Tax Tips for College Students (and Their Parents)
"Forget final exams. The stressful season for many students – and their families – is tax time," according to U.S. News & World Report.
"Tax filing for those who pay college costs is a complex affair. There are different credits, deductions and risks to consider. A student's tax situation can tweak his financial aid eligibility. Plus, students who receive scholarships and grants will have to eye the impact of their awards on taxes owed. ...
Consider student loans. Your student loan situation can impact your tax bill in several ways.
- Student loan interest deduction: The IRS allows eligible student loan borrowers to deduct a certain amount of loan interest from their tax bills. Borrowers can deduct up to $2,500 from the interest paid on a qualified student loan. Those who deduct the interest must have a modified adjusted gross income of less than $80,000 (or $160,000 if married and filing a joint return).
- Refund garnishment: Defaulting on student loan payments won't just cost you in interest and fees – the government may garnish your tax refund. Borrowers in default should work through a student loan rehabilitation program to repay the debt and receive future refunds.
- Student loan forgiveness discharges: Depending on the situation, student loans that are forgiven or discharged may be taxable. 'Some [loans] are taxable and some aren’t, which can be confusing,' says Megan Coval, vice president of policy and federal relations for the National Association of Student Financial Aid Administrators. For example, federal student loans discharged in cases of death or disability are taxable, potentially triggering a major bill for borrowers or their families. Student loans wiped away via public service loan forgiveness, on the other hand, aren't taxed."
NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.
Publication Date: 3/27/2017