Student Loan Interest Tax Rate Calculator

Understanding the Impact of Student Loans on Income Taxes

Do you have student loan debt? If you do, you're not alone. The currently student loan debt is a staggering $1.4 trillion, and this amount is spread over 44 million borrowers. This amounts to roughly 70% of all college students, and this number is continuing to grow as students try to afford the ever increasing cost of their tuition. This article will go over how to get tax deductions on your student loans, along with the relative cost of the different schools. We will also talk about refinancing options that are available.

Why is Student Loan Debt Climbing?

The cost of attending college has risen over the years due to inflation and a dwindling application pool. Schools are spending as much as 3% more to attract students, and this is now what 20% of their budgets are dedicated to. In response to this, the cost of tuition has gone up, and it's leaving more students scrambling to afford the more expensive tuition. The recession also resulted in deep cuts in public funding, reducing the amount per student to $2,353 and this is almost 28% less than the previous years.

Current Federal Student Loan Funding Distribution

How Long Does it Take the Average Student to Graduate?

A survey was done and it polled 580 public four-year colleges and it showed that only 50 of them had on time graduation rates above 50%. On average, it is taking students 6 years to complete their Bachelor's degree. This can cause students to spend up to 40% more than a student who finished their degree in just four years.

1. A Lack of Planning. Many students push back their graduation date because they don't plan properly because they're not sure what to expect when they being college. This makes them take a lackluster approach to their first year.
2. Major Changes. According to the National Center for Education Statistics, roughly 80% of students change their majors before they graduate. This can add on an additional year or two to their tuition.
3. Transferring. Some college credits don't transfer when a student decides to switch colleges. This means they have to retake some courses, and this can add an additional two years on.

Percentage of On Time Graduation

How is Student Loan Interest Treated on Taxes?

Normally, student loan interest isn't classified as something you can deduct on your taxes. But, if your modified gross income is less than $80,000 individually, and $160,000 jointly, there is a special deduction you can claim. To be eligible, you have to be the person who took the loan out, and the loan had to be used for higher education expenses only. If you meet these conditions, this deduction can reduce what you owe up to $2,500.

Can You Combine Other Loans into Your Student Loans During Refinancing?

If you have Federal loans, you can combine them with private loans during the refinancing process. However, if you choose to do this, you will lose any benefits that came with the Federal loan like income-driven repayment plans. You can also choose to combine your loans with your mortgage. By doing this, you would be refinancing your mortgage with a new loan or additional home equity. You would use this money to pay off any student loan debt that you have left.

Pros of Rolling Your Student Loans into Your Mortgage

• Deduction. Your mortgage payment and your student loans are both tax deductible. However, you may not qualify to deduct your student loan payments each year. You will have no problem qualifying and deducting your new mortgage payment on your taxes.
• Lower Interest Rate. The interest rate on a 15-year fixed mortgage is right around 3.32%, and your student loan interest rate is around 4.29%.
• Reduce the Number of Monthly Payments. Your two biggest payments each month are usually your mortgage and your student loans. This process combines them both into one payment.

Cons of Rolling Your Student Loans into Your Mortgage

• Give up Your Flexibility. Student loans have multiple payment plan options like the income-based repayment. There is also the option to defer payments if you lose your job or get hit with hardship. Your mortgage doesn't have this, and you'll be expected to make your payments each month.
• Higher Risk. If you default on your loans, the worse that can happen is you'll get your wages garnished. If you default on your mortgage, you can lose your home, so you're risking more by choosing to refinance.
• Pay More Interest. Most student loans come with a ten-year repayment plan. A mortgage can be extended out to 20, 25, and 30 years so you'll end up paying more in interest before it is paid off.

Forgiven Student Loans and Taxes

Typically, after you pay on time payments for 20 or 25 years, the balance that is left on your loan will be forgiven. However, this can come with some tax implications you may not have thought of, and you could be in for an unpleasant surprise.

• Income-Based Forgiveness Programs. If you're having financial hardship or if you have become permanently disabled, you may qualify for an income-based forgiveness program. They'll base your payments off of your family size and 15% of your income, and after 20 years, they'll forgive the balance. Once they write this debt off, the IRS will count it as taxable income and expect you to pay for it. If your loan balance is in the five or six figure range, this could push you into a higher tax bracket. If you can't pay it, the IRS will begin adding fees and penalties that will put you further in debt.
• Repayment Assistance Forgiveness. This program allows you to work off a portion or all of your student loan debt. You will work in a particular field with a particular employer for a set amount of time, and you'll be given money to pay down the balance on your student loans. This money is usually considered taxable income unless you're working in specific programs related to the health care field.
• Service-Based Forgiveness. If you work in the public sector, or are a teacher that has made at least 120 on time payments on your loans, you could qualify for this forgiveness program. Additionally, if you're a teacher that has been employed for one full year, you can apply for cancellation. The IRS considers this program to be an exception to the forgiveness debt rule, and you won't have to pay anything.

The Average Cost of College in 2017

Depending on what type of school you want to attend, the tuition rate can fluctuate drastically. This is because several factors have to be taken into consideration when the colleges set the tuition prices.

• In-State or Out-of-State. If you plan to go to a school in your state of residence, you will get a reduced tuition rate. However, if you choose to go to an out-of-state college, be prepared to pay thousands more. This is done because the college receives funding from the public via taxes, and if you're not a resident, you haven't been paying in.
• Public or Private. If you go to a public school, it is generally cheaper than a private school. Private schools don't receive funding from the state like public schools do, and their tuition is more expensive as a result.

Table of School Costs