3 Easy Ways to Gift Student Loan Payments
This holiday season, the ultimate gift on many recent grads’ wish lists is lower student loan debt. Since more students are graduating with more debt than ever before, it’s not surprising that many are asking for cold hard cash versus the more tangible gifts of years past.
Friends and family members of student loan borrowers understandably want to help ease this burden. In the past, cash gifts had a reputation for being somewhat tacky and impersonal. But many people now recognize that they can make a big difference in someone’s financial, mental and even physical wellbeing by helping them reduce their debt – which is actually much more thoughtful than gifting the latest gadget or fashion trend.
If you’ve made the decision to help with a loved one’s student loan payments this season, here are three easy ways you can do so:
1. Check or cash
Just add card, gift bag, tissue paper and/or bow.
Pros: Almost no effort required.
Cons: Some people find that just writing a check can feel a bit impersonal. Also, you can’t guarantee the recipient will actually use the money for student loans.
2. Student loan gift service
If you want to give cash in a manner that’s less ambiguous than, well, cash, check out this service offered by Tuition.io, which allows you to make a payment of up to $500 toward the recipient’s student loans using just your credit card and the recipient’s email address.
Pros: The gift can only be used to make a student loan payment. The service even tells you (and the borrower) how much money the extra payment will save them over the life of the loan.
Cons: There’s a 2.9% + $0.30 credit card processing fee and a 3.5% transaction fee applied to all gifts.
3. SoFi Referral Program
If you have student loans yourself, helping someone else pay their loans may be the last thing on your shopping list. However, it’s worth noting that SoFi borrowers can earn $100 for each friend who successfully completes a fully completed SoFi application (including all required documentation). And if your referral becomes a SoFi Community Member, they get $100, too.
Cons: Must be a SoFi borrower to make a referral.
No matter how you do it, you should be aware that your present is considered a gift in the eyes of the IRS. Anything above the annual exclusion amount (in 2013, $14,000 for singles and $28,000 for married couples) would face a potential gift tax. It’s usually best to consult a tax advisor before giving a substantial sum (for example, if you plan to pay off the entire loan).
Want to help people with their student loans without spending a dime? Tell them about student loan refinancing. If they qualify to refinance their loans at a lower rate, they may be able to reduce their monthly payment, shorten the term of their loan and take a big bite out of their total balance. Ironically, many borrowers who would be eligible to refinance don’t even know it’s an option – which may make your suggestion the best gift they get this year.
Nothing in this blog post purports to offer legal or tax advice. You should check with your legal or tax advisor if you have questions.