Assuming a 22% marginal tax rate, deducting this interest from their adjusted gross income would save them $1,164 in federal taxes owed.

Other Common Tax Return Errors

The remaining common errors are unrelated to the OBBBA legislation but occur all too often. These aren’t just warnings for taxpayers who file their own taxes. Remember, your CPA may not automatically identify some of these issues, as their work relies on receiving accurate documentation.

Missing Mortgage Interest (Multiple 1098s)

This is a big one for taxpayers who itemize their deductions. Each year, you’ll receive a Form 1098: Mortgage Interest Statement from your lender detailing the amount of interest you paid. But what if your lender changes mid-year because your loan was sold? You’ll now receive two (2) Form 1098s, one from your previous lender and one from your current lender. You have to submit or upload both forms to deduct the full amount of mortgage interest paid that year from all lenders, as that number does not carry over to each form! 

Medical Expense Deduction

Another deduction that households that itemize can miss is in years with large healthcare expenses. Different than the self-employed healthcare deduction, taxpayers can deduct eligible expenses that exceed 7.5% of their gross income for the year. This is common in years when you have surgical procedures, undergo IVF treatments, or give birth. These expenses don’t live on any issued tax form, so you have to manually enter them or let your tax professional know.

Filing Duplicate 1099s

If you have a non-qualified brokerage account with a custodian such as Charles Schwab, Fidelity, or Vanguard, you’ll likely receive a 1099 by the end of February detailing any capital gains, dividends, and interest for the year. However, sometimes your custodian receives additional information from the fund companies that requires them to *correct* your 1099. They will then issue you a separate, corrected version of the 1099 in March. Do not upload both to your tax return! Doing so will ultimately double your tax liability as you’ll find yourself paying on duplicate information. 

Misreporting Cost Basis of Restricted Stock Units (RSUs)

Upon receiving RSUs, you’ll likely have the compensation added to your ordinary income for the year on your Form W-2. However, the custodian (the investment company that facilitates your RSUs) will provide you with a tax form called a 1099-B that shows whether you sold any of your stock. The cost basis on this document will likely read $0, which is incorrect. Your custodian will also send you a document called a “Supplemental Information Sheet,” which will list the correct cost basis information for your RSUs. This sheet allows you to properly report it on your tax return and avoid any potential double taxation. 

Backdoor Roth Mistakes

Mechanically, this topic deserves its own post on how to correctly make a nondeductible Traditional IRA contribution and convert it to a Roth IRA. The outputs of Form 8606, which documents this transaction, are rather simple. But for taxpayers who file their own taxes using DIY software, we see recording errors more often than not. Furthermore, making contributions and doing conversions across different tax and/or calendar years introduces an additional layer of complexity. 

Excess Health Savings Account (HSA) Contributions

This isn’t a tax prep error, but rather a coordination error among spouses. When both spouses are taking advantage of their HSAs through their respective workplaces, it can lead to contributions that exceed the household IRS limit. For two (2) reasons, the first being that the combined individual limits are MORE than the household limit. The second being, if one spouse has dependents on their High-Deductible Health Plan, they may already be making the full family contribution. So any contribution (employee or employer) that is added to the spouse’s plan will also exceed the IRS household contribution limit. If you do not catch or correct this, you’ll pay a 6% excise tax year-over-year as long as the overcontributed amount remains in the account or isn’t applied to a future year contribution limit.

Filing an Amended Return

If you missed a deduction, you can file an amended return within three years to correct it and get a refund. While these are some common errors we’ve seen on client tax returns, please note this is not an exhaustive list. Always consult with your tax professional before making decisions related to your personal situation.

For helpful tools when it comes to tax planning and filing, check out the Free Resources page on our website. 

Currently working? Here’s a separate, helpful guide for reviewing your 2025 tax return.

Frequently Asked Questions About Missed Tax Deductions

Q1: How do I know if I missed a tax deduction on my 2025 return?
A1: Check Form 1040, Line 13b and review Schedule 1-A for specific deductions like overtime pay, tips, and car loan interest. Compare your return against your income documents (W-2, 1099s, loan statements) to confirm nothing was overlooked. 
Q2: Can I deduct overtime pay on my taxes in 2025? 
A2: Yes, but only the overtime premium portion (the extra pay above your standard rate) is deductible. The deduction is subject to income limits and must be calculated manually in many cases. 
Q3: Are tips tax-deductible in 2025? 
A3: Qualified tips may be deductible if they are voluntary and properly reported. However, service charges do not qualify, and you must maintain accurate records to claim the deduction. 
Q4: Is car loan interest deductible for personal vehicles? 
A4: Under 2025 rules, yes—if the vehicle meets eligibility requirements, including U.S. final assembly and a qualifying loan. You do not need to itemize deductions to claim it. 
Q5: Can I fix a mistake after filing my taxes? 
A5: Yes. You can file an amended return (Form 1040-X) to correct errors or claim missed deductions, typically within three years of the original filing date.

Great Day Louisiana: Correcting Your Tax Filing Mistakes (originally aired on April 20th, 2026)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Should You Buy or Lease a Car in 2026? Costs, Financing, and Smart Strategies Explained

Why Buying or Leasing a Car Feels So Complicated

Choosing a set of wheels is on the Mount Rushmore of tough consumer decisions. It’s right up there with becoming a homeowner, choosing health insurance, or paying for childcare. And while having a roof over your head, access to good healthcare, and seeing to your child’s safety are probably more important, securing reliable transportation is by far the most aggravating of the bunch. It’s a pressure cooker of aggressive sales tactics, opacity, and time-consuming negotiations. All set to leave you emotionally drained and ready to just be done with it already.  

How can anyone reasonably expect to compare all deals when the combinations are endless and constantly changing? We can trick ourselves into thinking we got the “best deal”, but you’ll truly never really know. Furthermore, you won’t even know if it was a good deal, let alone the “best deal” for you until 3, 5, or maybe 10 years after making it. So I truly believe that purchasing or leasing a car just had to *feel* good. And for something to feel good, you need to understand some rules of thumb and key terms. Let’s discuss the pros and cons of buying versus leasing, what to expect when financing, how to choose the right car, and ways to boost your leverage during negotiations. 

Key Terms You Need to Know Before You Buy a Car

  • MSRP (Manufacturer’s Suggested Retail Price): As the name suggests, it’s what the manufacturer recommends you pay for the car. 

  • Dealer Add-ons: Dealers sometimes add silly things like “paint protection,” which aren’t standard vehicle add-ons, to increase profit on a car. 

  • Dealer Mark-Ups: Extra fee/profit added to vehicles in high demand with limited supply. 

  • Sales Tax: State/Local Tax on Vehicle Price. Most states also allow you to deduct any trade-in value, lowering the amount you are subject to sales tax on.

  • APR (Annual Percentage Rate): When financing, the interest rate is separate from the APR, which combines the interest rate with any extra fees included in the loan. 

  • Depreciation: Decline in a vehicle’s value over time, affecting resale value. 

Key Terms You Need to Know Before Leasing a Car

  • Net Capitalized Cost: The price of the car that the lease payments are based on. Can include vehicle cost along with other fees not paid up front. 

  • Residual Value: Set at the beginning of the lease by the manufacturer, it’s the estimated value of the car at the end of the lease. It’s also the price you have the option to buy the car for at the end of the lease. The actual market value at the end of the lease may be higher or lower. 

  • Money Factor: the interest rate on a lease, but expressed as a small decimal rather than a percentage. To get the percentage, multiply the money factor by 2,400. 

  • GAP Insurance: Covers the difference between what you owe on the car and the fair market value. Required by most dealerships, but you can add to your existing auto insurance policy rather than roll it into your monthly lease payment. It’s also a reason to try to avoid putting a down payment on a lease. If your car is totaled, the insurance company will just pay off what you owe on the car, not what you’ve already paid. 

  • Mileage Allowance: Maximum miles allowed annually before incurring extra cost.

Buying vs Leasing: Which One Is Right for You?

When Buying Makes More Sense

  • Anticipate using the car for longer than the financing period, or at least 6+ years.

  • Drive the car more than the usual 10,000 to 15,000 miles per year common in leases, which can lead to higher mileage and wear-and-tear fees. 

When Leasing Makes More Sense

  • Enjoy having a new car every 3 years.

  • Are uncertain whether you’ll want/have/need this car beyond the lease period.

  • Prefer less hassle/maintenance in your life.

  • Really just need a lower monthly payment because you have other financial priorities at the moment, or can’t afford a 20% down payment when buying a new or used car. 

Still a little unsure? Here’s our firm’s flowchart for deciding whether buying or leasing your next vehicle is right for you.

The Cheapest Way to Own a Car Long-Term

Although the financing terms are important and leasing with a subsequent purchase at residual value could be advantageous, the most straightforward way to save money in the long term is to buy a car and keep it for at least a few years after the financing period ends. Even better, you hold onto it for up to 10 years, after which you’ll need to decide if creating an exit plan is worth it. This will depend on your daily usage and the vehicle’s manufacturer. I recommend that any prospective car buyer review the consumer reports on vehicle reliability and vehicle repair costs. 

Hybrid vs Gas vs Electric: Which Is Most Cost-Effective?

Hybrid Break-Even Analysis

While there are clear environmental benefits to choosing a hybrid or electric car, I often hear broad claims that it’s also a cost-effective option. Let’s start with a hybrid vehicle. I actually ran this calculation for myself a few years ago when purchasing a car. 

The Inputs:

  • Hybrid Surcharge: $3,500
  • Annual Mileage: 12,000
  • Average Gas Price: $3.25/gallon
  • Non-Hybrid Miles Per Gallon: 24
  • Hybrid Miles Per Gallon: 35
  • Non-Hybrid Annual Gallons Used: 500
  • Hybrid Annual Gallons Used: 342

Ultimately, it would cost $1,625 (500 x $3.25) annually to fuel the non-hybrid version of this car compared to $1,112 (24 x $3.25) for the hybrid. The hybrid would save our family $513 each year. Since it costs an extra $3,500 to buy the hybrid, it would take nearly 7 years to break even given those assumptions. While I was hoping the break-even would come a few years earlier, this still felt like a victory for our family because I knew we’d keep this car for over 10 years. Or so I hope to, as I admit I am taking a bit of a gamble since I don’t know much about the inner workings of a hybrid car and its expected shelf life versus its non-hybrid counterpart. 

