Tax season is around the corner. If you have student loans there are several ways you
can save money with your taxes. Below is a summary of ways you can lower
- You can deduct up to $2,500 of interest costs of your student loans on
your taxes. If you make less than $65,000 a year (single) or
$130,000 (married and filed jointly) you qualify for the full deduction.
One receives a reduced amount if it’s up to $80,000 (single) and $160,000 (filed
jointly). Your student loan service provide will provide you with a Form 1098-
E statement. Please note if you have more than one student loan service provider you will receive more than 1 Form 1098-E.
- Filing Separately: There are student loan plans that repayment are based on income (Pay As You Earn Plans – REPAY). These plans limits the borrower monthly payment to a % of one’s income. Here, one can potentially lower the payment if you file separately, as the base for the calculated income will be less due income only based on the borrower and not the spouse’s income. Please note – when filing separately, there are other restrictions that can affect your taxes. Please make sure to check your REPAY plan is based on single income basis.
- Forgiveness of Student Loans: One can get federal loan student loan forgiveness if one takes advantage of government’s Public Service Loan Forgiveness program, or if you choose an income-driven repayment plan. But these two options affect your taxes very differently.
- One qualifies for the Loan Forgiveness program if you have paid on 120 on-time loan payments while working fulltime. The forgiven amount won’t be taxed either.
- Currently however, if you are on an income-driven student loan plan you will pay income tax on the forgiven loan balance the year your repayments are finished. Note, this could potentially mean people big tax bills for people with large loan balances.
There are various ways you can looking into lowering your taxes. If you have student loans the above options could potentially be ways you can lower your taxes.
You can look at the Repayment Estimator on the Federal Student Aid’s website to get a better sense how much you could be forgiven in the future.
Please consult your tax-accountant as you look into these options.