Earlier this year, the U.S. government offered student loan forgiveness, on a first-come, first-served basis, for people who work for certain employers and meet other qualifications. Whether or not you qualify for the forgiveness that is part of the Consolidated Appropriations Act 2018, Forbes offers some useful information in “What You Should Know About Taxes and Student Loan Repayment” to help readers understand how paying or not paying a student loan can affect your taxes.
Student loan payments can help at tax time but nonpayment may affect your refund.
Some people can deduct student loan interest from their taxes. Even if someone else helps you by paying your loan, the deduction would go to you since it was made on your student loan account.
On the other hand, the government can use your federal income tax refund to pay what is owed on your student loan if you don’t pay it back yourself.
The government is serious about student loan repayment.
Forbes notes that it may be easier to not be held liable for what you owe on a store credit card in bankruptcy than it is for you to discharge your student loans should you declare bankruptcy. And with tax reform, “…a borrower who dies or becomes permanently disabled before paying off student loans now qualifies for tax-free loan forgiveness.” (at least until 2026). If you didn’t know, parents have received tax bills for loans that were forgiven after their adult children passed away.
We do not share this information to encourage you to file bankruptcy or because some tragic event may take place. We share it so you understand that the government does not take student loan lending lightly. If you can make timely payments, pay more than the amount owed, or make additional payments when you have extra funds, it will be much better for you. Years ago, people were told that student loans were ‘good debt’ but these days there are people including Washington Post finance columnist Michelle Singletary, who would say Yes, all debt is bad–even mortgages and student loans.