SoFi Blog

Tips and news—
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How Student Loan Debt Can Hit Your Tax Returns

April 15th is a day most are familiar with. For some, it means sending money off to Uncle Sam. For others, it means an influx of cash as a tax refund is issued.

Tax season with student loans can be a little different since student loans could impact your tax return in a couple different ways. In some cases, certain tax deductions can help borrowers decrease their tax liability (which is the technical term for how much an individual owes in taxes). Other times, the harsh consequences of struggling to make student loan payments kick in.

Taxes and student loans can be confusing enough on their own. When you combine them, it can feel like you are trying to navigate a maze. While everyone’s situation is different, there are some rules and regulations worth knowing.

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How to Stay Focused on School Despite the Debt That’s Coming

More than 44 million borrowers collectively owe $1.5 trillion in student loan debt in the United States. Looking at these numbers more specifically, the average student loan balance is around $34,000.

And student loan balances have a ripple effect—they’re now impacting borrower’s financial decisions after college, including deciding whether to save for retirement or put away money for a house down payment.

If you are one of the millions who have taken out student loans for your college education, you may be worried about how to stay focused in college classes with this debt looming over your shoulder. It’s an understandable concern, of course—it can be difficult to focus on Creative Writing 201 when you’re busy calculating how much you’ll need to take out in student loans next year. Nonetheless, here are some tips to help you keep calm and stay focused on school.

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What to Do About Student Loans if You Get Laid Off

Getting laid off can send your finances into a tailspin, especially if the pink slip comes without much notice. Whether you are facing temporary unemployment, or are having trouble finding a full-time position for a while, it’s important to think about how you will handle your student loans during this period so that you don’t go into default.

While it’s certainly scary to suddenly be without a job, layoffs are pretty common. According to the Bureau of Labor Statistics, every year about 21 million Americans lose their jobs due to layoffs and discharges.

If you recently got laid off and are suddenly scrambling to pay your bills, you may wish to consider income-driven repayment plans for your federal student loans or student loan forbearance. Loan forbearance allows the borrower to temporarily stop making payments, or at least reduce the payment amount for a specific timeframe, and can apply under many circumstances, not just unemployment.

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Importance of Celebrating Paying Off Your Student Loans

Seeing your final student loan payment post might elicit cheers of joy, sighs of relief, or both. Your epic, years-long journey to be free of student loan debt can only be capped off by an equally epic celebration, whether you want to simply treat yourself to dinner, or host a massive payoff party.

But, the huge sense of accomplishment you feel can often lead to overspending once you are finally free from student loan debt, so make sure to acknowledge the investment you’ve made in yourself and celebrate paying off your student loans smartly.

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How Much Your Student Debt Can Grow While in Forbearance

If you’re unable to make payments on your student loans, you might be considering some extreme options, like leaving the country, going underground, or building a time machine. But there are other, more practical options out there, such as forbearance. What is forbearance, you ask? It’s a federal program that can help postpone payments for qualified applicants.

Sounds like a perfect solution, right? Not so fast—it’s a little more complicated than that.

While you’ll temporarily be able to stop making payments, interest will continue to accumulate on your loan. This interest gets added to your balance when the loan switches out of forbearance and back to your payment plan.

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