4th Quarter 2016
Help Paying Off Student Loans
Even if you’ve been out of college for many years, you may still be paying off your student loans. That can make it tough to get ahead with the rest of your finances. Make sure you’re making the most of the help available to pay off those loans.
- Deduct student-loan interest. You may be able to deduct up to $2,500 of student-loan interest paid each year. To qualify for the full deduction, your income must be less than $65,000 if single or $130,000 if married filing jointly (the deduction amount phases out entirely if you earn more than $80,000 if single or $160,000 if married filing jointly). You don’t have to itemize to get this deduction, which is basically a helping hand from Uncle Sam for paying off the debt. For more information, see IRS Publication 970, Tax Benefits for Education at www.irs.gov.
- See if you qualify for loan forgiveness. The U.S. Department of Education has several loan-forgiveness programs, including a program for long-time public-service employees. To qualify for the Public Service Loan Forgiveness Program you must have worked full-time for 10 years for an eligible organization, such as a federal, state or local government, a tax-exempt 501(c)(3) nonprofit organization, or a private not-for-profit organization that provides emergency, military, public safety, law enforcement, early childhood education or other qualifying services. See this fact sheet for a full list of types of employers that qualify. You must make 120 monthly payments before the remaining balance on your loans can be forgiven. Only federal direct student loans are covered.
- Consider a loan-repayment program. The Department of Education also offers several plans to help you reduce your monthly loan payments. Income-driven repayment plans, for example, cap your loan payments at 10 percent to 20 percent of your income. The student loan repayment estimator at www.studentaid.ed.gov/sa/repay-loans can help you calculate payments under several options.
- Ask your lender about discounts. Some lenders offer a discount of about 0.25 percentage points if you have payments automatically withdrawn from your bank account.