Be Proactive and Get Out from Under your College Debt

Student loans are mentioned in the news daily, but like much of 2020 and 2021, the abundance of the information simply leaves us with more questions. Now is the time to have a conversation with your tax advisor to determine what works best for you. You don’t want to miss out on an opportunity to save! Here are just a few highlights to consider…

President Biden’s executive order extended the freeze on student loan payments through September 30, 2021. During these 8 months, interest will NOT accrue.

Biden and the current administration want to forgive student debt. Current considerations:

  • Forgiveness up to $10K per person
  • Federal loans only, not private
  • May amend the tax code to make the forgiven amount non-taxable
  • Others in the Senate want to forgive up to $50K

What does all this mean to you? Currently, its’ uncertain as to when or if forgiveness will take place. If you have the funds, you may want to use the next 8 months to pay it down. With no interest accruing, the total payment amount will pay down the principal balance. While this is true for all federal student loans, it’s especially wise for loans greater than $50,000 as the likelihood of forgiveness over this amount is slim.

If you hold a private student loan, consider refinancing while rates are favorable. If you have a federal loan and you switch to private, be careful, you may miss out on any forgiveness given.

If you are no longer considered a dependent, parents can gift you up to $15,000/year each (that’s $30,000 total from Mom & Dad) to help pay off your student loans. No gift tax or gift tax return would be due and you can still deduct the student loan interest expense on your tax
return.

Consider asking your employer to make a student loan payment for you. Up to $5,250 per year can be paid as a tax free fringe benefit to you and a tax deduction to your employer. This only applies if the education is not needed to meet the minimum requirements of your job. Be sure to consult with your Tax Advisor for the details.

Consider asking your employer to make a student loan payment for you. Up to $5,250 per year can be paid as a tax free fringe benefit to you and a tax deduction to your employer. This only applies if the education is not needed to meet the minimum requirements of your job. Be sure to consult with your Tax Advisor for the details.

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