Are Electric Vehicles Worth It Financially?

Before the federal EV tax credit expired, going electric seemed to make a lot of financial sense. Even the leases on EVs were very cheap because dealers passed the tax credit through in order to attract folks to make the switch. Since we were buying a vehicle to be our primary family car, an electric vehicle wasn’t an option for us. For hurricane evacuation, we needed a vehicle capable of transporting multiple kids and dogs through traffic that could be at a standstill for hundreds of miles, without the worry of not knowing where the next charging station would be. 

But for a secondary vehicle just to get around New Orleans by car, I’d be surprised if I bought anything that runs on gas. Admittedly, I don’t know much about lithium-ion batteries or this technology, but the idea that I could have a car for 10-15 years with very little maintenance and no time wasted at the gas station seems luxurious. If the federal tax credit is reinstated in the future, or if your state offers its own, it’s definitely worth exploring. Unfortunately, there isn’t a universal answer because the same factors still apply to your intended use, expected maintenance, and price differences.

Is the “Buy Used” Strategy Still Worth It?

Here’s what the advice USED to be: buy a certified pre-owned car that is 1 -3 years old. 

Rationale: Cars depreciate faster during those first few years, and you still have significant useful life left in the vehicle. See the chart below for why this is now a little more complicated.

Used car prices jumped 56% due to supply shortages that began during COVID-19. While they’ve come down in recent years, they’ve only decreased 16% from their post-COVID highs. In comparison, new vehicles *only* spiked 22% post-COVID, though prices have remained relatively flat since. 

Certainly, this might still make a lot of sense, but you’re getting less value for your money with a car that usually has a shorter warranty and fewer years of useful life. The further you get away from a car being brand new, the more risk you assume in its remaining useful life. 

Eddy Jurgielewicz, a partner and lead financial planner at Upbeat Wealth, has done most of his car shopping outside of dealerships. He filters online marketplaces for used, single-owner cars with no major accident history and few recalls. Yes, he would even target makes, models, and years that appeared to have few maintenance issues. But that was a kidless Eddy living in New Orleans, where owning a car was more for convenience than a requirement. I would be surprised if he used this strategy with a child while residing in Los Angeles for a primary family vehicle.

While buying used no longer seems like a slam-dunk strategy, there is still an opportunity to get a great deal. We know that the profit margins on used cars are usually higher for dealerships. And if you have the ability to negotiate in the private market, there’s definitely value in cutting out the middleman. Either way, that gives you a better chance to negotiate a price reduction. For some, this is worthwhile; for others, it may cause unnecessary stress.

How Leasing Can Actually Make You Money

The manufacturer sets a residual value for the car, which is your guaranteed price to buy it at the end of the lease. There’s always a chance that your residual value is less than the car’s fair market price (the price you could otherwise sell the car at), and you might have built equity unknowingly. Of course, you need the cash available to buy it, but if you do, it could work out in your favor. Think about everyone who leased a car before the huge rise in used car prices following COVID. Cars didn’t depreciate as much as manufacturers expected and had included in the leases because supply and demand dynamics changed dramatically. This created an opportunity for our family when we went to swap out car. We had a leased vehicle with a $17,000 residual value. However, the Kelly Blue Book Fair Market Value was $23,000. We bought our car for cash with no intention of keeping it. In fact, we traded it in a few days later to a dealership as a down payment for our next vehicle.

Downpayments and Financing

How much money is considered a sufficient down payment? A couple of different levels to this question. 

  1. If you know you want to buy a car, you should aim for at least a 20% down payment, whether that is cash, the trade-in value of a prior vehicle, or a combination of both. 
  2. HOWEVER, if you are in a strong financial position and could purchase the vehicle outright, that doesn’t mean you SHOULD put 20% down or pay in full.

Here’s the rationale. A 20% down payment keeps your monthly payment manageable. If you haven’t been saving toward the purchase of a car to begin with, you might struggle to pay off the increased monthly payment that comes with putting less than 20% down. 

On the flip side, if you could just pay off the car anyway or aren’t worried about the monthly payment, then the interest rate dictates how much you should finance. 

  • 0 – 3%: You could make more money in a High-Yield Savings Account, so finance as much as possible. 
  • 4 – 6%: Maybe your money can beat this in the market; maybe not. Use a hybrid approach and put down at least 20%, probably more. Consider prepaying as well, assuming no penalties. 
  • 7%+: Finance as little of it as possible. Assuming you have cash reserves beyond this, the flexibility of holding cash isn’t as valuable to you. 

Thinking about the financing term isn’t much different. Great rate? Finance for a longer period. Meh rate? Ideally finance as close to 36 months as possible. Terrible rate? Finance for a maximum of 36 months. And usually, the interest rate incentives/deals are tied to specific term periods. As another general rule of thumb, we find that households with annual debt exceeding 33% of gross income (mortgage, student loans, auto loans, personal loans) tend to feel a little strapped for everything else. 

Financing MATTERS, especially with current interest rates. Here’s a comparison of the real cost of financing cars with identical prices but different interest rates.

In this example, an interest rate of 7% versus 3.5% increases your car’s purchase price by 8%. And that’s not including rolling in the sales tax, title, registration, and other fees into the loan. 

Smart Car Shopping Tips to Save Money

Shopping for a car isn’t enjoyable, especially when you desperately need one and feel trapped. For example, if your car is in the shop and you’re on a tight deadline to find a replacement. So our best advice for shopping for a car is to do so before you become a captive audience. This will help you establish a reference point for negotiation. Here’s our recommended framework. 

  1. Begin filtering cars by preferred size and reliability metrics. 
  2. Search online for any promotional purchase, leasing, and/or financing rates for these makes and models. 
  3. Check for any upcoming seasonal promotional events offered by these manufacturers. 
  4. Check when new models are usually released. This might lead to a better deal on last year’s model overnight. 
  5. Review inventory online at local dealerships, but also on sites like CarMax and Carvana. 
  6. Create a separate email to prevent spam in the future for your primary email and start inquiring about certain cars. This initiates the negotiation before you walk through the door.
  7. Treat buying a car and trading in your car as separate deals. I prefer to negotiate the price of the new car first. Afterwards, you can discuss what I want to get for a trade-in. 
  8. Use sites like Carvana to get an automatic “buy it now” price for your current car and also check the Kelly Blue Book value. This provides some leverage to keep a dealer honest on the trade-in value. 
  9. Don’t let a salesperson reduce your car-buying process to a question of “how much do you want to pay monthly?” You’re after the best price, period! Over a long enough financing period, they can meet any monthly payment. That doesn’t mean it’s financially worth it to you. Focus on the total cost of the car. 
  10. A final reminder: the more leverage you have, the better off you’ll be. The less you *need* to do something, the more wiggle room you’ll find.

Frequently Asked Questions About Shopping For Cars

Q1: Should I buy or lease a car?
You should buy a car if you plan to keep it for more than 5–6 years, drive high mileage, or want to minimize long-term costs. Leasing may be better if you prefer lower monthly payments, drive fewer miles, and like upgrading vehicles every few years.
Q2: Is leasing a car ever a good financial decision?
Yes, leasing can make sense if the residual value is lower than the car’s market value at lease-end, or if you prioritize cash flow and flexibility over long-term savings.
Q3: What is the cheapest way to own a car long-term?
The cheapest strategy is to buy a reliable car and keep it for several years after the loan is paid off. This avoids ongoing payments while minimizing depreciation costs.
Q4: How much should I put down on a car?
A 20% down payment is a common guideline to keep payments manageable. However, if interest rates are low (0–3%), it may make more sense to finance more and keep your cash invested or in savings.
Q5: Is buying a used car still a good strategy?
It can be, but the advantage has narrowed due to higher used car prices post-COVID. Buyers should carefully evaluate price differences, warranty coverage, and expected lifespan.
Q6: What is the biggest mistake when buying a car?
Focusing only on the monthly payment instead of the total cost of the car. Dealers can adjust loan terms to hit almost any monthly payment, often increasing the total cost significantly.

Great Day Louisiana: Financial Advice For Car Shopping (originally aired on March 17th, 2026)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Traditional vs Roth 401(k): How to Choose the Right Contribution Strategy

The Simple Framework for 401(k) Contributions

Not to sandbag our version of this question right out of the gate, but this blog/article/education exists on every personal finance resource on the interwebs. Yet, it’s still one of the most common questions that people standing around at a bar, looking for free financial advice clients ask us. 

The math is really quite simple. If you’re in a lower tax bracket when making withdrawals in retirement, you’d want to make Pre-Tax Contributions now. If your funds are subject to a higher tax rate later, you’d be thankful you made Roth contributions now. But that’s where the simplicity ends. You might not even know what you’re having for dinner, let alone what life might look like in 40 years. And even if you had that crystal ball, there’s no telling what federal and state tax rates might be. If you’re an actual wizard and do know what the tax brackets will be, there are still scenarios where having access to both Traditional (Pre-Tax) and Roth buckets would be beneficial. 

And I won’t bury the lede any further: Here’s a simple way to view the timing of Traditional and Roth contributions. 

  • Early Career: Roth 

  • Mid Career: 50/50 Split

  • Peak Earning Years: Traditional

But if you want some additional guidance on the full considerations between the two, keep reading!
Because, as mentioned, you are probably somewhat uncertain about:

  • Retirement Age
  • Reduced Income Prior to Retirement (Back to School, Sabbatical) 
  • State of Residence
  • Expected Federal Tax Brackets
  • If You’ll Need a Large Sum of Money Suddenly (Home, Health, Grandkid’s Education)
  • Tax Brackets for Your Kids Upon Inheriting Money
  • If You’ll Inherit Money and If That Will Be Pre-Tax or Roth
  • Needing Health Insurance Before Medicare-eligibility

Explain 401(k) Contributions To Me Like I’m Five

401(k) plans are employer-sponsored retirement accounts that enable employees to contribute through automatic payroll deductions. You might hear a 401(k) called a “Traditional 401(k)” or a “Roth 401(k),” but they are the same employer-sponsored plan. It’s a single 401(k) that accepts two different contribution types. Also, “Traditional” Contributions refer to Pre-Tax Contributions, and these terms can be used interchangeably. Some 401(k) plans even offer a third type of 401(k) contribution known as After-Tax Contributions, which should not be confused with Roth contributions. We’ll skip the After-Tax Contribution bucket for the purposes of this blog.

