Tax savvy tips from student loan customers
Tax season is well underway, which means if you haven’t already, now is the time to begin the yearly ritual of rounding up necessary forms and receipts in order to file your taxes.
If you have higher education expenses or loans, you may be eligible to take certain deductions or tax credits. College students should be on the lookout for their Form 1098-T sent by eligible educational institutions to each student they enroll who paid for “qualified tuition and related expenses,” such as textbooks. Or, you might qualify for the American Opportunity or Lifetime Learning credit.
For those with student loans, if you paid $600 or more in eligible student loan interest during the tax year, your Form 1098-E was mailed to you from your student loan servicer. This form shows the amount of interest you paid on your eligible student loans during the previous tax year. The good news is that you may be able to deduct this interest, which reduces your taxable income and makes for a smaller tax bill.
Also note, if you paid some student loan interest during the year but less than $600, your servicer may not automatically send you a form, but you may still be able to deduct the interest. This reduction is for interest actually paid on your loan, not interest that may have accrued and has not yet been paid. (At Navient, we made the Form 1098-E available for everyone who paid eligible interest in the year, regardless of the amount.)
Randi from Des Moines, Iowa, is one such borrower who wrote off student loan interest when filing taxes.
“Start paying early,” she says. “You can write-off the interest on your taxes every year, so just make some sort of payment. The companies that handle the loans are easy to work with so just talk with them!”
Rebecca from Durham, N.C., even received a refund.
“If you pay off loans while still a student, any interest paid you can file in your taxes and [possibly] get a refund,” she says. “File your taxes EVERY year.”
Tax refunds are the most rewarding part of the tax-filing process. Let’s face it — who doesn’t like getting money sent back to them? Instead of spending the cash on clothes or entertainment, some of our customers have used tax refunds on their student loans to help them speed up the repayment process.
Kimberly from Centralia, Wash., did exactly that.
“Pay off these loans as soon as you can,” she says. “Live frugally. Do not buy an expensive vehicle; ride an old beater into the ground if you have to. If you receive any payment after filing your yearly taxes, send that money to pay off more of your loans.”
Lacee from Cave Creek, Ariz., is all about having a game-plan when it comes to student loans, as well as using any extra money, including tax refunds, towards repayment.
“Start with a plan and an end date that isn’t too far out of reach,” she says. “When I received a “bonus” of sorts or unexpected income (i.e. income tax refund), I would put a large percentage towards my student loans. Don’t ever miss a payment.”
It took discipline, doubling up on payments and tax returns to help Michael from Bardstown, Ky. pay off his student loans.
“I doubled up my payments each month and used my annual tax returns to pay off big chunks of the loan,” he says. “It’s all about disciplining yourself to get it paid off.”
For more information on the various deductions and credits available, see IRS Publication 970, Tax Benefits for Education.
In the end, every bit of extra cash you put towards your student loans can help save money in the long run. Being smart about your taxes and knowing the deductions and credits available is just another way to make your money work harder and pay off your student loans faster.
Nick LaMastra is the media analyst for Navient — a Fortune 500 company that provides asset management and business processing solutions for education, healthcare, and government clients at the federal, state, and local levels. The company supports more than 12 million student loan customers to successfully manage their loans.