Student Loan Interest Tax Credit – What Is It And How Can I Take Advantage Of It?
You cannot claim an interest tax credit if you consolidate your student loan debts with other unsecured debt. Some individuals do this just to obtain a much smaller monthly payment or a low interest rate. These plans can very well cover off for some individuals. However, for others it can really backfire, simply because student loans have been a unique form of unsecured debt. They can only be discharged through bankruptcy.
The student loan interest tax credit is a nice perk that most borrowers are aware of. For most of us, our first mortgage, car loan or credit card came from a government source and are eligible for federal tax deductions. Now, we have to start sending out those yearly statements.
While the student loan interest tax credit is great for the average borrower, it has a limited amount of benefits for people in certain fields. The students who win the scholarships and need to pay for college don’t typically have to pay any federal tax on the money they receive. What’s more, the interest only begins to apply after the student has graduated and begins working. Even then, the maximum federal tax credit is only about $4000 a year. That’s not much cash to play with.
A person who graduates with several student loans also faces a number of financial stress at the start of their careers. All of the student loan interest payments must be made at the start of each year. These payments can be a substantial amount of money. For this reason, many new graduates find themselves in a state of emergency as their student loan interest tax credit is depleted. They may have saved up to pay their student loan debt off completely, but when that doesn’t happen, they suddenly find themselves in a serious situation.
It’s important to understand, though, that student loans do have some advantages. They can save you quite a bit of money on taxes when you’re finished studying and writing your taxes. You may also qualify for tax credits for the interest paid on your student loans and for the portion of the cost of your education. If you are enrolled in a college or university and want to reduce your taxable income, take a look at your student loan interest tax credits before you file your income tax return and ask a professional to help you find them.
A student loan interest credit can add a lot to your total debt burden if you have a lot of student loan debt and a high level of interest to pay each month. This credit can add thousands of dollars per year to your current tax return, making it more than worth it. When you can get rid of a lot of your debt by getting rid of interest paid on qualifying loans, your debt becomes more manageable and you’ll be able to pay it down more quickly.
The interest paid on qualifying student loans isn’t taxable, so you won’t lose anything by paying it off. But if you’re not a US citizen, you will have to pay the tax credit on your own. If you have a tax debt, this can add up quickly. It can take years for you to pay off student loans and build a reasonable debt burden but paying the tax credit could reduce that debt burden in a very short period of time.
Don’t forget that interest can be tax deductible for the account holder or owner of a company, partnership, or unincorporated entity. Interest earned on your student debts can be deductible up to the first $4000 of such interest. This is an interest tax credit with which you’ll want to be familiar. There are numerous student loan interest tax credit resources available, which could make the process of claiming this interest tax deductible easier for you. Talk to a student loan consolidation specialist to learn more about using these resources to lower your student debt and increase your savings.