Understanding How 401(k) Contributions Are Taxed

The key difference between Traditional and Roth contributions is the timing of taxation.

  • Traditional 401(k) Contributions: Defer tax now, pay taxes later

  • Roth 401(k) Contributions: Pay tax now, withdraw tax-free later

A popular metaphor is “the seed vs. the harvest.” The seed is taxed when you make Roth Contributions. The harvest is taxed when you make Traditional or Pre-Tax Contributions. Mathematically, if you’re subject to the same tax rate on contributions and withdrawals, it doesn’t matter whether you’re taxed today (the seed) or in the future (the harvest). 

An example:

When the tax rate is flat, the math – maths. Even though you paid more in cumulative taxes by deferring them, your net distribution remains unchanged.

Won’t My Tax Rate Always Be Lower In Retirement?

“I’m not making any money, so why would I be paying more in taxes?” right? RIGHT!? It certainly makes sense, but it’s not that straightforward. Here are some reasons you might end up subject to a higher tax rate or face higher costs later on, even without any earnings. 

Future Federal Marginal Tax Rates and Brackets

When it comes to future tax rates, we are purely speculating. Here is a chart of the historical highest and lowest marginal tax rates since its inception. 

And this chart doesn’t even fully capture how difficult it is to predict how future rates may move across different income levels. The highest marginal rate may apply to only a small number of taxpayers. More specifically, it will come down to how each income threshold is taxed at what rate and where you will fall in comparison. However, if you were to speculate that our low maximum marginal tax rate, combined with increasing national debt, might result in higher future tax rates, I certainly wouldn’t stop you! But note that’s been a popular thesis for decades, and current tax rates have actually decreased relative to certain periods.  

State Tax Rates

The next biggest reason your tax rate may increase is a change in your state of residence. See how your state or desired home in retirement stacks up!

Thinking about retiring in California after working in Louisiana? That’s a big jump in state taxes paid on distributions. Therefore, you might think twice about making traditional contributions today, since you’ll pay a good bit extra at the state level later. But then you might hit your 50s, and your entire personality could be honoring the late, great Jimmy Buffett. So now you’re riding motorcycles and drinking pina coladas (not at the same time, of course!) and eyeing a move to Florida. Well, then you might be kicking yourself a little for not saving pre-tax in Louisiana, since Florida has no income tax. 

Obscure Taxes, Penalties, and Costs

Based on current tax rules, there are additional financial *consequences* such as the Net Investment Income Tax (NIIT), the Medicare Income-Related Monthly Adjustment Amount (IRMAA), and how health insurance premiums are determined if you go through the Healthcare.gov exchange without access to an employer-sponsored plan or Medicare and have too much income to qualify for Medicaid. Being forced to make a large amount of pre-tax distributions within a calendar year could result in additional money owed, even if it’s not directly tied to the tax rate on the retirement income itself. 

Required Minimum Distributions (RMDs)

Some people are naturally great savers. And if you’re great at saving, you might have a hard time spending money, too. Therefore, you may build a substantial pre-tax nest egg. Based on your birthdate, the government says you must start taking withdrawals from this money between the ages of 70.5 and 75. These mandatory Required Minimum Distributions could exceed what you were earning while working. 

You Inherit Money, or Your Kids Inherit Your Money

If you are around my age or most of our clients’ ages, you have boomer parents. And if you have boomer parents, you know they just don’t talk about money. It’s not in their DNA. You’ll get what you get when you get it. But if you are fortunate enough to get *something* and it’s pre-tax money, you’ll have ten (10) years to empty the account to $0. It’s a GOOD problem to have, but it still affects how much you get to keep. There’s a lot of tax planning involved. And if your money is already tied up in 100% pre-tax accounts and the government is forcing you to take distributions, you might find yourself with very little flexibility on what tax rate it’s subject to. You’ll just owe what you owe. 

Or, if you are the one saving now and building a 100% pre-tax allocation with the goal of passing money to your own kids, they might actually be fulfilling the American dream of doing better than you! And now you have deferred taxes on money your kids will realize at a higher rate. 

That’s A Lot of *Stuff*

That’s not even an all-encompassing list. But it’s worth listing some of the main reasons it’s never as simple as anyone wants to make it. A lot of these things, we just don’t know. And that’s okay! A financial planner can certainly help you address some of these blind spots and make educated guesses/assumptions around tax planning. But if you’re doing it yourself, I’d suggest focusing on what seems best now rather than overthinking every future multiverse scenario. 

Emotional Benefits of Roth vs Traditional Contributions

Traditional (Pre-Tax) Contributions Provide CONTROL

I’ll start with pre-tax contributions because I just spent the last couple of minutes of your time making you second-guess whether you should even make pre-tax contributions at all. While we’ll give further financial guidance on when you should consider making pre-tax contributions later in this article, here’s a softer reason. For the most part, you maintain control over your tax consequences. By deferring taxes now, you have control over when you make distributions based on your tax rate at that time. While the government tries to force your hand with RMDs, that may be decades away. 

But aren’t there rules and penalties that prevent you from making distributions before Age 59.5? Yes, but you could do what’s known as Roth Conversions. As the name suggests, Roth Conversions allow you to convert Pre-Tax funds to Roth funds beforehand and avoid the 10% early withdrawal penalty. There are a few other considerations and *gotchas* that I won’t go into here, but you should definitely look into them if you’re considering making Roth Conversions. Here’s an educational piece from Schwab that outlines them. I mention Roth Conversions because they are a great tax-planning tool for those who are going back to school, taking a sabbatical, on track for early retirement, or have an opportunity to fill lower tax-rate thresholds before RMDs.

Roth Contributions Provide Peace of Mind

While you lose control over how your money is taxed, the good news is you don’t have to worry about it anymore! Assuming certain holding periods and age thresholds are met, the money in this bucket is 100% unequivocally yours! Taxes have already been paid at the time of contribution, and distributions are not included in your gross income. Therefore, you don’t have to worry about obscure tax laws or rules that tax you more, reduce certain credits, or penalize you as your Adjusted Gross Income or Modified Adjusted Gross Income increases.

Even if you don’t end up with the highest tax-adjusted balance, understanding how much money truly belongs to you can make retirement planning easier.

How Life Events Can Influence Contribution Strategy

There isn’t a better graphic to illustrate this than the one in this Kitces.com article, which I’ve included below.

Above, you’ll see reasons you may contribute to a Traditional IRA, split contributions 50/50, or contribute to a Roth IRA, based on life events that affect your tax rate. Here’s the synopsis:

Contributions by Tax Rate

  • 12% or Lower: Roth Contributions

  • 22% – 24%: 50/50 Split

  • 32%+: Pre-Tax Contributions

While the future is important, it’s often more practical to concentrate on today’s events and adjust accordingly. As your life changes, so should your 401(k) contribution method. This approach helps you systematically build your allocations across different tax buckets, offering you maximum control and flexibility when taking distributions before retirement, during retirement, or passing on an inheritance to your family. 

Ultimately, a balanced approach to your 401(k) contributions will help you make the most of your funds as you near or enter retirement.

Frequently Asked Questions About 401(k) Contributions

Q1: Should I choose Roth or Traditional 401(k) contributions?
Choose Roth contributions if you expect your tax rate to be higher in retirement. Choose Traditional contributions if you expect your tax rate to be lower later. Many investors benefit from using both to create tax flexibility.
Q2: Is it better to pay taxes now or in retirement?
It depends on your future tax bracket. Paying taxes now (Roth) is better if tax rates rise or your income increases later. Deferring taxes (Traditional) is better if you expect lower income in retirement.
Q3: Can I make both Roth and Traditional 401(k) contributions?
Yes. Most employer plans allow you to split contributions between both types, helping create tax diversification for retirement withdrawals.
Q4: Why should I have both Roth and Traditional retirement savings?
Having both creates flexibility. You can withdraw from different accounts strategically to manage taxes, avoid Medicare premium increases, and reduce required minimum distribution impacts.
Q5: Can Roth conversions help later?
Yes. Roth conversions allow you to move Traditional savings into Roth accounts during low-income years, helping manage taxes before retirement or RMD age.

Great Day Louisiana: Setting Up Your 401k For Your Retirement (originally aired on February 19th, 2026)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Planning a Wedding Without Losing Your Mind or Your Shirt

Wedding Budgeting for Couples: How to Plan a Wedding Without Financial Stress

For most couples, planning a wedding marks their first serious financial discussion together. It’s a major step up from playful “we don’t even need to spend money to have fun together” dates or choosing a restaurant. Add in varying family wealth levels, a saver versus spender dynamic, and a tight schedule, and it’s almost like Leo Beiderman and Sarah Hotchner getting married with a huge asteroid looming (Deep Impact reference!). Sneaky move by Leo, too –  “Marry me because it’s your only chance to survive.” Romantic! All to say, navigating this milestone together requires collaboration, trust, a shared vision, and, of course, a spreadsheet. 

Here’s how you can ensure your wedding experience is fulfilling and enriching for your soul, instead of being stressful and exhausting while trying to meet someone else’s idea of the perfect event.

Open Communication is Key

Create a Vision Board

Exchange your visions for the event and the corresponding weekend. Where are you? How many separate events are there? Are you heading straight to a honeymoon? 

Separate your vision board into three (3) columns:

  1. Non-Negotiables

  2. Nice-to-Haves

  3. Won’t Go Into Debt for

This will help organize the process of weighing trade-offs among various vendors and focus on what matters most. Our firm believes that how you live your life and celebrate important moments matters.

Therefore, we encourage you not to hold back while creating your vision board, even BEFORE discussing the money. 

Finding a Realistic Financial Starting Point for Your Wedding

Disregard Broad Data Re: Wedding Spending

“What do weddings actually cost?” A well-intentioned question, but the answer completely misses the point. There is no one-size-fits-all wedding. And while this is just one data point, I’d argue it does more harm than good. Don’t emotionally anchor how much you should spend on your wedding to the “average” cost others spent on theirs. “Oh, the average wedding cost in Louisiana is $34,000, but we *feel* like we are doing better than most, so we probably can spend twice that amount.” Disaster! 

