Despite recent rounds of forgiveness for thousands of borrowers, nearly 43 million Americans are responsible for roughly $1.6 trillion in federal student loans which results in a significant long-term burden for students after graduation. The average debt varies by state from $28,600 in North Dakota to $54,900 in the District of Columbia.
Although the U.S. Department of Education has, as a COVID-19 pandemic relief measure, currently suspended loan payments, reduced the interest rate to zero and stopped collections on defaulted loans, all that is scheduled to end after Aug. 31, 2022. Unfortunately, it is time start thinking about how to deal with the resumption of payments and interest charges
This article looks at the issue of student loan debt from an income tax perspective including…
Congress originally created the Qualified State Tuition Plan, often referred to as the Sec 529 Plan, as a tax-beneficial incentive for parents, grandparents, and others to save money for an individual’s future college tuition and fees. There is no federal tax deduction for making contributions, but taxes on the earnings within a plan are not only tax-deferred while they are held in the account, they are tax-free when withdrawn to pay for qualified education expenses. Thus, the real tax benefit of these plans is the earnings within the plan accumulating tax-deferred and then being tax-free when withdrawn if used for college tuition and related qualified expenses.
Since originating these plans, Congress has continued to modify the purpose of the plans by allowing plan funds to be used for more than just college tuition and fees. Over the years, they have allowed plan funds to be spent on additional expenses, including books, supplies, equipment, reasonable room and board, and computer technology.