Thursday, August 6, 2015

The 4 Things you NEED to Know Before Taking Student Loans

Cathy A. Robinson, CPA
Senior Manager
There are two words that most people are familiar with: Student Loans. If you’re a parent of a child getting ready to go to college or you have a child that is already in college, sometimes student loans are simply unavoidable. Should this be the case, we have some must know tips for you!


1.       The first, and most important, point is this: complete the Free Application for Federal Student Aid (FAFSA). By taking advantage of federal student loans now you stand to reap some of the advantages later. These advantages could include:

·         A generally fixed interest rate.

·         You can limit the amount you repay each month later based on your income.

·         Loan forgiveness may be available for those pursuing a career in the public service industry after 10 years.

·         In some cases the federal government may also subsidize the loan –pay interest on- while the student is still attending school


2.       Be cautious of private student loans.

·         An advantage of borrowing a private loan is that you’re able to borrow at a higher limit.

·         The problem with borrowing private student loans, however, is that these loans generally come with a higher interest rate.

·         These loans also do not generally offer any kind of subsidies, loan cancellation or forgiveness programs.

·         Co-signers are also sometimes required if the student is applying for the loan and doesn’t have credit history. Should your child be unable to pay the loan on time or make the minimum monthly payment they would eventually look to you to take over the payments.


3.       Do your best to plan ahead.  What are the total projected expenses for the year?  Doing this can help you to figure out just how much to borrow or accept when it comes to student loans. If you’re awarded more than what you need, only utilize the amount that you need.  Remember, you have to pay it back in the end. By borrowing too much money now you may struggle to pay it all back later.  The debt must be paid back. This includes garnishing up to 15 percent of your wages and even garnishing Social Security benefits.


4.       Finally, some parents may qualify for a student loan interest deduction.  Generally, the amount you may qualify to deduct is less than $2,500 or the amount of interest you may have actually paid on the loan. This deduction is subject to decrease or phase out completely if and or when your modified adjusted gross income (MAGI) amount reaches the annual limit.  Ask your accountant if you qualify for this deduction. 


This update is published periodically by HW&Co;. as an information service to our clients, business associates and friends. It is general information and professional advice should be obtained before acting on any comments contained in this document.