Transparency Around Money

Without completely depleting your household’s individual savings, how much money do you have to contribute to the wedding today? This will vary depending on the household. Besides the emotional concern of how much savings you’ll dip into, it’s important to be realistic about factors such as job security, the ability to rebuild your emergency fund, and the opportunity cost of allocating this money elsewhere. Losing sleep over overextending yourself on your wedding and living paycheck-to-paycheck, or worse, accumulating debt without a realistic payoff plan, won’t help create a stress-free experience. 

When It Comes to Stakeholders, Don’t Assume!

Bizarre traditions are well, bizarre traditions. Never assume that one partner’s family will pay for the entire wedding. If you’re fortunate enough to have stakeholders, approach them candidly about what they can contribute. Understanding their financial input will help you better align their resources with a meaningful part of the weekend. More on that later! 

Establishing a Timeline

It’s not only the newly engaged who need assistance with wedding budgeting; parents may also be overwhelmed. Even if you believe your parents can cover part of the costs, their funds might not be instantly accessible. Engagements tend to happen rather abruptly. As a financial planner, I frequently see that parents need extra guidance on how much they can contribute and a pathway to making those funds liquid when needed. There’s nothing wrong with having a long engagement, especially if it gives you more time and opportunity to save for your wedding. 

Enter: The Spreadsheet

Yes, you need a spreadsheet. Fortunately, you don’t have to start from scratch. Many wedding-oriented websites offer a free one to help you get started. Here’s what I think is important to track:

  • Estimated Cost

  • Actual Cost

  • Difference (Estimated Cost – Actual Cost)

  • Vendor Name

  • Vendor Contact Details

  • Deposit Amount

  • Paid (YES/NO)

  • Final Payment Due Date

  • Amount Remaining

  • Source of Payment

Once your spreadsheet is set up, I’d recommend narrowing down your guest list. Who NEEDS to be there? The venue is the most consequential decision you have to make, so make sure you research venues that fit your mandatory guest count. Now you can start getting a feel for what venues cost, what dates are available, and what’s included in the price. You can duplicate your spreadsheet to compare different venue scenarios. Some may include everything in the price, while others only provide the bare space.  This will also allow you to experiment with your expected guest count and see how it impacts your budget. Remember, it all comes down to identifying your non-negotiables, which definitely includes guest attendance. If you can afford your “nice-to-have” items, that’s an added bonus! 

As you start pulling in quotes from vendors, it’s a great time to revisit discussions with your parents or stakeholders. Instead of giving you a check, it may be more meaningful to “sponsor” something. Whether it’s the band, a dress, or a reception dinner, this is an excellent way for them to feel more connected to the wedding. Hell, that excitement may even put a few more dollars in your pocket. 

Budget vs. Reality

There’s your original budget, and then there’s reality. CRINGE MEME, sorry Gen Z!

Wedding expenses are similar to home renovations; once you start, it’s hard to stay within your budget. Unexpected costs will arise, and you’ll find it hard to resist adding certain items. 

The more you think you thought of everything, the more surprised you’ll be that you haven’t. You should anticipate paying 1.5 to 2x your original budget.

Show Me The Money

Wedding Fund Location

You’ve set money aside, and you’re continuing to save, but where does it go? While you may be able to postpone other large purchases, like a home, if investment returns don’t align with your desired timeline, a wedding has a definitive date, and most of the money is due before it happens. Therefore, you should not be looking to *grow* this money as if it were your long-term retirement fund. Keep the wedding expense money in cash and liquid. If you’re already using a portion of your investments to fund the festivities, it can be tempting to keep it invested. But you’re taking a huge gamble that your wedding could become incredibly more expensive if you have to sell those assets at an inopportune time. 

See the illustration below, which shows that the average year sees a stock market drop of -13.5%.

It’s Okay to Pause Retirement Savings, But…

This may be an unpopular opinion, but I’m okay with you pausing your retirement savings to help absorb the cost of a wedding (if that’s something you value!). Life is for living, and it’s okay to lean into those moments. But you should really have a plan for getting back on track. Extenuating circumstances aside, a majority of families should be putting atleast 10% of their gross income toward their retirement. This also isn’t great if you’re losing your 401k match. It’s another *hidden* cost that increases the overall expense of the wedding. 

In personal finance, you either make small behavioral changes now or face the need for drastic changes later. And while the roadmap isn’t or doesn’t need to be universal, it tends to get harder, not easier, post-wedding. 

The Wedding Economy is Real… Expensive

This is just an anecdote from our wedding, but we were surprised at how costly some rental items were. Instead, we chose to *purchase* certain items and resell them afterward. My wife heroically handled ordering custom pieces from Alibaba for less than the rental cost. We then resold those items on Facebook Marketplace because, well, is there any other place to buy anything? Used is Vintage. Vintage is Beautiful! We also purchased a used Cricut, which helped us create and further customize decorations. I say *we/us* very liberally. I’m not even sure I qualified as an elf in this Santa wedding workshop my wife was running.

Debt Can Be An Ally, But It Is Not Your Friend

There are three (3) important distinctions when it comes to using debt to fund a portion of your wedding, whether it’s through credit cards, venue payment plans, or a personal loan. 

  1. Opportunity cost is in your favor. You already have the money, but you are taking advantage of a promotional opportunity that lets you keep it earning interest by shifting certain expenses to a later date. 
  2. Income is coming, but you need some extra time. You have a completely reasonable path to paying off the wedding in full from your income/wages, and you are using a 0% credit card promotional rate with some timely benefits (honeymoon!) to create extra runway. 
  3. This is a YOLO moment, and you’re taking on high-interest debt you can’t afford to pay off now or in the future without a substantial change in your financial situation. 

As mentioned earlier in this post, it’s important to be very clear about where to draw the line and what expenses aren’t worth going into debt for. Financial issues are the primary source of stress in relationships, so accumulating debt on day one is not a recipe for success. Which is my next point…

The Wedding Is The Beginning, Not The End

The beautiful thing about working with young couples is the cluster of milestones that tend to happen close together. Weddings, homes, starting a family, maybe even starting a business. Don’t lose sight of your longer-term goals. Always keep your vision of a wealthy life in mind and collaborate openly with your partner to define and live out your shared statement of financial purpose.

Frequently Asked Questions About Wedding Budgeting

Q1: How much should a couple spend on a wedding?
There is no “right” amount to spend on a wedding. Couples should base their budget on available cash, income stability, future goals, and what they value most—rather than national or state averages.
Q2: Is it okay to go into debt for a wedding?
Debt can make sense in limited situations, such as using a 0% promotional credit card with a clear payoff plan. High-interest debt without a realistic repayment strategy can create long-term financial stress early in a marriage.
Q3: Where should wedding savings be kept?
Wedding funds should be kept in cash or a high-yield savings account. Because weddings have a fixed date, investing this money exposes couples to unnecessary market risk.
Q4: Should couples pause retirement savings to pay for a wedding?
Temporarily pausing retirement contributions can be reasonable if there’s a plan to resume quickly. However, couples should account for the lost employer match and long-term opportunity cost.
Q5: How can families contribute without causing conflict?
Open conversations about expectations and boundaries are key. Allowing family members to “sponsor” specific wedding elements can help them feel involved without losing control of the overall plan.
Q6: Why do weddings almost always exceed the original budget?
Unexpected costs, upgrades, and emotional decision-making add up quickly. Couples should plan for wedding costs to be 1.5–2x their initial estimate.
Q7: What’s the biggest financial mistake couples make when planning a wedding?
Anchoring decisions to average wedding costs instead of their personal financial reality—often leading to overspending or unnecessary debt.

Great Day Louisiana: Planning To Pay For Your Big Day (originally aired on January 20th, 2026)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Employee Benefits to Take Advantage of When Expecting a Baby

open enrollment pregnancy benefits

Employee Benefits to Take Advantage of When Expecting a Baby

Traditionally, Open Enrollment is synonymous with health care. Assessing employer-sponsored coverage amid rising costs and premiums. In a previous piece, we provided a checklist to help you evaluate your health insurance options during pregnancy and coordinate with your spouse. But if you’re expecting, here are some lesser-known benefits you should be aware of when reviewing your employee benefits booklet. In this blog, we’ll discuss how to save money on labor & delivery, childcare, and estate planning.

Labor & Delivery: How Hospital Indemnity Insurance May Reduce Hospital Costs

What is Hospital Indemnity Insurance?

Hospital Indemnity Insurance provides a lump-sum payment if you are admitted to the hospital, along with daily benefits during your hospitalization. 

Who Is Elgible for Hospital Indemnity Coverage?

Not all hospital indemnity insurance covers childbirth-related hospitalization or any planned inpatient hospital stay. Some employers offer coverage solely to alleviate some of the financial stress associated with having a baby. Others, not so much. It’s not uncommon to see these plans exclude expected inpatient hospital stays, pregnancy, and/or preexisting conditions. Read your summary plan document or speak with someone in HR before opting into this insurance benefit if you’re unsure which hospitalizations are covered. 

Typical Cost and Payout for Hospital Indemnity Plans

Most larger employers offer this benefit with two (2) options:  a “Low Plan” and a “High Plan”. The “Low Plan” being slightly cheaper with a smaller cash benefit. 

The average cost we see is about $30/month, deducted after-tax from your paycheck. 

For “High Plans”, we typically see a lump sum initial hospitalization benefit of $1,000 and a daily benefit of $100/day. 

Hospital Indemnity Example for Labor & Delivery

A couple is 6 months pregnant in November. Through one of their employers, they have access to Hospital Indemnity insurance. The premium is $30/mo deducted from their paycheck. Therefore, they will pay $360 in 2026 for this benefit. Their benefit for the plan is as shown above: a $1,000 lump sum if either participant is hospitalized and a daily benefit of $100/day. In February, they give birth to their child and spend three nights in the hospital. They submit their hospital bill and receive a cash benefit of $1,000 + ($150 x 3), or $1,450. Since they will pay $360 for the year, they come out ahead by $1,090, which they can put toward their health insurance deductible. 

Wait, It Gets Better

If each partner has access to Hospital Indemnity insurance through their respective employers, there may be no condition preventing them from collecting a cash benefit for the same event. 

