Student loans can be used to cover more than tuition and fees. They can pay for lodging, food, commuting, a computer and study abroad (but not spring break!).
The upshot is that most qualified education loans can be used to cover the entire cost of attendance — an estimate of total costs for an academic year at a college, as determined by each campus financial aid office — minus any aid you receive.
It might be interesting to look at different schools’ total costs per year, broken down by College Navigator, a tool from the National Center for Education Statistics.
Related: Pros & cons of paying off student debt early
Books, Yes. New Car, No.
As long as a student is enrolled at least half-time, student loans can cover a range of expenses at a qualified institution of higher education or at a hospital or health care facility that provides postgraduate internship and residency training programs.
What Student Loans Can Cover
- Tuition and mandatory fees.
- Room and board. Whether it’s a dorm or an apartment off-campus, the expense can be covered. Board means a campus meal plan or groceries in general.
- Transportation. Loan money can pay for maintaining, insuring, and fueling your car or for public transportation fares.
- Personal expenses. These include cellphone bills, laundry costs, bed linens, towels, a microwave oven, and anything else you normally spend money on.
- Books and supplies. New, used or rented textbooks are covered, as are supplies ranging from software to notebooks.
- A personal computer. You can buy or rent a computer with student loan money.
- Dependent care. Child care expenses are covered.
- Loan fees. This includes any origination fee.
- Study-abroad costs. The Federal Student Aid office lists international schools that participate in the federal student loan program and describes the process.
Other qualified expenses may include utilities and furnishings.
What Student Loans Should Not Cover
- Travel or vacations
- Purchase of a car
- Down payment on a house
- Entertainment
- Frequent dining out or expensive meals
- New wardrobe
- Small-business expenses
- Other debt
- Someone else’s tuition
What If I Use Student Loan Money for Nonessentials?
The use of student loans for nonqualified expenses could be reported to the Office of Inspector General as fraud, or a lender could call the loan balance due immediately, but in general, no one is tracking how you spend loan money.
Both federal and private student loans are disbursed to your school, which takes out tuition and fees, and if you live on campus, room and board. Any remaining money goes to you, so it’d be hard for lenders to tell if you’re using the remainder as intended. If it’s tempting to go on a spending spree with the residual, remember that you will pay, or are paying, interest on that borrowed money.
Federal student loans have annual and aggregate limits that may seem generous, especially for graduate and professional students, but then there are private student loans, too, issued by private lenders. As a rule, it’s a good idea to obtain a private student loan only after maxing out federal student aid and to know that private student loans do not come with some of the same protections in cases of financial hardship that federal student loans come with. But private student loans can come in handy to fill gaps in need, and a cosigner can often help a student qualify.
Other Ways to Cover Living Expenses
Aside from using student loans, there are several ways to pay for living expenses while in school. Here are a few.
1. Part-Time Job
Consider opting for a part-time job that allows flexible hours or that will work with your class schedule. Some students may also be able to find part-time jobs related to their major or career of choice.
Working while pursuing an undergraduate degree may improve time-management skills. In that limited study time, it’ll be helpful to get organized and shut out distractions.
2. Work-Study
Federal work-study may be offered as part of a student’s federal aid package and is based on financial need. Work-study programs are available to undergraduate, graduate and professional students, regardless of whether you are a part-time or full-time student.
3. Becoming a Resident Assistant
Another way to pay for room and board, or to cover a portion of the cost, is to become an RA. An RA is usually assigned to a particular floor or wing of a dormitory to oversee dorm residents. Not only do you typically get a better room than others on your dorm floor, but you also get free housing.
RAs might lead mandatory floor meetings, organize monthly social gatherings and referee the occasional roommate disagreement.
4. Scholarships
Another way to cover housing and living expenses (and tuition, quite frankly) is through merit scholarships. There are scholarships available from private companies, nonprofit organizations, colleges and universities, and professional and social organizations.
It might pay to take an afternoon to research scholarships that you might be eligible for. Be sure to pay attention to scholarship requirements. Awards may have certain conditions, such as requiring that the money only be used for tuition, but others may be delivered directly to you to use on whatever you want.
