Student loans are something that most people will have to
deal with at some point in their life. Unless you were lucky enough to get lots
of scholarships or to pay for college out of pocket, there’s a good chance
you’ve got some student loan debt following you around.
And, while it can be tempting to just ignore those pesky
loan payments, doing so could cause serious problems for you, such as wage
garnishment. As such, it’s best to get a repayment plan put together for your
loans and then to repay them a little at a time.
Your loans can and will affect your taxes in some ways too,
so there are a few tax laws, as they relate to student loans, that you should
familiarize yourself with.
Tip #1: Don’t Forget
to Deduct Student Loan Interest
You might think that there’s nothing good about having to
pay off your loans, but there is at least ONE good thing. You can deduct
student loan interest from your taxes. In fact, for 2015, you can write off as
much as $2,500 in paid interest. That should provide a pretty nice incentive to
keep making those payments!
Tip #2: There are
Relief Options…but They’re Often Taxable
If you’re truly swimming in student loan debt, you may want
to look into relief options. There are some good ones out there. Teach for
America, for example, offers awards that can be used to pay off student loan
debt, as do many other programs. Just be aware that some programs offering
relief options do not offer tax-free
relief options! So, always make sure you know what responsibilities and taxes
come with any aid or student loan relief than you receive.
Tip #3: Your Filing
Status Matters
As mentioned, most people can deduct student loan interest
from their taxes up to a certain amount. However, your filing status may
determine whether or not you qualify for this money-saving option. Typically,
if spouses are submitting their returns separately, they will not receive this
write-off. For that reason, it’s better for married couples to file jointly;
that way, they can still receive the deduction or at least part of it if their
modified adjusted gross income is not $160,000 or above.
Tip #4: Forgiven Debt
May Count as Income
Some people are fortunate enough to find and qualify for
programs that forgive some or all of their debt. However, if you’re one of
these lucky people, you need to understand that, in most cases, forgiven debt
is still taxable; in fact, the IRS tends to treat it like income. However, this
is not ALWAYS true; some loan programs are exempt from this taxation. Just make
sure you know whether or not you’re required to treat forgiven debt as income
under the conditions of your forgiveness program. That way, you won’t find
yourself in trouble for monies not paid!
As you can see, student loan debt and taxes are more
intertwined than you might think. Consider hiring an accountant or financial
adviser to help you develop a plan to pay off your loans and keep your taxes
low at the same time!