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The Benefits of Student Loans

College students

If you want to get a college education in the U.S. these days, getting a student loan seems to be part of the deal. The Wall Street Journal reported that the average student who graduated from college in 2015 had a student loan debt burden of around $35,000. While having a lot of student loans can be particularly burdensome, there are some upsides of graduating with a bit of debt, at least for federal loans, or those offered by the U.S. Department of Education. If you need to borrow to get your degree, obtaining a federal student loan can offer a few benefits.

Interest Rate Deduction

One of the bigger benefits of student loans is that the interest you pay on the loans is often deductible, meaning you can subtract it from your income, reducing your tax burden for the year. The maximum amount of interest you can deduct each year is $2,500 or the total amount you paid --- whichever is lower. As an added benefit, you don’t have to fill out a special form or itemize your deductions to claim the student loan interest deduction. You simply record the amount of interest you paid on a line on Form 1040. The IRS has income limits for the deduction, so if you earn above a certain amount, you might not qualify.

Flexible Repayment Options

Federal student loans tend to have rather flexible repayment options. For one thing, you won’t have to start repaying your federal loans until you’ve left school or graduated, and even then, you have a six-month grace period before you have to start making payments. Along with a grace period, the federal student loan program has a number of repayment options, which adjust the amount you need to pay each month based on your income. You can also apply for a deferment or forbearance on your loans, meaning you do not have to make payments for a certain amount of time without it negatively impacting your credit, if you have a financial hardship or return to school.

In some circumstances, your loans might be forgiven after a set amount of time, depending on your job and the repayment plan you are on. For example, if you are a teacher or work in public service, any remaining amount on your federal student loans might be forgiven after you’re made 120 payments.

A Way to Establish Credit

As long as you only borrow as much as you can afford to pay back, student loans can be an excellent way to build up your credit score and credit history. Loans offered by the U.S. Department of Education don’t require a credit check first, so you can obtain them even if you have no credit or low credit. Obtaining a student loan and making regular payments on it after you leave school can help you reach your financial goals in the future.

Even with the benefits that a student loan can offer, it’s possible to get in over your head or borrow more than you can comfortably afford to pay back. If you have any questions about navigating the federal or private student loan process, CESI can help you choose the repayment plan that best fits your needs . Contact us to learn more about your student loan options.

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