Paying for College: Student Loan Interest Deduction Explained

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet certain criteria related to annual income, a legal obligation to pay interest, and the amount of interest actually paid during the year one is filing.

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet criteria related to annual income, a legally-observed obligation to pay interest, and the amount of interest actually paid during the year in which one files.

Married couples can claim the interest deduction only when filing jointly. The IRS allows one to deduct up to $2,500 annually for any interest paid on student loans which meet federal requirements. Any amount of interest above the threshold of $2,500 doesn’t count, nor can any deduction exceed the actual amount of interest paid.

Interest generated via the various types of educational loans can qualify for the deduction, including: interest on the loan itself, interest on any consolidations, and interest accumulated via lines of credit. The most important qualifier for determining eligible interest involves the intention of money borrowed, any money was used for educational expenses is generally applicable.

Deductions Versus Credits

Tax deductions differ from credits. Credits reduce the total of tax owed whereas deductions reduce the amount of income which can be taxed. The Student Loan Interest Deduction can be taken for up to $2,500 of any interest actually paid in the previous tax year. Deductions lower one’s revenue by the amount of the deduction. Therefore, the actual amount of income tax is lowered along with the tax burden and total bill which one pays.

Forms

Appropriate filing procedures for the Student Loan Interest Deduction are claimed as an adjustment to income, and therefor do not need to be itemized. Filers cannot take such deductions on Form 1040EZ. However, the deduction can be taken on line 18 of Form 1040A or on line 33 of Form 1040, both of which can be submitted via the free IRS efile process.

The cost of college seems never-ending to someone in the doldrums of student loan debt. However, interest paid can often be replenished via a tax return for those who qualify, which helps ease the burden. As with most tax scenarios, understanding the proper filing procedures and following the correct protocol can contribute to a much larger tax reimbursement.

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Katei Cranford is a writer who shares her expertise of financial situations for students and graduates.

Can Debt Relief Counselors Help?

The concept of being financially free is enough to tempt every person to settle their debts and “live the good life,” as they say. Many people are still wondering if this dream is achievable. Well, yes, if you are able to settle your balances and manage your finances well. If you have not done it so, better get the help of the professionals like debt relief counselors.

Who are these debt counselors? They are the professional financial counselors that you can contact if you want help in managing your finances. If you are having trouble about lending money, applying for a loan, or any other financial matters, these counselors can help you with that problem.

Guide for beginners in debt reduction strategies

For those who want to get debt help, you have to know that there are several things that you have to know. First, not all debt reduction programs are the same. These financial experts create the right type of debt management program based on the kind of lifestyle that you have and base on your finances. People who are having a hard time managing their funds will see how useful it is to hire professional people.

Financial counseling works this way. The transaction will always start with a meeting between the person and the debt counselor. He or she will assess the customer and help them create a chart of income and expenses, so that the customer will able to see in which areas of his or her expenses must he or she needs to cut down. The debt counselors can give you three major things or steps to take which include settlement, debt negotiation, or filing for bankruptcy. It is up to you which one you will choose.

1.   Settlement

From the very word itself, this involves the process of you having a meeting with your credit counselors and creditors. Your financial counselor will try his best to persuade your creditor to give you more time to pay for your balances. You will settle on a specific payment terms as well as the percentage of loan interest.

2.   Negotiation

Unlike settlement, in negotiation your credit counselor will try to ask for more time from your creditor. He will try to bargain and ask for an extension of balance payment.

3.   Filing for bankruptcy

People who have huge amounts of dues that are impossible to settle are usually advised by their debt relief counselors to file for bankruptcy. Those who are currently unemployed as well as those who got laid off their jobs are qualified for this type of debt management help.

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