What To Watch Out For With Hospital Indemnity Insurance

Most require you to pay into it for the whole year. If you choose to opt out during your Qualifying Life Event enrollment period before receiving your cash benefit, you might lose your eligibility to collect it.

How a Dependent Care FSA Lowers Your Tax Bill

What Is a Dependent Care Flexible Spending Account (DCFSA)?

A Dependent Care FSA is a tax-advantaged account where you can set aside pre-tax dollars to pay for dependent care that enables you to work. 

Dependent Care FSA Eligibility Rules for Married Couples

There is a household limit of $7,500 maximum. This is a household limit, not an individual limit. Therefore, it’s irrelevant whether you have multiple children or access to multiple employer-sponsored Dependent Care FSAs; you can only contribute a total of $7,500 annually for your household. Generally speaking, both spouses must be working and have incomes above the contribution amount. There are some exceptions for full-time students and those who are job hunting. 

Most mid-sized to large employers offer these, and it’s also quite common for small employers to offer them. This is exclusively available as an employee benefit, and there is no other way to contribute to a Dependent Care FSA. 

How Much You Can Contribute to a Dependent Care FSA

There isn’t any “pricing”; it’s just money deducted evenly from your paycheck that you can reimburse yourself for later after proof of claim of an eligible expense. 

Dependent Care FSA Tax Savings Example

A couple knows their daycare costs will exceed the $7,500 DCFSA maximum contribution amount and contributes accordingly. $312.50 will be deducted from their semi-monthly paycheck throughout the year. This couple is in the 24% federal marginal tax bracket and the 3% state marginal tax bracket. Contributions are not subject to federal or most state taxes and are also exempt from FICA taxes (Social Security and Medicare), which have a tax rate of 7.65%. As a result, they reduced their taxes by $2,598.75 ($7,500 x (24% + 3% + 7.65%)) by making the full DCFSA contribution and reimbursing themselves for eligible childcare costs. 

Common Dependent Care FSA Mistakes to Avoid

Like all “Flexible Spending Accounts,” these funds are use-it-or-lose-it. You might be able to carry over a small amount to spend in the following year, but it’s better only to contribute what you’re guaranteed to spend in the current year. Furthermore, informal childcare arrangements, such as paying a family member or babysitter in cash, are not eligible for reimbursement. 

Estate Planning Benefits for New Parents

What Is Group Legal Insurance?

Certain plans provide prepaid legal services and coverage for estate documents, along with various other services such as real estate, adoptions, name changes, court proceedings related to reproductive assistance, and debt collection defense. Here’s a recent blog by Eddy breaking down how to create an Estate Plan.

When to Enroll in Group Legal Coverage?

If your employer offers it, there are no eligibility “gotchas.” However, if this benefit can be added through a Qualifying Life Event, such as having a baby, it likely makes sense to wait until then to take advantage of it. 

Availability: Most mid-sized to large employers offer these. 

Cost Comparison: Group Legal vs. Online vs. Local Attorney

Most often, we see pricing for group legal insurance set at the household level, around $10/pay period. That’s about $240/annually. 

The average cost of a DIY online plan is about $750. 

Hiring a local attorney will likely cost $3,000. 

If your situation is fairly straightforward, using your group legal benefit to have an attorney create a basic Estate Plan for you is a great starting point, especially for young families. 

Estate Planning Example for New Parents

A couple welcomes a baby mid-year. One spouse uses their Qualifying Life Event to add legal coverage for $10 per pay period. They begin the process immediately and, after 2-3 review rounds, complete and sign their Estate Plan before year’s end. This couple has just accomplished a vital planning task for only $120! 

Wait, It Gets Better

Some legal programs may put you in touch with a good local attorney, in which case you receive hands-on assistance at a drastically reduced price compared with contacting them directly. 

Limitations of Employer-Sponsored Legal Plans

The quality of group legal coverage can vary significantly. You might not have access to a local attorney or one you would have selected yourself. When relying on their national team of attorneys, the level of service can differ greatly. We suggest asking colleagues about their experiences with the plan.

Frequently Asked Questions About Employee Benefits for Expecting Parents

Q1: Is hospital indemnity insurance worth it if you’re pregnant?
Yes, hospital indemnity insurance can be worth it if your employer’s plan covers childbirth-related hospital stays. A short hospital stay can result in a payout that exceeds the annual premium, helping offset deductibles and out-of-pocket costs.

Q2: Can both parents collect hospital indemnity benefits for the same birth?
In many cases, yes. If each parent has their own employer-sponsored hospital indemnity plan, there may be no restriction preventing both policies from paying benefits for the same hospitalization.

Q3: Do both spouses have to work to use a Dependent Care FSA?
Generally, yes. Both spouses must be working, looking for work, or attending school full-time. Exceptions exist for full-time students and spouses who are unable to care for themselves.

Q4: How much can a family contribute to a Dependent Care FSA?
For 2026, the household contribution limit is $7,500 per year. This is a household cap, regardless of how many employers offer the benefit or how many children you have.

Q5: What childcare expenses are eligible for Dependent Care FSA reimbursement?
Eligible expenses include daycare, preschool, before- and after-school care, and summer day camps. Informal cash payments to relatives or babysitters typically do not qualify.

Q6: Can group legal insurance help new parents with estate planning?
Yes. Many group legal plans cover wills, powers of attorney, and guardianship documents, making them a cost-effective way for new parents to establish a basic estate plan.

Q7: When is the best time to enroll in new benefits if you’re expecting?

Open Enrollment is ideal, but having a baby is a Qualifying Life Event that often allows you to add or change benefits mid-year, including legal coverage and FSAs.

Great Day Louisiana: Healthcare Terms You Need To Know (originally aired on October 16th, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

When To Refinance Your Mortgage

Mortgage Rate Trends

It’s no secret that homebuyers from 2023, 2024, and 2025 may be eager to refinance. With mortgage rates dropping in 2025 and expected to fall even further, you might be wondering if now is the right time. Yesterday, on September 17th, 2025, Jerome Powell announced the first 0.25% rate cut of 2025, and the Fed as a whole offered lukewarm guidance about additional cuts this year. 

Glass half full: Right now, mortgage rates are near their lowest levels in the past three years and nearly match the lows from 1970 to 2001. 

Glass half empty: They are still well above the sub-3% rates of 2020 and 2021.

Why Is Everyone Focused on the Federal Funds Rate?

One common misconception about mortgage rates is that they are directly linked to the Federal Funds Rate, which is set by the Federal Reserve. Want to learn more about the federal funds rate? Check out this explainer from Investopedia. The essence of it is that the Fed uses the federal funds rate to influence bank lending, which in turn affects the money supply available to consumers. When *cheap* money is accessible, consumers tend to invest more aggressively and spend more. If left unchecked, this can result in inflation, which increases the costs of goods and services and may even lead to financial bubbles like the one seen during the 2008 financial crisis. Following the economic stimulus triggered by Covid-19, the Fed sensed the economy was *overheating* due to the 0% federal funds rate and took steps to ease us into a “soft landing” a.k.a. a sustainable reality. A prime example of our economy starting to overheat was the surge in home values, as well as the GameStop trading frenzy, which we wrote about in an earlier blog.

What Mortgage Rates Actually Track

What’s important to know is that the 30-year mortgage rate does not move in lockstep with the federal funds rate. Just because the Chair of the Federal Reserve, Jerome Powell, announces a 0.25% rate decrease doesn’t mean the 30-year mortgage will drop by 0.25%. It’s important to recognize that determining the mortgage rate is not an exact science. There are variables, many of them. And certainly, the federal funds rate has a role. 

Borrowers should consider the 10-Year Treasury as a gauge for where 30-Year Mortgage rates are headed. As shown below, mortgage rates tend to be 2 to 2.5 percentage points higher than the 10-Year Treasury yields. This then leads us to the question: if mortgage rates follow 10-Year Treasury rates, then how are 10-Year Treasury rates determined?

Enter the 10-Year Treasury Yield

If we think of the federal funds rate as an educated guess on how to best drive the economy forward and a proactive measure, then the 10-Year Treasury yield represents the market’s response and reaction to that direction. Scorsese makes the movie, and the audience must decide what to make of it. And we’ll run with the movie analogy even further.

Director = Fed Chair

Professional Critics = Fed Board of Governors

Supply and Demand = Theatrical vs. streaming release

Market Sentiment = Pre-release buzz

Inflation Expectations = Cost to see today vs. tomorrow

Term Premium = Can you afford to have the ending ruined for you? 

Geopolitical Events = Actor nutjob says something they shouldn’t have

Wrap all of these together, and you have investor/consumer sentiment for 10-Year Treasury rates and renting/owning a movie!

So, Is Now The Time to Refinance?

Refinancing is decided on a case-by-case basis, depending on your current rate, refinance terms, and how long you plan to stay in the home. However, we do recommend a general rule of thumb. Are you lowering your rate by 0.50% and is your break-even point on upfront costs within 18 months or less? 

The Break-Even Point

Typically, refinancing your mortgage comes with an upfront cost. And while that’s not always true, lenders typically want something in return when it comes to doing a lot of paperwork to save you money. Therefore, you have to know what your one-time cost is to lower the interest rate for the life of your mortgage. For example, if it costs you $2,000 to refinance your mortgage and refinancing saves you $200 a month on your principal and interest, that results in a 10-month breakeven point. As long as you plan to stay in the home long enough to realize those monthly savings, it’s a sweet deal. And this is a good reminder that ALL you’re looking at is your principal and interest, not your escrow, which may include insurance and taxes. Your mortgage rate isn’t affected by how much you owe in property taxes or homeowners’ insurance, so it’s best to keep the comparison as clear as possible. 

Let’s also imagine you refinance, and before you hit your break-even point, rates drop again, giving you another chance to refinance. What do you do? Another part of staying in the home long enough to see those monthly savings is considering whether you reasonably expect to be able to refinance again before reaching the break-even point. And this is where following Federal Reserve guidance can be helpful. As discussed, it’s not the primary driver of mortgage rates, but it is a part of the overall picture. So if they are signaling several subsequent rate cuts, it likely makes sense to wait until those are completed before taking action. Ultimately, if unexpected rate cuts occur, you’ll fall back on the same rule of thumb and treat the original refinance cost as a sunk cost. Saving money in the long run remains the goal, even if you misjudge the timing slightly. 

