Student loan repayment tips for recent graduates
Updated on May 23, 2019
There is very little doubt that student loan debt can affect recent college graduates. Listed here are three issues recent graduates should know about taxes and student loan repayment.
1. Cancelled/forgiven debt is considered taxable income
Sadly, any forgiven or canceled debt is considered revenue by the IRS. Because you don’t owe the cash, it’s handled as if you’d earned it as a substitute, which suggests it’s taxable.
This also applies to canceled debt. If your lender determines that you simply are unable to pay, they could determine to settle the debt with you (or pursue authorized motion, which is much less enjoyable). Either way, regardless of whether your debt is forgiven or canceled, the IRS will tax the quantity you allegedly saved.
2. Student loans are tax deductible
A lot of what you pay off in student loans (up to $2,500) can be deducted from your taxes. However, in order to qualify, you’ll have to meet the following standards:
• You paid interest on your student loan debt that year.
• You’re currently paying off a qualified student loan.
• You’re single and submitting individually.
• If married and submitting collectively, neither of you are dependents
3. You will lose your federal tax returns if you don’t repay your student loan debt
Now it’s time for more bad news. Not paying off the debt on your student loan has a snowball effect. One such damaging impact is dropping out in your federal revenue tax refund. As a substitute, that refund will go in the direction of paying off your student loan debt. This is referred to as a tax offset.
One of the only ways this problem can be avoided is by not defaulting on your student loan in the first place. Prevention is the most important step, and there are a variety of methods you’ll be able to perform to keep from defaulting on student loans:
• Arrange your loan repayments for auto-pay, so that you don’t miss a due date.
• If your present plan isn’t working, choose a brand new compensation plan that works for you. Examples include an income-based repayment plan or a graduated repayment plan.
• Refinance your current student loans. You can also change your rate of interest or change your monthly payment amount.