Student loans can certainly be a burden on college students. Luckily, student loans aren’t really all that bad as they come with some advantages. The purpose of this article is to provide you with two different ways that you can leverage your student loans into benefits. Please note that the purpose of this article is NOT to encourage you to take out student loans, but rather provide you with some of the benefits of having them in case you do need to take out student loans. If you can fund college by other ways, then by no means should you take out a loan if you don’t have to. When a student loan is the only option, however, it’s not the worst thing in the world to have.
Student Loan Interest Deduction
The number one benefit that student loans have over any other type of loan is the very attractive tax benefits that they carry. Assuming you pay interest on the loan, you can claim a tax deduction of up to $2,500 of the student loan interest that you paid in the tax year. This is a tremendous benefit as that $2,500 basically offsets $2,500 of your gross income, effectively leading to a higher tax refund or a lower tax liability. And this deduction can be claimed for as long as you have the loan, assuming tax laws remain fairly consistent each year. Another thing to note is that due to this deduction, the loan basically becomes an interest-free loan if the amount of interest you pay each year is $2,500 or less. So this is one way that you can turn the student loan burden into a benefit. Keep in mind that if you’re claimed as a dependent, the person claiming you is the one that gets to deduct the interest instead.
Increased Credit Score
Assuming you make your payments on time, remember that a student loan is in fact a loan. Due to this, it comes with the benefit of boosting your credit score as you make your payments on time. Since one of the high impact factors on your credit score is payment history, making payments on time will only improve your credit score. Another factor that impacts your credit score is the age of your credit history. As the loan gets closer to maturity (the due date), your credit score also increases since you’re establishing a credit history. Finally, why is it important to have a good credit score? Remember that house you always wanted? You’re probably not going to pay for it with straight cash. You’re probably going to finance it through a mortgage. A good credit score will not only let you be able to get the house, but also allows you to receive a pretty low interest rate. And remember that Mercedes you always wanted? A good credit score will allow you to get that too.
So there goes two simple ways to leverage student loan debt. If you can avoid it, then do so by all means. Just know that simply because you graduated college with a lot of student loans doesn’t mean it’s the end of the world. You still have to pay it back, but it comes with some advantages. And don’t let the burden of student loans discourage you from enrolling and staying in college. Always remember that you’re investing in your future and knowledge is one of the most powerful things in the world that you can have.
If you have any questions, please feel free to contact me.