Exercise Caution When Refinancing

Like most things, there are certain things to look out for when it comes to refinancing. 

Upfront Costs

Don’t be fooled: just because there are no upfront costs on a refinance, it doesn’t mean there are no costs at all. When you roll costs into the loan, your monthly payments will go up. That’s why it’s crucial to not only know your mortgage rate, but also your Annual Percentage Rate (APR), which includes the total cost of the loan beyond just the borrowed amount. 

Existing vs. New Lender

Even if your current lender is eager to work with you on a refinance, don’t assume those are the best terms you’ll get. While they are certainly a natural first step in inquiring about refinancing, remember that mortgages are sold all the time. You should compare their offer with what a new lender can offer. I suggest checking with both a local and a national company. There are also rate comparison sites online if you don’t mind receiving spam emails and calls. 

Amortization Schedule

Let’s say you’re a few years into a 30-year mortgage and refinance to another 30-year loan. By definition, you’ll be making payments for over 30 years. But if you’re refinancing to a lower interest rate, it doesn’t matter how many extra years you add to the loan. You’ll still come out ahead over the life of the loan since you’re just lowering your existing balance’s interest rate, which results in less interest paid. Understand that you don’t necessarily have to refinance to another 30-year loan, though. You might try to match your remaining payments to 15, 20, or 25 years, whichever is closest to your original number of payments left. Some lenders will even match the exact number of years you have left on your existing loan. The other option is to refinance into a 30-year loan but keep making your same monthly payment, which effectively prepays your loan and saves you interest over the life of the loan.

When a Recast Might Be Beneficial

There’s a lesser-known approach to traditional refinancing called recasting. It’s for borrowers who can make a lump-sum payment of 10% or more of their loan balance. Although your interest rate won’t change, your lender might let you make a big payment toward your balance and reamortize the loan, resulting in a lower monthly payment going forward. As a result, you’ll keep your current payment schedule with a lower monthly payment rather than shortening the term of your loan. So this is a way of saving today instead of saving tomorrow.

Great Day Louisiana: 2025 Mortgage Trends (originally aired on September 17th, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Education Funding: Strategies for Louisiana Residents Saving For College

The Price of Admission

When it comes to funding higher education for your children, knowing what it will cost remains the trickiest part of determining how to save for college. You’re mostly guestimating the cost of college 10+ years from now and how much funding your child will need. 

Internal Factors:

  • State of Residency and In-State School Cost/Desirability

  • Will they attend college? 

  • Scholarships/Grants/Financial Aid

  • Career Goals, Public Student Loan Forgiveness Eligibility

External Factors:

  • Future of Student Loan Borrowing Terms

  • Educational Cost Inflation

I’m not sure what’s tougher, getting a read on your 4-year-old or your government. So, instead of making predictions, let’s review the current landscape of attendance costs and some rule-of-thumb approaches toward setting educational goals and funding them. 

2024-25 National On-Campus Average Cost of College (Tuition, Fees, Housing, Meal Plan)

  • Public Four-Year In-State: $29,910

  • Public Four-Year Out-of-State: $49,080

  • Private Four-Year: $62,990

To bring those numbers closer to home in Louisiana, here is the cost of attendance at the four most widely attended local universities:

  • LSU: $27,876

  • ULL: $23,392

  • Southeastern: $19,992

  • Tulane: $92,328

Education Inflation (Not Terrible Anymore?) and Trends in Financial Aid

We always take a conservative approach at Upbeat Wealth, so our in-house assumption for education inflation is 5%, which reflects the price increases of the last 30 years. The silver lining is that most of the increases happened between 1995 and 2015. From 2015 to 2025, the cost of attendance has moved more in line with the general inflation rate of 3%. Want to learn more about trends in college pricing? Here’s some great data from Collegeboard.org. 

The other encouraging trend? More students are receiving some form of financial aid – and it’s the good kind! Grants, free money that doesn’t need to be repaid, are increasing as a percentage of total student aid. This has led to a decrease in federal loans, although this data does not include private loans.

Setting an Education Funding Goal

The best metaphor I’ve ever heard for setting an education funding goal for your kids is the same protocol you’re instructed to follow if there’s a drop in cabin pressure on an airplane. When oxygen masks drop in an emergency, put yours on first before assisting others. Another tired analogy would be that there are student loans, but there aren’t retirement loans. It’s important to ensure you are on track for your definition of retirement before funding education goals. If you aren’t careful, you might unintentionally shift the burden of your kids taking out student loans—which can often be managed through forgiveness or paid over time—to supporting your retirement or covering the high costs of end-of-life care.  

If we broadly define “ensuring you are on track for retirement,” it would mean saving at least 10% of your income annually. Obviously, there are about a gazillion other variables that go into this, but I think that’s simple enough for the purposes of this blog. 

Okay, so you’re contributing 10% of your income annually, but also have a couple of kids, so what’s next? 

Here Are Two Goal Funding Frameworks That Households Have Had Success With

Saving Strategy No. 1: Aim to Save Enough to Cover 100% of a Public 4-Year In-State College

Even if you prefer your child not to stay in-state, this offers a generous starting point before they need to consider taking on some financial responsibility and having skin in the game to attend a higher-cost university. E.g., that degree better be worth it. 

To do this, you need to save approximately $685 per month. Here’s an example using our calculator and a few assumptions. 

Saving Strategy No. 2: You Save ⅓ Now, You/Financial Aid Pays ⅓ Then, They Borrow ⅓ to Pay in the Future

I first learned about this strategy from another financial planner, Meg Bartelt with Flow FP. I really like it because it covers a little of everything—about a third, actually! You save a recurring amount that will satisfy a ⅓ of the price of college. Then, during the years your child is in college, you make some trade-offs to cover another ⅓ of the cost from your income, and hopefully, there’s some financial aid involved. Finally, your child covers the remaining ⅓ through student loans, which you can, of course, help them pay off with your future earnings if you wish. 

It’s a great framework to start saving right away and then reevaluate as you get closer. Maybe you’re in good shape for retirement and can contribute more than a third during the enrollment years. Perhaps your child doesn’t even need to know that, and you can laugh at them as they complain about student loans. Or maybe you can act as the lender on the student loans and offer better terms than the federal government, which still believes it’s a good idea to burden our youth with high interest rates as they work to further their education and build a foundation for a fulfilling life. 

It’s just a balanced way of saying, hey yeah, I care. I’ve done something to help you. Perhaps I can do more when I earn more, and I feel confident that I am taken care of. And by the way, it’s your life, take some responsibility for what you hope to get out of this education. 

Here’s another example using the same assumptions as above, but this time to save enough for 33% of a Private 4-Year education. You would need to save about $475 per month now for the first third. If you chose to pay another third at the time of attendance, you’d be looking at approximately $50,000 per year for those 4 years, assuming they didn’t receive any financial aid. 

Where Do I Actually Save The Money For My Child’s Education?

Okay, you’re doing a good job saving for yourself, and now you’ve created an education funding goal. Where the heck does this money go? Here are common options, along with our assessment of each. 

Option 1: Uniform Transfers to Minors Act (UTMA)

This is not much different than setting up a normal brokerage account at a Schwab, Vanguard, or Fidelity. You maintain custodial power over the money inside this account until the beneficiary listed reaches the age of majority, which is now 22 in Louisiana. A quick note: the age of majority varies by state. In Louisiana, it was historically 18. This meant that if you contributed $100,000 to a UTMA account for your child, once they turned 18, they could use the money however they wanted. That makes for a fun first year of college. 

UTMA Pros

  • “Kiddie tax” rules for 2025 allow you to pay no tax on the first $1,350 of earnings annually (dividends, interest, capital gains). The next $1,350 of earnings are taxed at the child’s tax rate, which is likely zero. 

  • The beneficiary can use this account for anything without restrictions. It doesn’t just have to be for educational purposes.

  • More investment options, but that doesn’t necessarily mean *better* options, at least not in Louisiana. 

UTMA Cons

  • Lack of control. The money that you contribute to this account is an irrevocable gift. You can’t just change your mind and reclaim it. Once it’s in there, your only responsibility is to manage it as the custodian for your child’s benefit. 

  • High assessment rate when your child fills out the Free Application for Federal Student Aid (FAFSA). Because this is a child-owned asset, any financial aid they would have otherwise qualified for would be reduced by 20% of the UTMA’s value. 

  • The beneficiary can use this account for anything without restrictions. Once they hit the age of majority in your state, that money is theirs. While 22 is better than 18 in Louisiana, it’s still pretty young to inherit a lump sum of cash. Most 22-year-olds I know don’t stop wanting to spend money after they graduate from school. Usually, they’re making big decisions about the affordability of renting homes and leasing cars. Well, things have just become a whole lot more affordable, and perhaps only temporarily, until the money is gone. 

Our UTMA Assessment: The lack of control, combined with the beneficiary’s early access to the funds, makes this option pretty unattractive. With the recent rule changes increasing the flexibility of the 529 Plan (our next option) beyond college tuition, there is no longer a worthwhile benefit to having an UTMA account. Unless you’re not interested in them using this money for postsecondary education and don’t mind the possibility of giving your child a lump sum at an age when they’re most likely to spend it on something questionable. That’s TRUST. 

Option 2: The 529 Plan

Last year, I filmed a segment for Great Day Louisiana and wrote a blog about the Louisiana START 529 Plan. Since then, with the recent passing of the One Big Beautiful Bill Act (OBBBA), 529 Plans have become even more lenient on how you can use/access the cash beyond college tuition. Here’s a big list of qualified withdrawals. You can contribute up to a lifetime maximum of $35,000 to a beneficiary’s Roth IRA, but there are certain caveats and restrictions. 

Here are some of the main pros and cons of Louisiana’s 529 START Plan. To find out how your state’s 529 plan compares, visit the SavingForCollege website, which outlines the key features of each plan. 

Louisiana START 529 Plan Pros

  • LA State Tax Deduction. $2,400 Single & $4,800 Married Filing Jointly per beneficiary. If you contribute more than the maximum annual deduction amount, the excess carries forward as a deduction in subsequent years. 

