By: Yara Zakharia, Esq.
For millions of students nationwide, student loans are the answer to higher education financing. What is not immediately apparent to prospective borrowers is the fact that, by borrowing college funds, they can reap significant college loan benefits. In fact, students can save money immediately and continue saving throughout the term of their loan.
A variety of student loan benefits and savings are featured in many federal and private student loans including:
- A waiver or a competitive discount on origination and guarantee fees
- Student loan savings on upfront fees
- A lower interest rate at repayment
- Repayment discounts for utilizing automatic debit or making payments electronically
- Interest forgiveness for each year of service
- A reduction of the loan principal
- Payment deferments and flexible repayment options
Student loan benefits also come in the form of tax breaks, which are provided for by federal legislation. Student borrowers can avail themselves of deductions, tax credits and other benefits. Here are some examples of tax-derived student loan benefits:
- Lifetime Learning Credit, a federal income tax credit of up to $2,000, covering 20% of the first $10,000 for tuition and related expenses.
- Hope Scholarship Credit, a federal income tax credit of up to $1,500, covering 100% of the first $1,000 and 50% of the next $1,000, for tuition and related expenses paid during the first two years of college.
- Student Loan Interest Deduction, which allows students to deduct up to $2,500 of the interest paid on federal and private education loans on their federal tax return each year.
- Tuition and Fees deduction, pursuant to which borrowers can deduct up to $4,000 of the tuition and related expenses paid during the tax year if their income is less than $65,000 ($130,000 if they are married and filing jointly) and up to a maximum of $2,000 if their income is more than $65,000 ($130,000 if married and filing jointly) but is more than $80,000 ($160,000 if married and filing jointly).
- Elimination of the 10% additional tax for early withdrawals from any type of individual retirement arrangement (IRA) for education expenses.
- Employer-Provided Educational Assistance, whereby borrowers may receive, tax-free, up to $5,250 of education benefits each year.
Student loan consolidation is another avenue for obtaining student loan savings. Consolidation provides substantial student loan benefits. First, borrowers are offered the convenience of a single loan payment each month. Secondly, their monthly student loan payments are reduced. Repayment terms are extended, and they can earn a lower interest rate through forbearance or deferment. Other student loan benefits that the financial planning tool of consolidation offers are a fixed interest rate and a tax-deductible interest, which lower their cost of borrowing even more.
Student loan benefits are also non-monetary in nature. For example, borrowers need not worry about a credit check and must only meet minimal eligibility requirements. Customized financial aid counseling is available for students and their families. Finally, student loan borrowers are more likely to remain in school and consequently to complete their degree than those who do not utilize student loans to pay for their education.
In conclusion, a plethora of student loan benefits exist, enabling borrowers to save money while enrolled in college and after graduation. These student loan savings add up and can actually reduce the cost of their education loan over time.
