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Student Loans and Taxes: Financial Expert Gives Tips on What To Expect as Payments Resume
Although borrowers were granted a stay of student loan payment since the start of the pandemic in March of 2020, many vulnerable borrowers will struggle to pay their bills when payments resume on October 1.
See: 3 Tips To Save for Retirement While Making Student Loan Payments
Explore: All of the States That Will Pay Off Your Student Loans
Interest resumed on September 1 and in less than two weeks, millions of borrowers will simultaneously enter repayment mode. So, it makes sense to address concerns around what has been a very contentious issue in the past year.
According to CPA and TurboTax expert, Lisa Greene-Lewis, knowing when you have to start repaying your loan and understanding what repayment and tax credit options are available are important for students returning to school and those who have graduated but still have debts hanging over their heads.
When Do I Have To Start Paying My Student Loan?
Per the Department of Education’s studentaid.gov website, those wondering when they have to begin or resume payments should have already been notified. “You’ll get your bill, with your payment amount and due date, at least 21 days before your due date,” the website states.
The site also gives tips on updating your contact information, researching affordable repayment plans, recertifying your income-driven repayment plan (IDR), enrolling in auto pay and checking if you qualify for loan forgiveness.
Greene-Lewis reminded everyone that students don’t have to start paying loans until they finish their studies. “They (schools) do allow a certain amount of time after you finish school…it’s up to six months after you finish school because I guess they want to give your kids time to find a job and everything,” Greene-Lewis told TheStreet.
Forgiveness Programs and Tax Credits
In August, the White House announced the Saving on a Valuable Education (SAVE) plan, which promises to repair the current student loan system and be “the most affordable repayment plan ever created.”
More: Biden’s Latest Student Loan Plan Faces Major Opposition — How It Impacts Borrowers
The SAVE plan improves the current Revised Pay As You Earn Repayment (REPAYE) plan and will phase out the three other existing IDR plans available to lower-income debtors: Pay As You Earn Repayment (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) plans.
To qualify for $0 monthly payments, borrowers must make less than around $30,000 a year, while individuals in families of four must make less than roughly $60,000, per the White House Fact Sheet, and as Business Insider previously reported, undergraduates will have their payment obligations slashed in half.
Those holding graduate loans will continue to pay 10%, and those with an existing mix of graduate and undergraduate loans will have to pay between 5% and 10%.
But as Greene-Lewis stated, there are a couple of education credits that are frequently neglected but need to be explored. One is the American Opportunity Tax Credit, which is a credit for qualified education expenses, paid up to $2,500 per eligible student for the first four years of higher education.
The other is the Lifetime Learning Credit, which has no limit on the number of year you can claim it. Per the IRS, “The LLC is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills.”
Who Should Be Claiming?
If you’re not exploring your options, then you’ve settled on a plan before you checked out other possibilities. And, “If you’re not getting any benefit from claiming your child because of your income, then you should have your child file their taxes, especially a lot of college students,” Greene-Lewis told Byrnes.
“They work side jobs. But they think they don’t make enough money to file because they’re not at the IRS income threshold,” noted Greene-Lewis. “But they’re leaving money on the table, especially if they have federal taxes taken out and they’re eligible for these education tax credits.”
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This article originally appeared on GOBankingRates.com: Student Loans and Taxes: Financial Expert Gives Tips on What To Expect as Payments Resume