5. Summer Job
As an alternative to (or addition to) a part-time job, consider a summer job or paid internship. During the summer, students may have more free time to work more hours and rack up cash to help cover their housing and living expenses for the following year.
6. Selling Unwanted Items
A quick way to cover housing and living expenses without going into more debt can be to sell your castoffs on buy-and-sell apps and websites.
The Takeaway
Student loans for living expenses and housing? Yes, they can cover those college essentials. Food and transportation? Check. Study abroad? Possibly. Road trip to that music fest? Nope.
College costs usually reach well beyond tuition, so when federal student loans don’t meet all needs, private student loans can fill any gaps.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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26 tax deductions for college students & other young adults
Being a young adult can be stressful. If they’re still in school, they may be working hard to graduate with top honors. If they’ve already graduated, they’re just starting out in their careers and learning the ropes of the real world. They’re out on their own — possibly for the first time in their lives — and now have to navigate being an adult.
One of the adult experiences they may dread is filing their taxes. However, it doesn’t have to be a stressful experience. Here’s some good news: There are plenty of deductions that could help students lower their tax bill whether they’re in school or just graduated.
Here are some of the tax credits and tax deductions that they may be eligible to claim on their tax return this year. Note that some of these tax credits require taxpayers to itemize their deductions. Taxes can get complicated. If you have any outstanding questions or concerns about your specific situation, consider consulting with a tax professional.
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If someone is still in school, they might qualify for The American Opportunity Tax Credit (AOTC). The AOTC allows people to take a student tax credit of up to $2,500 for tuition, fees, and course materials they paid for during the taxable year for an undergraduate education.
In addition, 40% of the credit, or up to $1,000, is refundable, which means that someone can receive it even if they happen not to owe any taxes for the year. To qualify, the taxpayer or their dependent needs to be pursuing a degree and enrolled half-time at the very least. A taxpayer can only take advantage of this for four years, no matter how long it takes the student to finish the degree.
Unlike the AOTC, the Lifetime Learning Credit is available to vocational, graduate, and non-degree or vocational students, too. A taxpayer can claim 20% of the first $10,000 in tuition and fees they paid for the year 2020. There is a maximum of $2,000 allowed.
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Students and parents of students paying for a child’s education through student loans can use the student loan interest tax benefit for education. With this deduction, they can deduct up to $2,500 in interest they paid for the year.
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Students who laid out money for tuition for themselves, their spouse, or their dependent could take advantage of a tuition deduction on their tax return. The maximum deduction is $4,000 if a single filer makes less than $65,000 per year, and $2,000 if they make up to $80,000 per year.
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School supplies are qualified education expenses for taxes. The $2,000 or $4,000 deduction applies to supplies a student needed to purchase for themselves, a spouse, or a dependent in order to fulfill their education requirements. Supplies could include a computer, notebooks, furniture, pencils, pens and more.
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The average cost of books is $1,240 per year. Taxpayers may be able to deduct this cost from their return if they covered books for themselves, their spouse, or their dependent. Again, they could use the $2,000 or $4,000 deductible.
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Perhaps instead of going to college, a young adult enrolled in the military instead. If they are a member of Active Forces on active duty and had to move due to a military order, then they could take a deduction for themselves, their spouse, and their dependents.
On Form 3903, active members of the military can claim expenses related to a military move like transportation and storage of household goods and personal effects and travel (including lodging) from the old home to the new home. They cannot include the cost of meals.
The IRS has an interactive tool to help taxpayers determine whether or not their moving expenses may qualify for a moving deduction.
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If a young adult chose to go into business for themselves after graduating, then they can deduct one-half of their self-employment tax, which is 12.4% for Social Security and 2.9% for Medicare. They can do this when figuring their adjusted gross income on Form 1040 or Form 1040-SR.
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Someone who works at home, whether they’re working at their job remotely or after hours, or they are self-employed, can take a deduction for their home office.
Someone can deduct expenses that keep their home office running such as utilities, insurance and general repairs, but they cannot deduct unrelated expenses like a gardening bill or the paint they used for a room that is not their office.
There is a simplified method for this deduction as well as a regular one. With the simple one, taxpayers can deduct $5 per square foot of the home used for business, with a 300-square-foot maximum (see both methods on the IRS’ website ).
