Student Loan Tax Deductions
For Those Who are not Eligible for Student Loan Tax Deductions, There are some Alternatives
This previous tax season, many taxpayers with student loans looked forward to writing off a $2,500 tax deduction for interest on their student loans. However, there were many borrowers that were not eligible to have any tax write offs for student loans due to factors such as income and marital status. Tax season may have passed, but there are viable alternatives to the student loan tax deduction that can help the borrower take control of their finances and avoid having their loans placed into default.
Student Loan Tax Deductions do not benefit everyone. If the borrower’s income is too high, they do not qualify for this write off. For single people that make over $80,000 or more, they cannot use this tax deduction to their advantage. On the other hand, if the borrower is married, that income threshold peaks at $160,000 or more in total gross income between the spouses.
Millions of Americans are struggling to pay back their student loan debt. With loan debt averaging at $35,000, it is no wonder that graduates are entering the workforce at a strong disadvantage. 43.3 million Americans are in debt from attending college. This totals about $1.23 trillion in national student loan debt. Americans from many different financial backgrounds cannot afford to pay these loans back without compromising their financial security.
Citizens Bank released data that revealed young graduates aged 35 and younger with student loans pay 18% of their income on paying back student loans. The recommended amount of paying back student loans is 10% of income, in order to secure the borrower’s finances. Of these graduates, the outlook on paying back was negative. 60% said that they expect to be paying off these loans into their 40s.
An alternative to deducting student loans on taxes is to enroll in the new Revised Pay As You
Earn, also known as the REPAYE program. This plan created by the U.S. Department of Education is the improved and more inclusive PAYE plan. Unlike PAYE, REPAYE expands to all borrowers that have federal student loan debt.
REPAYE crafts monthly payments that are based off of 10% of the borrower’s discretionary income. Discretionary income factors in the borrower’s gross income, state of residency, and family size, If the borrower is married, this program also evaluates the spouse’s income whether or not the borrower files together or separately.
REPAYE is just one example of the income based repayment plans. There are other types of programs that may fit the needs of some borrowers better than REPAYE, including some programs that forgive student loan debt. There are options out there for borrowers with many different circumstances that can help reduce student loan debt and protect the borrower’s financial security.
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