Filling out your taxes correctly can be a challenging process, especially for those with student loans. But how does a student loan affect taxes?
Many ways, starting with deductions.
It is essential to make sure you don’t make common mistakes that can cost you thousands in deductions. One of the most common mistakes, for instance, is to forget to claim the interest on your student loan.
Anyone making student loans payments are as are automatically eligible for up to $2,500 worth of tax deductions on the interest paid for their student loan that year.
The deduction is available for anyone who makes less than $80,000 a year or $165,000 if filing jointly.
It’s also exceedingly important for those who are married to understand that these deductions, as well as many other education-related credits, are only available if you file jointly.
For example, you’re only eligible for the lifetime learning credit and the American Opportunity credit in addition to the student loan interest deductions as a jointly filing married couple.
Married couples are also more likely to receive the maximum amount payout for student loan deductions.
While filing jointly does provide benefits in terms of tax deductions, if both partners have student loan payments it may be better for them to file separately.
Doing so will lower the monthly payments of their student loan.
Loan payments are based on your annual income. When you file jointly, both your and your spouse’s income are considered.
When you file separately just your income is taken into consideration. Because of this fact it’s important for couples to go over their finances and see which option makes the most sense financially.
Whether it’s due to a layoff or some other financial hardship, many student loan borrowers qualify for loan forgiveness.
Scam watch
However, with so many student loan forgiveness scams out there it’s important to do your homework before you take advantage of this option.
For example, many scammers have contacted borrowers either via the mail or text message offering to cut their student loan payments in half if they make a one-time payment of $500 or more.
There are scammers that take advantage of borrowers by requesting personal information as a part of their fraudulent student loan forgiveness program.
To avoid falling victim to any number of student loan forgiveness scams, it’s important never to give out personal information when contacted by phone or email.
It’s also important to thoroughly read any paperwork sent to you by a student loan forgiveness program because the devil is in the details.
Any company that claims to have pre-qualified or pre-approved you for a forgiveness program should be approached with trepidation because not everyone qualifies for these programs.
The eligibility process requires access to personal information to that a third party company simply would not have.
Finally, be wary of any company claiming to be government affiliated because for-profit student loan forgiveness agencies do not work with the government.
One of the best ways to keep yourself safe from scams is to familiarize yourself with the student loan forgiveness qualification process.
This can be achieved merely by reaching out to your student loan servicer and checking on your eligibility.
Repayment plans
It’s important to note that the best forms of student loan forgiveness are offered by your student loan servicer.
Not only can these programs address your immediate financial needs based on your yearly income, but they can easily be adjusted should your financial situation change.
Additionally, you can sign up for these programs without having to pay or in many cases without there being a significant interest rate being placed on the remainder of the loan amount.
Many professions have specific student loan repayment plans that you can access through your loan servicer.
While many of these programs are geared toward government and nonprofit employees, large organizations such as Fidelity Investments and Penguin Random House also feature loan repayment plans.
There are also state-specific forgiveness programs. For example, Texas offers up to $160,000 over a four-year period for any primary care physician that works in a professional shortage area for a year or more.
With so many different types of forgiveness programs, borrowers have many options when it comes to lessening the financial impact of their monthly student loan payments.
However, with so many scammers taking advantage of borrowers, it’s important to do your homework and be wary of any student loan forgiveness plan that isn’t through your loan servicer.