  • Earnings Enhancement. Louisiana matches between 2% and 14% of your contributions based on your Adjusted Gross Income. 

  • Tax-Free Growth and Distributions. Money grows tax-free and can be withdrawn tax-free if used for qualifying purposes (see link above re: qualified withdrawals).

  • Maintain Control. The beneficiary is never entitled to the money. You can change beneficiaries on the account as many times as you’d like.

Louisiana START 529 Plan Cons

  • Separate Account Location. Some may find it inconvenient that you have to open up the plan directly through the STARTSaving.LA.gov website. It is technically one more thing that you’ll have to keep track of. 

  • Penalties. While the list of what constitutes a qualified expense continues to grow, if you make an unqualified distribution, you may be subject to paying income tax on the earnings as well as a 10% penalty. 

  • Small Impact on Financial Aid. When owned by a parent, there is a slight reduction in the financial aid your child could qualify for, but this is much less severe than the penalty for an UTMA. 

Our 529 Plan Assessment: The 529 Plan is the premier vehicle for saving for your child’s future education. Workarounds, such as being able to pay for K-12 tuition and possibly contributing a maximum of $35,000 to a Roth account, have made this option more attractive for funding at higher levels in recent years. Our only caveat is that we typically recommend families aim for 33% to 66% of funding through the 529 plan to limit the risk of overfunding. There’s always a possibility that you’ll need that money for other purposes, and current workarounds and increased flexibility for non-penalized withdrawals might still be insufficient. 

Reasons that the percentage would be closer to 66% rather than 33%? You have multiple children, which increases the chances that someone in your family will benefit from the money. Or you have the financial means to the extent that you wouldn’t mind if the money ends up going to your grandchildren. 

Option 3: A Taxable Brokerage Account

You keep the money in your name and just set up a separate account so it’s not commingled with your general investment funds. We strongly advocate using separate accounts, each designated for a specific investment goal, to save money intentionally. When money is mixed together, it’s harder to maintain a clear investment strategy, and you might feel guilty spending it when that goal isn’t predetermined. 

Taxable Brokerage Account Pros

  • Ultimate Control & Flexibility. Money is yours to spend however you see fit. 

Taxable Brokerage Account Cons

  • Taxes, of course! You’ll be taxed along the way on dividends and interest. While there are strategies to reduce capital gains taxes, you’ll likely pay something when you sell appreciated investments to access the money.

Our Taxable Brokerage Assessment: Tax planning is a major part of our work. We believe it’s one of the most important ways we deliver value to our households. However, this is one of those cases where I think that maintaining control and flexibility to supplement your education savings makes a lot of sense, even if it comes with a higher tax liability. Yes, when you earn money in a taxable account, you owe taxes. But it’s not uncommon for a carefully planned and financially smart strategy to fail and end up costing a household much more just because life threw them a curveball. This is like contributing to a 401k plan without having a proper emergency fund. It might have saved you money initially, but if something happens and you need to withdraw funds from the 401k, you’ll face taxes and penalties, which could end up costing you much more. 

Our Overall Assessment: Ultimately, we believe the 529 Plan and the Brokerage account are a perfect marriage for Louisiana residents seeking to optimize their tax savings, receive a state funding match, maintain flexibility over the funds, and help jumpstart educational and non-educational goals alike. 

Statistically, More Education Is The Best Way To Increase Earning Power

As I speak with more and more families, there is a growing sentiment that college will not be a driving force of personal economic growth for their children. There’s also considerable frustration with the system. These certainly go hand in hand. Of course, college isn’t the be-all and end-all. There are numerous lucrative paths for those who don’t follow the traditional route. Anecdotal examples are everywhere, from Fortune 500 CEOs to your cousin, Bill. However, the chart above from the Bureau of Labor Statistics shows a very clear picture. If you put a ceiling on your education, it becomes tougher, not easier. For now, there still is a real benefit in exchange for the price of admission. 

Great Day Louisiana: Saving For College With An LA START 529 Plan (originally aired on August 21st, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

OBBBA Student Loan Updates

Creating a Student Loan Repayment Plan

Let me start by saying that the goal of this article is to provide an objective summary of the changes in the student loan world for existing borrowers, helping people make informed decisions moving forward. The purpose isn’t to criticize or pass judgment on the ongoing legislative issues or poor execution. We’ll briefly mention some changes affecting new borrowers but reserve a more detailed explanation for later. If you’re a parent planning to borrow for your child or a student preparing for graduate or professional school, you’ll face the biggest challenges from the upcoming changes if taking out loans after July 1, 2026. Borrowing after July 1, 2026, can also affect how you repay your existing loans. 

Currently, 7.7 million people are on SAVE forbearance. Most people feel frustrated, confused, and uncertain about how they will repay their loans. They are exhausted from being the ball in an endless game of political ping pong. If you’re one of those people, this article is for you.

Student Loan Repayment Options

Need a refresher on student loan repayment options? Here’s a bird’s-eye view from the Department of Education: https://studentaid.gov/manage-loans/repayment/plans

Generally speaking, borrowers have two options to pay back their student loans:

  • Fixed payment: Loans structured for borrowers to pay off their balances in full within a specified time period

  • Income-Driven Repayment (IDR): Monthly payments are calculated using your household income and size. IDR is primarily designed for borrowers seeking some type of student loan forgiveness.  

So, why wouldn’t everyone choose to make payments under an income-driven repayment plan and aim for forgiveness? You have a high income. When your student loan repayment is based on your income, it might cause you to pay off your loans too quickly to qualify for forgiveness or raise the payment above what you’re comfortable paying. Or the opposite, you might actually want to pay off your loans quickly but prefer not to deal with the hassle of recertifying income annually. Perhaps you’ll refinance to lower your interest rate and pay off your loans as fast as possible. 

Income-Driven Repayment Plans

As mentioned, on an Income-Driven Repayment plan, your total repayment amount is calculated based on your income. The balance and interest of your loan only apply to plans that have “payment caps.” A payment cap puts a ceiling on your total monthly payment, which is equal to what you would pay under the 10-Year Standard Repayment Plan, a fixed repayment plan. Payment caps are applicable to two IDR plans, PAYE and IBR. Payment caps are a valuable feature for borrowers with rising incomes who may still qualify for forgiveness.

There are currently six(ish) IDR Plans: PAYE, Old IBR, New IBR, ICR, SAVE, RAP.

  1. PAYE: Eligible for existing borrowers with loans originated after October 1, 2007 AND a Direct Loan after October 1, 2011 until June 30, 2026

  2. Old IBR (2009): Eligible for existing borrowers with loans originated before July 1, 2014

  3. New IBR (2014): Eligible for existing borrowers with loans originated after July 1, 2014 until June 30th, 2026

  4. ICR: Eligible for existing borrowers until July 1, 2028

  5. SAVE: No longer eligible for enrollment

  6. RAP: Created by the One Big Beautiful Bill Act (OBBBA), but not yet available for enrollment

IBR is technically “one plan,’ but we are treating it as two separate plans because changes made in 2014 benefit eligible borrowers by lowering their payments. Since New IBR is notably better than Old IBR, you need to know which plan applies to you.

Common Paths Toward Student Loan Forgiveness

Public Service Loan Forgiveness (PSLF)

The primary goal of using an income-driven repayment plan is to reduce your student loan payments (especially for those with high balances and low incomes) and eventually qualify for forgiveness. Even professionals with high incomes can benefit from forgiveness if their loan balance is substantial and they experience a period with a temporarily low income, such as during residency for physicians. 

Although some occupation-specific forgiveness programs exist, the most well-known and widely discussed is the Public Service Loan Forgiveness (PSLF) program, which covers those who work full-time for a not-for-profit or government organization. Popular occupations include healthcare workers, military personnel, law enforcement officers, first responders, teachers, local and federal government employees, social workers, and nonprofit workers. 

Unsure if you qualify for PSLF? There are 4 Key Components:

  1. Have Direct Federal Loans

  2. Make 120 Payments

  3. Work for a Qualifying Employer (including when you submit your final PSLF form)

  4. Make Payments On An Income-Driven Repayment Plan (although the 10-Year Standard Plan also counts toward this)

IDR Forgiveness

Workers in the private sector can also qualify for forgiveness under an IDR plan, but it will take longer than the time available to public servants under PSLF. If you do not qualify for PSLF, you’ll have to repay your loans for 20, 25, or 30 years to get forgiveness, depending on which IDR plan you’re enrolled in. 

  • PAYE: 20 Years

  • New IBR: 20 Years

  • Old IBR: 25 Years

  • ICR: 25 Years

  • RAP: 30 Years

Another key difference is that PSLF forgiveness is not taxable, whereas IDR forgiveness is. This is often referred to as a tax bomb, and it will take effect again starting January 1, 2026. The forgiven balance of your student loans will be counted as income in the year it is forgiven. To clarify, this does not apply to public servants repaying their loans through PSLF, which remains protected as tax-free under federal law.

Current OBBBA Updates for Existing Borrowers

As of July 29th, 2025, many of the “updates” expected to be rolled out by OBBBA have not yet been implemented. Here are some of the changes that are effective immediately or, at the very least, actionable. 

Existing Parent PLUS Loans Now Qualify for IBR

Previously, Parent PLUS borrowers had access only to ICR, the least favorable IDR plan with the highest monthly payments, unless they used a strategy known as the double consolidation loophole. Now, as long as Parent PLUS borrowers consolidate before July 1, 2026, and enroll in an IDR plan before July 1, 2028, they will qualify for plans beyond ICR, which is the least favorable IDR plan. This is good news for parents who have borrowed on behalf of their kids.

SAVE Plan Forbearance

If you are already enrolled in the SAVE plan, you will remain in forbearance until the sooner of a court ruling or July 1, 2028. This should not be confused with the announcement by the Department of Education stating interest will start accruing on August 1, 2025. Interest beginning to accrue again doesn’t mean you have to start making payments. You are protected from defaulting on your loans under SAVE through forbearance. Later, we’ll discuss reasons you may voluntarily move off SAVE, but for right now, you are not required to voluntarily switch or pay.

Future OBBBA Updates for Existing Borrowers

Most of the legislative changes in the OBBBA have not yet taken effect or are scheduled for future dates. Here are a few of the major changes existing borrowers can expect to see in the coming years. 

