What To Do If You Have A Plus Loan
If you took out a Direct PLUS Loan for your child’s education and are struggling to pay it back, consolidation might be an option. Be aware, though, that while increasing the length of your loan will decrease your monthly payments, it will also increase the total amount you will have paid by the end.
Refinancing the PLUS loan is another possibility. In fact, even if you are not struggling to repay your loan, it’s worth looking into refinancing to see if you can secure a lower interest rate and monthly payments.
The smartest financial move is to try to pay as much as you can toward the loan while you’re still earning money, even if it means you have to tighten your budget, and not take it with you into retirement.
Also try to avoid borrowing against your retirement funds, such as 401 plans, or cashing out of them early to cover the loan costs. Instead, if you are nearing retirement, consider working a few more years, if you are in any position to do so, to pay off the loan before retirement.
Does Gift Tax Apply For Paying Off Student Loans
Answer: If a friend or family member pays your student loans off, it is probably a non-taxable gift to you. However, your friend or family member may be responsible for filing gift tax returns and for paying any applicable gift tax on the payment. The good news: you dont need to do anything or pay any additional tax.
Apply ‘found Money’ To Loan Balances
Found money doesn’t necessarily mean the change you find between your couch cushions. But it does include money that isn’t budgeted for as part of your monthly income. Using found money is another way to gain traction with student loan repayment. This includes:
- Income earned from a side job
- Cash gifts you receive for birthdays or holidays
You can apply these amounts to your loan principal to take out a chunk of your debt in one go. Other opportunities to use found money to pay down loans quickly include inheriting money from relatives or receiving a settlement as part of a lawsuit.
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Can A Husband Be Responsible For The Student Loans Of His Wife
What is the responsibility of a spouse for student loans incurred after marriage? It depends on where you live whether you are responsible for the student loans that your spouse took out. Most states have a marriage debt policy that only the spouse is responsible for any loans taken during marriage.
Helping Adult Children Pay Off Student Loans
Receiving some of their inheritance now could be a lot more helpful to your clients kids.
As advisors, we often find ourselves in a gatekeeper role reigning in expectations or doling out permission slips as it relates to our clients financial wellbeing. The sacred trust we cultivate as we peel back the layers of emotion behind the fears and hopes expressed around the concept of wealth put us in a unique position to help clients balance their current lifestyle wants with the desire to provide a meaningful legacy for their children and grandchildren.
But finding that balance is a delicate matter.
Warren Buffett famously said you should give your kids enough money so that they would feel they could do anything, but not so much that they could do nothing.
Far too often, parents save and invest and live smaller with the idea that they will leave a meaningful inheritance for their children failing to experience their generosity in action or to see their values reflected in the lives of the next generation.
Why not enjoy the satisfaction that comes from seeing the benefits of the wealth created and passed along? Why not pay for an extended family vacation, enjoying each others company and letting someone else clean up afterwards?
Which brings us to the idea of helping adult children pay off student loan debt.
Here are just a few ideas for how this could be applied:
The New Legacy Lens
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How Can I Get My Employer To Pay My Student Loans
You should ask your boss a few questions when bargaining wages or before enrollment in benefits. Be the first person to have the discussion about student loan repayment assistance dont wait until benefits have been submitted to speak to someone talk right away. If this benefit is available to you, contact your employer.
What To Do Before You Take A Plus Loan
Many times, a school will present the student’s financial aid package with a Direct PLUS Loan added in. The school might say that it wants to make families aware of all of their available funding options, but including the Direct PLUS Loan in the package can make the true cost of college confusing. When considering the costs of college, ask for a financial aid package breakdown without the PLUS loan.
Instead of a Direct PLUS Loan, you might have your child opt for a private student loan for any leftover costs that grants, work-study, federal student loans, scholarships, and other aid do not cover. If you want to help your child financially, you can make payments on the private loan while they are still in school. This allows you to subsidize your childs college costs but doesn’t hold you solely accountable for the debt.
You may be able to refinance your PLUS loan to lower your interest rate or spread payments over a longer period.
