Taxes, interest payments, and student loans: these are the three things that scare many people, and just listening to these terms can give those chills. However, repaying student loans is not as frightening as one may think. You can read on to learn more about how it can benefit you.
If you’ve made federal loan payments in 2019, then you’re eligible for deducting a certain portion of the interest, which is paid on your federal tax return 2019. This is called a student loan interest deduction. Student loan companies users Form 1098-E for reporting the amount that you’ve already paid in interest. A copy of this form is given to borrowers as well as the IRS.
Form 1098-E: A Source of Relief forth Students
This form can only be sent to you if you’ve already paid at least US $600 in the form of interest throughout in the past year. Don’t miss out on this opportunity as this can help you in reducing your loans and making the repayment method a bit easier. This deduction is taken as an adjustment process when your adjusted gross income is calculated. Therefore, you don’t have to list your deductions for taking the loan.
In addition to this, any interest that you’ve paid after being qualified for student loans is mostly reported to you on Form 1098-E. This includes both voluntarily and required pre-paid interest payments.
How It Works?
The form is sent out to these companies which then collect loan payments. Student loan services are required to send the form to those who’ve paid at least US $600 in student loan interest and the forms are sent to the students by the end of January. Although if you have loans with more than one loan service provider, then you’ll receive multiple forms. You can register yourself, only after you’ve paid the minimum amount in the form of student loans.
After you’re eligible for the deduction, your information will be put into Form 1040 for writing it off. You can also include student loan interest payments, which haven’t been reported on Form 1098- E. Irrespective of the interest that you’ve paid in the form of student loans, the maximum amount that can be deducted is $2,500.
What You Can Use Form 1098-E
You can use the form for figuring your student loan interest deduction. You can deduct the loan from your taxable income after you’ve met certain conditions as mentioned below:
- Income requirements
- If your income is below the annual limit
- Your filing status is filing separately and if you are unmarried
- You aren’t claimed as a dependent on the tax return of another person
- The interest was not someone else’s legal obligation to pay, but was yours
By reporting the amount of your student loan interest that has been paid on the federal tax return in 2019, it is considered as a deduction. With the help of a deduction, the amount of your income is reduced, which is subject to tax. This, in turn, benefits you by reducing the amount of tax that you might have to pay.
Student Loan Relief
Students can even apply for student loan relief in their federally held loans. If you are employed by a non-profit organization or by the government, then you can receive loan forgiveness, as per the Public Service Loan Forgiveness (PSLF_ Program). The loans are forgiven if you’ve made 120 months payments. You can also receive loan relief if you’ve been teaching full-time for five complete academic years. You can learn more about student loan relief from this website.
Student Loan Interest
Whether you’ve taken unsubsidized or subsidized federal loans, then you’ve to pay interest. The interest will start at your loan disbursement date. If you have unsubsidized federal loans, then you’re responsible for paying the interests that have been accrued on your loan. These interest rates can either be variable or fixed. Furthermore, federal student loan remains fix for the entire life of the loan; whereas, private student loans vary depending on the lender. However, most lenders offer both fixed as well as variable interest rates.
Student Loans Government
The federal student loan program under the US Department of Education offers direct loans to students. There are four main types of Direct Loans, which include.
- Direct Consolidation Loan: This enables you to combine all your federal student loans into a single loan.
- Direct Plus Loans: Your parents can help you in paying off these loans.
- Direct Unsubsidized Loans: These loans are eligible to professional, graduate, and undergraduate students, but the eligibility criteria are not based on your financial need.
- Direct Subsidized Loans: Those students who have financial needs are eligible for this loan.
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These student loans can help you in receiving a quality education in a university of your choice. However, you can take advantage of IRS Form 1098-E and deduct the interest on your student loans.