Ease The Pain Of Repaying Student Loans
Recent college graduates are graduating with record-setting levels of debt from student loans, reaching a total of $1.5 trillion in 2019. Fortunately, there are ways to get some relief from this debt and take advantage of a few tax breaks at the same time. Here are four ways you can reduce the strain of repaying student loans.
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Deduct your student loan interest. The IRS allows you to deduct up to $2,500 in student loan interest payments on your tax return each year. The great thing about this deduction is you can take it even if you don’t itemize. Each loan provider should issue you a Form 1098-E if you pay over $600 in interest for the year. If you pay less than that, and you don’t receive a Form 1098-E, save your monthly statements as back up for the interest you pay. Even if you are still in school, and you are making interest payments, you are eligible for the deduction.
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Exclude cancelled debt as income. In most cases the IRS considers cancelled debt as income. However, the IRS recently announced that students would not have to report cancelled student loans as income in the following situations:
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The school closed when you were attending, or shortly after you attended.
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The school actions are contradictory to applicable laws.
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You are a part of a successful legal settlement against the school.
If you receive a Form 1099-C for cancelled student loan debt, do a little research to determine if one of these exclusions applies to your situation.
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Refinance to lower your payments. Are you making two or more different student loan payments every month? Refinancing multiple accounts into one loan can lower your effective interest rate and your monthly payment. You can also lower your monthly payment by taking an existing loan and refinancing over a greater number of years.
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Plan for tuition costs. Using student loans to finance your education is a necessity for many people. However, you can cut down on future payments with early savings. For example, parents and grandparents can create 529 college savings plans. And as soon as you start earning income, earmark a portion of every paycheck for college. Grants and scholarships are another way to reduce tuition costs, so start researching early.
Repaying college debt can be daunting. But by combining a long-term plan while taking advantage of tax benefits, you can turn a mountain of debt into a manageable hill.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.