{"id":9354,"date":"2017-10-02T08:00:10","date_gmt":"2017-10-02T13:00:10","guid":{"rendered":"http:\/\/taxprocenter.proconnect.intuit.com\/?p=9354"},"modified":"2020-06-17T09:54:45","modified_gmt":"2020-06-17T14:54:45","slug":"how-to-help-your-clients-manage-student-debt","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/client-relationships\/how-to-help-your-clients-manage-student-debt\/","title":{"rendered":"How to Help Your Clients Manage Student Debt"},"content":{"rendered":"

Regardless which major they choose, the school attended or the degree obtained, college graduates typically have some amount of student loans they must pay back. According to a 2016 story in U.S. News and World Report<\/em><\/a>, 70 percent of students graduated with student loans and the average graduate held $37,172 in student debt.<\/p>\n

College debt can range from several thousand dollars to hundreds of thousands, so students and parents can always use some guidance in the best ways to manage the loans and save money. This presents a great opportunity for tax professionals to provide advice to their clients. You can share available tax breaks, ways to reduce their loan payments and how to earn extra income to pay down the debt.<\/p>\n

Student Loan Interest Deduction<\/strong><\/p>\n

With federal or private student loans, you can deduct the full amount of interest you paid (up to $2,500) during the taxable year, as long as your modified adjusted gross income (MAGI) doesn\u2019t exceed $80,000 as a single\/head of household filer, or $160,000 as a married couple filing jointly. If you\u2019re married filing jointly, you can only claim one deduction, not two. The deduction is gradually reduced according to your income level, and eventually eliminated when your MAGI reaches the annual limit for your filing status.<\/p>\n

Tap a Home Equity Line of Credit<\/strong><\/p>\n

If you own your home, condominium or townhouse, and have some equity built up, you can take out a home equity line of credit to help you pay for college. This second mortgage is a line of credit secured by your home. The mortgage rates on a home equity line of credit can be favorable and vary depending on market conditions. A huge benefit is that the mortgage interest is tax deductible on the return. However, since you\u2019re using the money for college and not for your home, there is a $100,000 limit on the interest you can deduct.<\/p>\n

Student Loan Cancellation and Repayment Assistance<\/strong><\/p>\n

If you\u2019re responsible for making loan payments and the loan is cancelled, you must include the forgiven amount in income. If you qualify, there are two types of student loan assistance that may be excluded from income: student loan cancellation and student loan repayment assistance.<\/p>\n

To qualify for the exclusion for student loan cancellation, the loan must have been made by a qualified lender to assist you in attending an eligible educational institution (regular faculty and curriculum), and contain a provision that all, or part of, the debt will be canceled if you work for a certain period of time, in certain professions and for any broad class of employees. You will not receive tax-free treatment if the cancellation is due to services you performed for the school that made the loan.<\/p>\n

Student loan repayments made to you are tax-free if you received them for any of the following:<\/p>\n