Many students take out student loans, not realizing how much interest they will accrue. The facts are startling for the end of 2009 into 2010. The nation’s largest student lending provider, Sallie Mae, is not consolidating debt anymore as it did in the past. In fact, only a few years ago before the housing market crash of 2008, Sallie Mae lending officers would cold call customers and offer them the option of consolidating all their loans into one lower monthly payment with a considerably lower interest rate.
In those days, a customer could receive a generous rate of 5 percent, for example. However, it is now a different market altogether, since an economic recession looms over the United State. The current interest rate given to students who have taken out loans from 2007 on is around 6.8 percent and will not drop in the near future, though Sallie Mae has said they will bring back the option of consolidation at some point.
Due to this grim situation combined with a staggering national unemployment rate of 10 percent, recent graduates are struggling to not only pay off debt but also to receive some financial relief in the meantime. Therefore, it is best to look to the upcoming tax season to get back a portion of a graduate’s hard earned money.
A 1098-E for Tax Write-offs
The best way to go about receiving such a benefit is to consolidate student loan interest as much as possible. For example, if a person has two loans from Sallie Mae, combine the interest of both into one lump sum. That total figure will represent how much the person can write off for the entire year in regard to interest on her/his student loans. One form (versus many separate forms) is much easier and faster for both the taxpayer and the IRS to process the long run. Take a look at the qualifications that borrowers must meet before they fill out the form:
- Interest must total above $600 to receive the benefit. Anything lower will not eligible.
- Interest can only be written off in the period of repayment. This means from the first day the student begins to repay the loan(s) to the last. This time frame does not include periods of grace, deferment or forbearance.
- Loans must apply to tuition, fees, room and board, books and supplies. Any extra expenses such as relocation costs or loans for graduate student interviews are not applicable.
How to Deduct Monthly Compound Interest and Relieve Financial Stress
Once a student makes the decision to take out loans, it is her/his responsibility to pay both the principle and the interest. Many students do not realize that when the repayment period begins, they are actually paying off the bulk of the interest first. The principle amount may not be paid off for years down the line. Therefore, it is crucial in the beginning of the repayment period to file a 1098-E form every year.
It is easy to make this an annual habit with Sallie Mae, the most popular educational lending company in the US, because students can automatically sign up for this form when they register with Sallie Mae online.
If borrowers received their loans directly through their university or another private lender, they have the option of filing directly online with the Internal Revenue Service via IRS efile.
A person can only benefit from filing a 1098-E for the 2009-2010 educational year. If a borrower is eligible for this tax credit, s/he should make certain to receive it. Even though it may seem like a small portion of money, every little bit counts in this deep economic recession.