tax tips — December 11, 2020

4 Year-End Tips for Making Student Loan Payments in 2020

by Susannah McQuitty

End-of-year strategies for paying down student debt

Another year has come and gone, and what a year! You’ve likely been more aware of your student loan payments than ever during the pandemic, even though you haven’t technically been required to make payments through December 31 due to the CARES Act.

The fact of the matter remains, though, that those payments were just being postponed. Now that the year is almost up, it’s not certain whether the deferral will be extended.

So what can you do to make the best of the CARES Act relief for student loan debt?

Catch up on payments

Now is the time to make the most of the COVID-19 relief for student loan debt. If you’ve been saying you could get ahead of your payments if you could just catch a break, here it is—the CARES Act has reduced your interest owed to 0% through the end of the year.

Your payment goes fully toward the principal balance with no interest accrual, meaning your money goes further than it typically would. Keep in mind that your student loan interest deduction will be smaller when you file your taxes due to paying less interest in 2020.

Overpay as much as possible before December 31

If you’re able, pay more than you normally would while interest rates are 0%. Reduce that principal balance as much as possible. The less debt you carry over into 2021, the less interest you’ll owe in the long run.

Having trouble thinking of what people can get you for Christmas? Consider setting up a fund to have friends and family contribute to for your loans instead of buying gifts.

Check with your employer for loan assistance

You and your employer can both use the CARES Act to your advantage here: Employers can make non-taxable payments toward your student loan debt, up to $5,250, through the end of the year. There’s growing support for making this permanent as well.

This change is significant, and if made permanent, would entice more employers to consider offering this benefit to employees. If your employer has a student loan repayment program in place, you should definitely inquire about maximizing this benefit before the end of the year.

Know that any student loan interest paid by your employer with pre-tax money is not eligible to be deducted on your tax return. Some plans specify principal payments only to avoid this snafu.

Look into different repayment plans

Once we’re officially in 2021, relief could come in another wave, or it may take a different form. Regardless, researching repayment plans is a great call, just in case student loan relief isn’t on the menu for the next stimulus bill.

Changing your student loan payment plan is free, and you can adjust how much you pay per month. You’ve experienced the tighter budget of all 2020 had to offer, so it’s a good idea to change your monthly payment account accordingly.

Setting your monthly payment lower also gives you the freedom to pay extra when you can spare it, which is always a good idea to reduce the interest you spend in the long run.

Understand what’s best for your own situation

It’s been a tough year, but hopefully one that has helped you understand your finances better than ever. We may not be sure what the future holds, but we do know that being extra prepared is never a bad idea.

Plan to take some time in the next few weeks to sit down and get real with your student loan debt—there are some time-sensitive opportunities to take advantage of before December 31!

If you need help seeing your student loan debt in the big picture of your personal finances, estimating your taxes is a fantastic idea. Not only will you have a better idea of how your finances look, you’ll also be prepared to file your taxes as soon as you can (January is right around the corner!).

Use 1040.com’s Tax Calculator to see how your student loan debt affects your tax liability and even your refund!

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