Showing posts with label student loan debt and taxes. Show all posts
Showing posts with label student loan debt and taxes. Show all posts

Friday, April 22, 2016

Tips to Remember as You Pay Off Student Loans

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!