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How Much Of A Student Loan Is Tax Deductible
Student Loan Interest Deduction
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans used to pay for higher education expenses. The maximum deduction is $2,500 a year.
Pay A Student Loan Together
Another option is to make a one-time online payment together with a friend or family member. You could get together with grandparents, aunts, uncles, or other family members to help your loved one pay down their student loans. Sit down with them and have them walk you through making a payment on their behalf. Its an easy way to get it done together, so you dont have to jump through any hoops on your own.
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Parents Shouldnt Count On Forgiveness
Troublingly, the survey shows that 28% of parent PLUS borrowers are counting on widespread debt forgiveness to wipe out a large sum of their debt. But there is no guarantee or expectation among experts that student loans will be canceled.
Congressional Democrats have called on President Joe Biden to use executive action to cancel debt, but he has not committed to canceling student loans and has questioned his authority to do so. No bill has been introduced in Congress to do so, either.
There are legitimate and existing sources of loan forgiveness for parents if they qualify, including:
Total and Permanent Disability Discharge for those who are disabled.
Public Service Loan Forgiveness for those who worked in public service for 10 years while repaying a consolidated direct loan.
Discharge through borrower defense to repayment if its deemed your childs school defrauded them.
Only the federal government can discharge your loan debt. Student loan borrowers, including parents, often receive unsolicited messages via email, text and phone indicating theyre eligible for loan forgiveness. These are scams and you should not respond. If in doubt about messages you receive about your loans, contact your loan servicer.
About the author:Anna Helhoski is a writer and NerdWallet’s authority on student loans. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today. Read more
Can Parents Pay Off Their Childrens Student Loans
Were here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.Read moreWe develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.Read less
One-third of parents plan to help their child pay back some or all of their student loans, according to a recent survey . But can you do it, and should you?
While there are no rules restricting parents from paying back their childrens student loans, if you choose to pay off your childs student loan, you will most likely need to file a gift tax return and pay any applicable gift tax . The person who makes the payment as a gift pays the tax, not the recipient, according to IRS guidelines.
One-third of parents plan to help their child pay back some or all of their student loans.
However, before you offer to give your child such a generous gift, you may want to think about how it will affect your retirement plans. Because parents are closer to retirement age than their adult children, it is often difficult for parents to build back up their nest egg if they deplete some or all of it helping pay back their childrens student loans.
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They Dont Have To Accept Responsibility
Paying off your childrens debts can potentially stop collection calls and prevent credit damage. However, unless you require your kids to pay the money back, they dont accept full responsibility for their actions, nor do they experience the full consequences of their poor choices. Understandably, you want to shield your children from these consequences but if theyre not accountable for their bad decisions, or required to deal with the repercussions, they may repeat past mistakes.
Can You Pay Off Your Childs Student Loan With A 529 Plan
There is a variety of ways in which parents try to cover their childâs education-related expenses, the most popular of which is likely the 529 plan. These accounts allow parents to earn returns on investments without incurring federal income taxes, as long as theyâre used for what the IRS calls âqualified distributions.â Depending on the type of plan â whether itâs an education savings plan, prepaid tuition plan, or ABLE account â you may or may not be able to use those funds to pay your childâs student loan.
If you have a prepaid tuition plan, youâre probably limited in how you spend the money in your account many plans only allow for tuition payments, with little flexibility beyond that. The other two types of 529 plans have more uses and can be used for student loan payments, but only up to a point. The rules governing 529 plans only allow account holders to put up to $10,000 from their account toward student loans for each beneficiary and the same amount toward that beneficiaryâs siblings. If your child has more than $10,000 in student debt, this may seem to limit the usefulness of a 529 plan, but parents with more than one child can take advantage of a workaround.
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Can I Receive A Deduction For Paying My Childs Student Loan
Paying for a childs education sometimes puts a strain on the family budget, so transferring and claiming your childs student deductions and credits is recognized as a legitimate tax strategy by the Canada Revenue Agency. There are some exceptions to this practice, and the student loan interest credit is one.
