Loans made by the federal government, called federal student loans, usually have more benefits than loans from banks or other private sources of financing.
These benefits include:
-Interest rate reduction
-Deferment of interest for up to five years, the length of a college education
-Allowances to cover living expenses
Some types of federal student loans have exemptions from federal income taxes, allowing the borrower to exclude up to a certain amount from income, as described in the Education section of this guide.
Borrowers typically need to start paying off their loans before the income tax cut starts to apply. Once that happens, the tax cut is halved. After the first year, the balance is taxed.
Borrowers are allowed to declare a tax deduction for federal income tax purposes only up to the total amount of income tax they paid during the year. The entire amount they paid in federal taxes must be reported on their tax return.
State and local taxes don’t count toward their federal tax deductions.
According to companies like SoFi, using the federal student loan calculator can help you determine the best repayment plan to meet your financial needs.
Who is eligible for student loan forgiveness?
All graduates are considered eligible for student loan forgiveness programs.
To qualify for federal student loan forgiveness, you must:
-Graduate from college with a combined total of 3.0 FAFSA credit points.
-Submit your Free Application for Federal Student Aid (FAFSA) forms and all other federal FAFSA forms before the year for which you are applying for forgiveness.
-Prepare a payment plan for the student loans you are currently repaying.
-Submit your request for student loan forgiveness to your financial aid office in time for it to be processed by the Education Department.
Exceptions to the rule
If you don’t meet the eligibility requirements listed above, or you have a parent or guardian who is unable to assist you financially, you will have to work with a student loan collector. You will be asked to fill out and sign a form, indicating that you are applying for student loan forgiveness on behalf of your parent or guardian.
The student loan collector will likely ask for verification of your debt and your parent or guardian’s income. Sometimes, it will request income and net worth information to verify your parent’s ability to repay the student loan. However, if you do not have either form filled out or submitted by your parent or guardian by the time your application is processed, you may not be eligible for student loan forgiveness.