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If a young adult is using their car for business purposes, then they may be able to deduct their standard mileage rate, which is 57.5 cents (0.575) per mile for 2020. They need to keep in mind, however, that if they use the standard mileage rate, they cannot use the car expenses deduction as well. They cannot deduct lease payments, gasoline, car depreciation, vehicle registration fees, oil or insurance.
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When a young adult does not use the standard mileage rate, then they can deduct car expenses from their taxes. If they use the vehicle for personal and business expenses, then they need to split the deductions.
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When traveling for business, young adults who are entrepreneurs or self-employed can take a 50% deduction for their unreimbursed business meals. They can either take a standard meal allowance through the IRS or keep records of their actual costs for their meals and take those deductions.
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The IRS also allows taxpayers to deduct some travel expenses. If young adults own their own business or are otherwise traveling for professional purposes, they could deduct things like travel by airplane, car or train, fares for taxis to and from the airport to the hotel, the shipping of baggage, dry cleaning and laundry and business calls made on the trip.
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If a young entrepreneur took out a business loan to get their startup running, then they can deduct the interest they paid. If they utilized the loan proceeds for more than one type of expense, then they need to allocate the interest based on how they used the loan’s proceeds.
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If a young adult has a job that’s providing them with an 401(k), then they can take a certain amount of deductions from their tax return.
Individuals may also qualify for a deduction for their IRA contributions as well. If they file as single or head of household, for instance, and their modified adjusted gross income is $66,000 or less, then they can take the full deduction up to the amount of their contribution limit.
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If someone does not have a job that provides an 401(k), they may be eligible to deduct their contributions to a traditional IRA. If they are single or head of their household, they can take a full deduction up to the amount of their contribution limit no matter what their modified AGI is for 2020.
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A young entrepreneur who has hired employees may be able to deduct their income from the tax return. The pay could be in cash, services or property and include wages, salaries, commissions, bonuses and other forms of compensation like vacation time as well as fringe benefits.
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A young graduate who is working as a teacher is able to deduct up to $250 of their expenses they put towards things they used in the classroom, such as books, courses and computer equipment. If they teach a course in physical education or health, then athletic supplies would count towards the deduction as well.
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If a taxpayer chose to use a tax-deductible Health Savings Account (HSA) for their healthcare expenses in 2020, then they can contribute up to $3,550 for self-only coverage. An HSA can earn interest or other earnings, and they won’t be taxed.
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The IRS will not tax the money that goes from a paycheck into a 401(k). However, there is a limit of $19,500 in 2020, subject to cost-of-living adjustments. This is for traditional and safe harbor plans.
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If a young adult has a SIMPLE 401(k) , then they can contribute up to $13,500 from their paychecks in 2020 and still reap the tax benefits.
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During coronavirus, there has been a housing boom across the United States. Some young adults may have capitalized on it and purchased their first home. If so, they may qualify for the home mortgage interest deduction, which allows them to deduct home mortgage interest on the first $750,000 of their debt.
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Under federal rules, taxpayers can deduct up to $10,000 for state and local taxes if they are single or married filing jointly.
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If young adults donated to a charity in 2020, then they can take a deduction on their return. Just remember that federal law limits cash contributions to just 60% of the federal AGI for the year. It’s always best to keep receipts and records of charitable contributions in order to take the deduction.
Generally, only taxpayers who itemize their deductions qualify to deduct charitable donations. However, for tax year 2020, individuals who do not itemize may deduct up to $300 in charitable contributions.
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Healthcare is very expensive, but the IRS allows taxpayers to deduct the amount of total medical expenses that exceed 7.5% of the AGI. Medical expenses include payments for diagnosing, preventing and mitigating disease.
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If a young adult was lucky enough to purchase a home and they invested in solar panels or other forms of renewable energy, then they can claim a credit for 10% of the costs.
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Making smart use of tax deductions can help maximize a tax refund or minimize tax liability, depending on your personal circumstances. Knowing how to navigate your taxes can be tricky, and if there’s any doubt or confusion, it can be helpful to consult with a professional.
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This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.
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External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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