How To Transfer Parent Student Loans To Your Child
Student loan refinancing can offer a lot of benefits, one of which is the ability to transfer parent student loan debt to a child after they’ve graduated from college. There are a handful of lenders that offer this option, including:
- Advantage Education Loan
The process is similar to the regular refinancing process, except you won’t apply to refinance the debt in your name. Instead, your child will apply to refinance the debt in their name. This means your child will need to agree to take on the debt and meet the eligibility criteria set by the lender to get approved.
In some cases, though, the parent may need to cosign the application.
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Alternatives To Lending Money To Children
Instead of lending money to children, parents should consider a few alternatives:
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Parents Are Expecting Help From Their Kids
When you compare the interest rates and fees of student loans, its better for students to borrow federal undergraduate loans than it is for parents to take on PLUS debt, says Sandy Baum, nonresident senior fellow for the Center on Education Data and Policy at the Urban Institute and professor emerita of economics at Skidmore College in Saratoga Springs, New York.
But experts say that parents often see loans as the only way their child can afford college, and some parents expect their child will eventually bear the responsibility of payments. According to the survey, 22% of parent PLUS borrowers say they thought their children would take over their loan payments, but they havent yet.
Legally, parents cant hand their debt to their child that easily. The only way to do it is by refinancing with a private lender and transferring ownership to their child, which some lenders allow. But if the child borrows the maximum amount available, Baum says, the idea that they’ll be able to repay all that and more once they graduate “seems questionable.”
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Paying Off The Student Loans Of Your Adult Children
A major financial consideration many parents face is the decision to help pay off the student loans amassed by their adult children. When parents are financially secure and their children are not, it can be emotionally difficult to watch their kids struggle. It gets more complicated when one or more children in a family earn college scholarships, use the GI Bill after a stint in the military, work part-time throughout college, or pursue degrees in lucrative professions, while other siblings goof off in high school resulting in no scholarships, travel and hang out with friends during the summers instead of working, or pursue careers that cant service their student debt load after graduation.
Everyone loves to brag about the son or daughter who is doing well financially, but a struggling adult child seems to shout from the mountaintops our own parenting deficiencies.
Regardless of the reasons why kids graduate buried under a mountain of student loans, we still love them, and we dont like watching them struggle. We want them to own their own homes, take vacations, and provide nice things for our grandkids. When they are financially strapped because of student loan obligations, it makes us feel sad. Because every situation is different, there really isnt a once size fits all solution however, I will touch on some options I have seen practiced over the years.
Dont help with the student loans at all
Loan children the money to pay off their student loans
The Tables Below Compiled By Lebc Compare Three Scenarios Of Future Employment Earnings Patterns
Kay says: In all cases we have assumed that the student takes out the maximum fee and maintenance loan for students outside of London, leaving them with a debt of £56,878 on graduation. We have assumed average inflation of 2.76% and average earnings increases of 1.63%, the actual rates and repayment amounts may be different, depending on actual rates of inflation and earnings growth.
Graduate 1: Starts work on a salary of £17,000 pa, increasing by 2% pa thereafter.
|Years to reach|
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If You Struggle To Repay A Loan
If you find yourself falling behind on a loan, it can dent your credit score as loans considered delinquent are typically reported to three major credit reporting agencies. If you fall further behind, your loan may go into default and debt collectors could start contacting you. Before you get to that point, contact your lender, explain your situation and ask about loan repayment options or the potential for loan:
Pay Your Loans Automatically
Late payments could hurt your . Scheduling your loan payments to be deducted from your checking account automatically each month means you don’t have to worry about paying late or damaging your credit.
You could also score some interest rate savings if your lender offers a rate discount for using autopayfederal loan servicers and many private lenders do. The discount may only be a quarter of a percentage point, but that can make a difference in how quickly you pay off the loans over time.
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Avoiding Gift Taxes On Student Loan Payments
One of the most common ways to avoid gift taxes is to spread the money out over several years. Steves family could give him $15,000 in 2020 and then another $15,000 in 2021 without triggering any gift tax.
The gift tax also treats spouses as individuals. That means Steves mom and dad could each contribute $15,000 in 2020 without having to pay any taxes. If Steve received $15,000 from his mom, dad, grandpa, and grandma, he would get a total of $60,000 without any family member having to pay a gift tax.