Some IDR Plans (PAYE, ICR, SAVE) Will Be Eliminated

The following IDR plans will be phased out and eliminated. Existing borrowers will not be grandfathered into these plans and will not be allowed to make payments on them beyond July 1, 2028. It is unclear how the Department of Education will handle the transition, but all borrowers in the plans listed below will be asked to switch before July 1, 2028. 

  • PAYE: July 1, 2028

  • ICR: July 1, 2028

  • SAVE (formerly REPAYE): Sooner of a court ruling or July 1, 2028

Please note that if you were paying under REPAYE, you were automatically moved to SAVE in 2023.

A New IDR Plan (RAP) Will Be Created

A new IDR plan, called the Repayment Assistance Plan (RAP), will be introduced by July 1, 2026. This will leave existing borrowers (those with no loans originated after July 1, 2026) with the following IDR plan options beyond July 1, 2028. 

  • Old IBR (Borrowers Before July 2014)

  • New IBR (Borrowers After July 2014)

  • RAP

Partial Financial Hardship Will Be Removed for PAYE & IBR

Previously, you could only switch to the IBR plans if you had a partial financial hardship, which was defined by your income-driven repayment being less than your 10-year Standard Repayment amount. Lawmakers recognized that this would be problematic for many borrowers who were making payments on IDR plans that will ultimately be eliminated. Therefore, to expand eligibility for PAYE and IBR, they are removing the partial financial hardship requirement for enrollment. Unfortunately, there is no specific timeline for when this change will take effect and be implemented by the loan servicers. So, PAYE/IBR might show as ineligible on your studentaid.gov portal for now, even though you’re eligible to enroll. Frustrating!

Department of Education Confirms “Buyback” Will Continue for PSLF-eligible Borrowers

Borrowers who have 120 months of eligible employment can buy back periods of deferment or forbearance, provided this brings their total to 120 qualifying payments. The Department of Education announced that in the future, borrowers may buy back previous months even if they do not have 120 months of eligible employment. While it is not guaranteed in the future, as of now, you are eligible to buy back every month you’re in SAVE forbearance, assuming you work for a qualified employer. You still cannot buy back months spent not on an IDR plan or working for a nonqualified employer. 

Changes for Borrowers Taking Out Loans on or After July 1, 2026

The biggest impact of the OBBBA is for borrowers who need to continue borrowing on or after July 1, 2026, as repayment options will become very limited. New borrowers on or after July 1, 2026, and those who consolidate after that date will only have access to two plans. 

  1. An Updated Standard Repayment Plan: the repayment term depends on your loan balance.

  2. The Repayment Assistance Plan (RAP): the only IDR plan option

The situation is even worse for new Parent Plus borrowers; they will only have access to the Standard Repayment Plan, and these loans will no longer qualify for forgiveness.

Borrowers taking out loans on or after July 1, 2026, will face new loan limits for graduate and professional schools as well as for Parent PLUS loans. 

There are changes in procedures for exiting default on loans, qualifying for economic hardship, and entering forbearance, none of which are favorable compared to the current rules.

Is the New IDR Plan (RAP) Any Good?

The RAP Plan is the Republican response to President Biden’s SAVE Plan. While the SAVE Plan was very generous for many borrowers, the RAP Plan is not as kind. The SAVE plan effectively lowered payments for many borrowers compared to other IDR plans. RAP, unfortunately, does mostly the opposite. However, there are small pockets of borrowers who will benefit from a lower payment under RAP compared to New IBR, specifically those with balances between $30,000 and $80,000. 

In line with Income-Driven Repayment Plans, your payment is based on income, although it’s calculated differently than previous IDR plans. Instead of explaining how the income is calculated, I will show you an illustration of how the monthly payments compare across plans. Here are some example monthly payment calculations for RAP vs. Old IBR vs. New IBR. 

Illustration notes: New IBR and PAYE payments are the same. Additionally, this doesn’t consider the monthly payment cap borrowers qualify for under IBR/PAYE, where your payment is limited to the 10-year standard repayment amount. Therefore, the IBR payments shown may actually be lower in your personal situation depending on your loan balance and interest rate. 

RAP Plan Pros

  1. RAP upholds a popular student loan strategy where borrowers can file their taxes separately and pay based on their individual income instead of the household’s income. This is especially useful when the borrowing spouse earns less or is currently unemployed. 

  2. Similar to the SAVE plan, if your monthly payment does not cover the interest, the government will waive it and pick up the tab. It will not be added to the loan. 

  3. In addition to waiving interest, the government will contribute up to $50 toward your loan so your principal actually goes down. 

RAP Plan Cons

  1. Lowest-income borrowers will still need to pay at least $10 per month. There is no option to have a $0 student loan payment. 

  2. If you don’t qualify for PSLF or other forgiveness programs, you need to make 30 years of payments to get IDR forgiveness with RAP. That’s 10 years longer than what is required by New IBR & PAYE.

  3. Other IDR plans determine the amount you can pay based on your “discretionary income,” which is calculated by subtracting a percentage of the Federal Poverty Level (FPL) for your household size. The FPL increases each year to account for inflation, allowing you to exclude a larger amount of income from your household income when calculating your monthly repayment. The RAP plan bucks this trend, so inflation will not help reduce your payment. 

  4. RAP will cost households where both partners have student loan debt. Unlike other IDR plans, there is no prorata calculation used to determine each spouse’s student loan payment based on household income. Instead, as we understand it now, RAP requires each borrower to pay the full calculated amount for their individual loans and does not lower that payment unless you file your taxes married filing separately to exclude your partner’s income.

  5. There is no payment cap relative to the 10-Year Standard Repayment amount.

If I’m In The SAVE Forbearance, What’s My Move?

Giving specific student loan advice is a tall order, so that’s not the goal for the rest of this blog. Ultimately, many variables affect your situation: the type of loans, eligible plans, PSLF or IDR credits, your income, your spouse’s income, projected career path, and household size. And then there’s the total uncertainty of future policy changes. HOWEVER, here’s what I would generally consider in some common scenarios. 

When Staying in SAVE Might Make Sense:

You have made or will make 120 payments, including the SAVE forbearance period, and are currently awaiting the Department of Education’s review of your PSLF Reconsideration request for buyback. 

You have higher-interest loans that you’re working on paying back, like credit card debt. Your money is probably better spent paying down higher-interest loans. 

You are not a public servant, and it’s not clear whether IDR forgiveness or paying off your loans completely is the better financial choice. Additionally, until the partial financial hardship requirement for PAYE or IBR is removed, you’re stuck with the least favorable plan, ICR, as your only option. You might just let the interest on your loans accrue until that partial hardship is removed. 

You expect your income to decrease in the future, making your payments toward forgiveness cheaper than they are now. 

You don’t want to remove yourself voluntarily from SAVE until it’s official that interest will truly accrue.

You already filed your 2024 taxes as married filing jointly, but ideally, you might benefit from filing married filing separately and using only your income to determine the monthly payment. 

When Switching from SAVE to PAYE Might Make Sense:

Your income is similar to your last recertification, and you’re ready to start making payments again to earn credit toward IDR forgiveness or PSLF. 

Once the partial hardship is removed, you can switch and still be limited to the 10-Year Standard Repayment, which allows you to balance the option of continuing earning forgiveness credits with paying back your loans in full.

You took out loans before July 1, 2014, and now only qualify for Old IBR. PAYE is a more affordable plan in any situation compared to the Old IBR. Yes, you’ll need to leave PAYE by July 1, 2028, but at least you’ll get a few years of lower payments before that. 

You’re far from forgiveness and have a career path with increasing income. You might want to start earning guaranteed PSLF/IDR credits now at a lower amount, avoiding the need to buy back later. It’s also possible that the buyback amount will be the same as your PAYE payment today. 

When Switching From SAVE to Old IBR Might Make Sense:

You only need to make a few more payments to reach 120 credits and want to avoid waiting for PSLF buyback, or you need to act quickly on PSLF because you’re leaving a qualifying employer. Remember, you must be actively employed at a qualified employer when submitting your PSLF forgiveness application. 

When Switching From SAVE to New IBR Might Make Sense:

The advantages of switching to New IBR and PAYE are 99% similar. However, you can go directly to New IBR if you prefer not to switch off PAYE when it becomes obsolete in 2028. The New IBR will continue to exist, and the payments for New IBR and PAYE are exactly the same. The only downside of New IBR compared to PAYE is that if you ever need to switch off New IBR, your interest will capitalize. So, if a more attractive IDR plan is introduced in the future, any unpaid interest will be added to the loan principal. This only becomes a problem if you need to pay off your loans in full later. 

Private Refinancing Might Make Sense:

You will definitely pay off your student loans, and refinancing with a private lender can lower your student loan interest rate by over 2%. I mention 2% because you should carefully consider this option, as a private takeover of your federal loans is irreversible and can also remove some protections. Additionally, it could exclude you from any future relief resulting from policy changes by a different administration. 

The Biggest Variable is Future Policy Uncertainty Beyond This Administration

Student loan policy may become a single-issue concern for voters in the future. There will be considerable frustration due to the fallout from OBBBA. And contrary to belief, this isn’t just coastal liberal arts professionals who will suffer. Doctors and lawyers are also taking a big hit. Furthermore, the downsizing of the federal government eliminated the possibility of PSLF for many public servants. Our teachers, first responders, and soldiers, who are already struggling to make ends meet, may now face higher payments. This is pure speculation, but I believe the Democrats will try to capitalize on this, and if they successfully regain unified control, we could see another major shift in policy.

Our Biggest Recommendation

If you’re confused, hire a knowledgeable expert in student loan repayment and forgiveness. Several reputable companies offer one-time consultations for $400 to $700. Student loan strategies can be complicated, and choosing the right one could save you tens of thousands of dollars. That’s a potentially huge return on your money. And whatever you do, ignore anyone in the media *lecturing* you about how you should pay back your student loans dollar for dollar. Ignore their tired ass complaints about how people used to honor their debts in the past. If you are eligible for a path toward forgiveness and will spend less getting there than paying back your student loans in full, it is your American right by law to pursue it!

Great Day Louisiana: Tips For Staying On Top Of Student Loan Repayments (originally aired on July 17th, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.