Tax Deductibility of Student Loan Payments - The Bills.com Blog

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Tax Deductibility of Student Loan Payments

Wednesday, Jul 22, 2009

Question: I took a series of PLUS loans to finance my daughter's college.

Now I've grown out of tax deductibility of the interest in these loans, and my daughter is a young professional who would be eligible for tax deductions if these loans were transferred to her.

Is there a way to move PLUS loans from a parent to the ex-student for whom these loans were originally taken and benefit from tax deductibility (naturally, assuming willingness on both sides, which is there in my case).

Answer: Generally speaking, PLUS loans, which are loans to parents to assist in financing a child’s college education, cannot be transferred to a former student once he/she has completed school. If your daughter is willing to pay the loan, she could give you the money each month to make the payments, but that will not change the tax deductibility status of the payments you are making on the loan.

Unfortunately, you may be stuck
with the liability for this loan and required to continue making the payments, despite the fact that they are no longer tax-deductible. However, I would encourage you to contact your loan servicer or the U.S. Department of Education to discuss this situation and to find out if any alternative repayment options exist which may benefit you. To learn more about PLUS loans, you can visit the Department of Education’s Student Aid website.

For more information about student loan defaults, see my answer to another reader regarding Advice About Student Loan in Default . The details surrounding that question may
not match your precise circumstances, but the basic concepts surrounding student loans in default are universal. Also, to read more about student loans, I invite you to visit the Bills.com Student Loan Information page.

Yet another resource that will be helpful to you is the US Department of Education's Collections Guide to Defaulted Student Loans page. One last thought: Look at the Income-Based Repayment (IBR) to see if you qualify for this program.

I wish you the best of luck in finding a solution to this problem, and hope that the information I have provided helps you Find. Learn. Save.

Best,
Bill
www.bills.com

Also, make sure to get a free financial health check-up with Bills IQ!

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