Student Loans At Tax Time: A Basic Guiding Strategy

Educational loans enable many bright Americans to realize dreams that would be impossible otherwise. Nevertheless, a large number of smart scholars never look at long-term effects of excess debt. Failure to do so can lead to serious financial consequences. Thus, it is wise to analyze student loans to visualize precisely how they impact the big picture.



First, find out if any grace periods are allowed. This is best done before graduation to avoid late fees and other penalties.

If you relocate, notify your lender(s) right away. Ability to reach a debtor has a definite impact on creditor attitudes.

Make private loans top priority. Although government loans are generally known and easily accessible, they are in high demand. By contrast, smaller private loans exist and are less prominent but may provide unique benefits that are worth searching for.

Consolidate with care. Overall interest could very well negate convenience of a single or even lower monthly payment. Moreover, never combine government and private loans in a consolidation. Doing so forfeits many valuable deferment and forbearance options that public loans afford.

Comprehend individual loan interactions. Multiple loans feature varying rates of interest and repayment terms. Thus, you must repay highest interest debt first. In practical terms, this typically means private before public loans.

Try for ten years.  A decade is the most typical repayment term and you should try to comply, as price of lower payments over much longer terms is quite high in terms of total interest.

Begin balancing your future budget with low bills today.  Look around for off-campus housing that is often cheaper than the dorm.  The fewer loans you take out now, the lighter your debt load later on.

Taxation and Education Loans

Up to $2500 in educational debt may be tax deductible. If you are that fortunate and receive a hefty refund, spend it to reduce student loan debt. This shortens repayment while keeping a lid on interest.  TurboTax.com is an excellent tool to ensure receiving your full due in terms of student debt tax breaks.

Don't give up long-term financial health for short-term "gains."  Overall interest repaid differs greatly among individual educational loans.  A general rule is to reserve 10% of pre-tax income.

Heeding the hints above can help you avoid drowning in a sea of student debt.  Another terrific assistant that is always available and works for low pay is TurboTax 2013.