Finding a Solution to Your Student Loan Debt
How would you like your student loan debt paid off?? Recently, Robert Smith pledged to pay off all student loans from the 2019 Morehouse College graduating class. A hot-button issue, Forbes recently declared student loan debt to be a crisis, stating the total amount in the U.S. is a staggering $1.5 trillion. Senator Elizabeth Warren is calling for student loan debt cancellation. And last year, NYU announced free tuition for medical students.
But of course, not everyone gets their student loan debt paid off for them.
I’ve had a few conversations recently with clients about their student loan debt. These clients are medical professionals, well-established in their careers, and yet they both needed plans to take action to get these debts paid off.
Interest Payments: Deductible or Not?
In one instance, a client who I have worked with for years suddenly wanted a plan to pay off their student debt loans. Shockingly, I didn’t realize the amount debt was still hanging around. This is because there is no deduction for interest payments for people in higher income brackets.
Under TCJA, a household can deduct up to $2,500 of student loan debt interest each year, but there are phase-outs and other limitations that make the payments non-deductible. Here are some of the guidelines:
- You can’t claim the deduction if you file a separate married return. Your filing status may only be married filing joint, single, head of household, or qualifying widow(er).
- You can’t be listed as a dependent on another return.
- You must be legally obligated to repay the loan (if a child takes a loan in their name, even if they are your dependent, you can’t deduct it).
- The 2019 tax year income phase-outs between $70,000-$85,000 for single filers.
- The 2019 tax year income phase-outs between $140,000-$170,000 for those married filing joint.
This income limit applies to adjusted gross income, and it’s applied to each household, not to each individual. In the case of a medical professional who has a working spouse, you will likely exceed this limit. If you can’t deduct your interest payments, just like this client couldn’t, the debt is easy to overlook.
From a tax standpoint, you should tell your accountant about both your student loan debt and your payments. Even if you can’t take the deduction, your hb&k consultant can develop a plan to pay the debt.
Adding on More Student Loans
In a second case, I was working with a client who had been slowly chipping away at their student loan debt. I realized this client had children who would be starting college soon – which meant this person would be paying off their own student loan debt while incurring new student loan debt for their children. How could this happen?
Medical professionals add on massive amounts of debts from their undergraduate programs, medical school, and even residency. Upon finishing their medical training, these professionals are making good money. But by the time their career begins, they are also in their mid-twenties (or older!). Many of them are ready to start families, buy a house, a car, maybe even start their own practice.
The student loan debt is so large and overwhelming that it’s easier to just make the minimum monthly payment. After all, the interest rates are low, so it feels easy to push the student loan debt to the back-burner and allow every-day expenses to take over.
Let’s Come Up With a Plan!
In both of these cases, all it took was a conversation to get a plan started and tackle the student loan debt. Debt management is part of the conversation you should be having with your accountant about wealth building strategies. At hb&k, we can help with planning for retirement, children’s college, and even debt management. Allowing your student loan debt to hang around just because rates are low and the number is intimidating is not a financially sound decision.
hb&k offers wealth management services. Set up an appointment this summer to get started on a plan that will set in motion the mental and financial relief of eliminating your biggest debt.
This blog was written by Earl Blackmon. Earl is a shareholder of hb&k, a Lean Six Sigma Consultant and the leader of our Wealth Management Services.
Follow Earl on Twitter
Connect with Earl on LinkedIn