Student Loans as Regular Income

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Table of Contents

Introduction
Student Loans and the Profit They Carry
Conclusion
References

Introduction

It is common for individuals pursuing higher education to use student loan programs to assist them with payment for their studies. Schmeiser, Stoddard, and Urban (2016) indicate that the current number of American students with loan debts exceeds 44 million people. Many experts in the field of economics tend to believe that the mentioned type of loan cannot be considered as a taxable income, for it is expected that debtors will pay that money back. Nevertheless, recent studies have shown that loaners can sometimes benefit from using credit funds. The present research will focus on facts proving that student loans can be treated as the source of regular income.

Student Loans and the Profit They Carry

Aside from the fact that student credits are tax-deductible, they can lower the amount of other taxes withdrawn from a person. Even though one pays for education with a loan, one is allowed to claim tax reduction with such an option as American Opportunity Credit (Findeisen & Sachs, 2016). By referring to this program, an individual can save up to $2,500 per year: the total tax bill becomes reduced, and it results in a significant economy for a taxpayer at an annual rate. The exact sum of money one can save ultimately depends on a tax bracket used by a person and an overall tuition fee.

When discussing studying at college, one should also consider the presence of grants and scholarships. The latter are free funds that people receive without the need to return those. An acquired student loan automatically offers an opportunity to withdraw extra money when education starts. Moreover, financial aid for students is generally not considered as a taxable income if it is spent on books or other college supplies (Schmeiser et al., 2016). The fact that the majority of learners use scholarships to cover at least a part of their study-related expenses proves that credit programs serve as a means to gain financial profit on an ongoing basis.

Finally, there is a probability that the loan will be partially forgiven. The government has recently introduced an income-driven repayment (IDR) plan that exists to make student loan debts more manageable by diminishing the number of monthly payments (“What is income-driven,” 2018). In accordance with this plan, once a payment period is completed, any remaining debt is abolished regardless of a credit term. With regards to this fact, a forgiven sum can be viewed as a direct benefit, which is subject to taxation. There were frequent occasions when the amount of money written off reached thousands of US dollars. If combined with grants and reduced taxes, IDR arrives as a formidable source of finance one could spend on personal needs.

Conclusion

Student loans, although being tax-deductible and viewed by many experts as non-profit funds, still provide opportunities for everyone engaged in higher education to receive extra income. Credit programs allow a student to reduce his/her total tax bill, to participate in scholarship programs, and to benefit from a recently introduced income-driven repayment (IDR) plan. The latter serves as a means to legally diminish the number of monthly payments. Having put all of the research findings together, one may conclude that treating student loans as the source of regular income is an entirely reasonable approach for scholars to take when studying the discussed issue.

References

Findeisen, S., & Sachs, D. (2016). Education and optimal dynamic taxation: The role of income-contingent student loans. Journal of Public Economics, 138, 1-21.

Schmeiser, M., Stoddard, C., & Urban, C. (2016). Student loan information provision and academic choices. American Economic Review, 106(5), 324-28.

What is income-driven repayment? (2018). Web.

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Student Loans as Regular Income

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