The Latest Personal Finance News for August 2024

Department of Education Pauses Payments for 8 Million Borrowers

Shortly after the Saving on a Valuable Education (SAVE) plan was set to expand, the Biden administration has paused payments for the 8 million borrowers enrolled in the income-driven repayment (IDR) plan.

The move was made after a federal appeals court temporarily blocked the new plan, which the Department of Education unveiled in August 2023. Borrowers on the SAVE plan would see their monthly payments cut to 5% of their discretionary income and the ability to qualify for forgiveness after as little as 10 years of monthly payments.

SAVE borrowers won’t accrue interest on their loans during the special forbearance period. However, the time in forbearance won’t count toward loan forgiveness under the IDR plan or the Public Service Loan Forgiveness program.

Why It Matters

The new SAVE plan was expected to reduce monthly payments for millions of student loan borrowers. Now, its fate is unclear as Republican-led lawsuits challenge its legality. If you’re currently on the SAVE plan, watch for communication from your loan servicer to learn more about how the legal battle will affect you.

What You Can Do

• Learn more about how the SAVE plan works.
• Compare the SAVE plan to other IDR plans.
• Read up on how to determine the best student loan repayment plan for you.
• Get details on other student loan forgiveness programs.

New IRS Rule Makes It Easier to Dip Into Your Retirement Plan for Emergencies

The IRS recently clarified a provision of a 2022 retirement law, making it easier for retirement plan owners to dip into their savings in the event of an emergency.

While the federal tax agency previously allowed for penalty-free withdrawals only in limited circumstances, you may now be able to pull up to $1,000 for a reason you deem is an emergency with no 10% early withdrawal penalty and no expectation to redeposit the funds. However, the amount will be subject to income taxes if you don’t “repay” it.

Why It Matters

It’s well-documented that many U.S. consumers would have difficulty covering a significant emergency expense using their savings. The new retirement plan provision can provide relief to those who can’t afford to weather small financial emergencies with an emergency fund.

While you’ll still be on the hook for income taxes on the withdrawal if you don’t pay the money back, it can still be a much cheaper option than other short-term emergency loan options, particularly if you have less-than-stellar credit.

Keep in mind, though, that the provision is optional for 401(k) plan providers, so you may not have access to it if your employer-sponsored plan doesn’t allow it and you don’t have an individual retirement account (IRA).

What You Can Do

• Learn more about retirement plan withdrawals steps to build an emergency fund.
• Look into steps to build an emergency fund.
• Compare a retirement plan withdrawal with emergency loan options.
• Get more details about emergency loans for bad credit.

Inflation Dropped for the First Time Since May 2020

Consumer prices in the U.S. dropped for the first time in four years, according to the June consumer price index (CPI) report from the Bureau of Labor Statistics.

The CPI decreased by 0.1% month over month and increased by 3% from the previous year, inching closer to the Federal Reserve’s 2% target rate. The core CPI, which excludes volatile food and energy prices, increased by 0.1%, its smallest monthly increase since August 2021.

Why It Matters

While it’s not the Federal Reserve’s preferred inflation metric—that would be the Personal Consumption Expenditures Price Index—the CPI is still an important indicator of price direction.

Economic experts say that barring any surprises, results of the latest CPI report increases the likelihood that the Fed will cut its federal funds rate for the first time since hiking it to a 23-year high in July 2023.

What You Can Do

• Learn more about the federal funds rate.
• Look for the next inflation report on August 14.
• Read up on ways you can fight inflation.
• Look for ways to reduce your risks when borrowing money.

Mortgage Interest Rates Hit a 4-Month Low

The average interest rate for a 30-year fixed-rate mortgage hit 6.77% in mid-July, according to Freddie Mac, the lowest average since March.

However, while home loan rates have fluctuated throughout the past year, nearing 8% in October 2023, they’re relatively unchanged from a year ago.

Why It Matters

Mortgage interest rates have been uncomfortably high for nearly two years, disrupting the housing market and pushing mortgage payments to record highs. While it’s still unclear if and when rates will return to the low level homebuyers enjoyed before spiking in 2022, the current trend, coupled with softening inflation, could provide hope for future homebuyers.

What You Can Do

• Learn how to deal with high mortgage rates.
• Read up on how mortgage interest works.
• Consider whether to buy a house when rates are high.
• Understand the pros and cons of refinancing a mortgage loan.

Good Credit Can Contribute to a Healthy Financial Plan

While there are aspects of your financial situation that are outside of your control, building and maintaining a good credit score can help you weather challenges and save money in the long run.

With Experian’s free credit monitoring service, you’ll get access to your FICO Score and your Experian credit report. With this information in hand, you can gauge your credit health and target areas of your credit profile that you can improve over time. And with real-time alerts whenever your report is updated, you can spot potential issues and fraud and address them quickly.