Don't Miss Out on Your State's Student Loan Tax Credits!

“Biden’s chief of staff said that the president asked the Education Department to review his legal authority to cancel debt and that he will determine how he could proceed.” NBC News, April 1, 2021

With this headline, twitter was a buzz with conversation again from those holding their breaths to hopefully see Student Loan reform.

Additionally, with more than 40 million Americans with student loan debt, the last stimulus surprisingly did not include any student loan debt cancellation promises or ideas.

The Federal Reserve estimates that Americans owed more than $1.7 trillion in student loans.

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Available Federal Student Loan Debt Relief

Beyond the grim news, there are options. Especially, during tax time, take note of your 1099E from your student loan provider. In short, you can deduct the student loan interest on your federal taxes up to $2,500 which can effectively reduce your Adjusted Gross Income and lower your taxable income. Lower tax is can likely yield a higher income tax return.

Service for Student Loan Cancellation

On the other hand, there is the Public student loan forgiveness program (PSLF).

The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer (listed below):

Any U.S. federal, state, local, or tribal government agency;
Service agencies like the U.S. military, public elementary and secondary schools, public colleges and universities, public child and family service agencies; and,
Special governmental districts (including entities such as public transportation, water, bridge district, or housing authorities).
A government contractor IS NOT considered a government employer.

More Help on the Way

While we wait for additional federal government support — some states are picking up the slack. check out the list of the some states that offer direct student loan tax credit programs so you don’t miss out. Tax avoidance is one of the pillars for building wealth and understanding your long term financial plan.

1. The Teacher Focused, Arkansas (AR)

If you’re a student loan borrower in Arkansas, you might be able to claim a student loan interest deduction on your state tax returns. If you used your loans to pay for qualifying educational expenses, you could get a deduction of up to $2,500.

The Post-Secondary Tuition Deduction is an itemized deduction that may be taken for a portion of the tuition paid by the taxpayer for the taxpayer or the taxpayer’s spouse or dependents to attend a post-secondary educational institution. The deduction is limited to the lesser of 50% of the amount actually paid for the tuition or 50% of a “weighted average tuition” for institutes or colleges with the same classification.

Amounts paid through scholarships, grants, and fellowships do not qualify. Expenses paid for fees, books, or lodging are not included. The institutions do not have to be located in Arkansas to qualify.

Secondly, Arkansas also allows residents who contribute to the Arkansas Tax-Deferred Tuition Savings Program, a Section 529 plan also known as GIFT, to take a tax deduction for contributions of up to $5,000 per taxpayer per year.

Thirdly, Arkansas has two student loan forgiveness programs that are specific to just the State of Arkansas; State Teacher Education Program (STEP) and Out-Of-State Veterinary Medical Education Loan Repayment Program.

2. The Education Juggernaut, Massachusetts (MA)

The state of Massachusetts allows student loan borrowers to claim a student loan interest tax deduction of up to $2,500, assuming they meet all required criteria.

Mass. allows a deduction for tuition payments paid by taxpayers for themselves, their spouses, and their dependents who attend a qualifying two or four-year college leading to an undergraduate or associates degree, diploma or certificate.

The deduction is equal to the amount by which the tuition payments, less any scholarships, grants or, financial aid received, exceed 25% of the taxpayer’s MA adjusted gross income. However, these deductions maybe subject to income phaseout.

Allowable Schedule Y, Line 10 federal deduction – $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction
Allowable Schedule Y, Line 12 MA deduction – $400, undergraduate interest not claimed as a federal deduction was an allowable Massachusetts deduction
Alternatively, allowable Schedule Y, Line 12 Massachusetts deduction – $2,900 since all of the interest is for undergraduate and if it is clear that taxpayer does not qualify for No Tax Status of Limited Income Credit

3. Too Far North, Maine (ME)

Maine offers a student loan interest tax credit to college graduates working and living in the state.

The credit for educational opportunity is available to Maine residents who obtain an associate or bachelor’s degree from a Maine college, community college or university after 2007 ; or an associate or bachelor’s degree after 2015 from an accredited Maine or non-Maine college, community college or university; or, a graduate degree after 2015 from an accredited Maine college or university and who, after graduation, live, work and pay taxes in Maine.

The credit is also available to employers of qualified graduates.

If you graduated in:	Associate degree	Bachelor’s degree	Graduate’s degree
2008	*	*	N/A
2009	*	*	N/A
2010	$72.00	$343.00	N/A
2011	$68.00	$344.00	N/A
2012	$65.00	$342.00	N/A
2013	$65.00	$356.00	N/A
2014	$66.00	$363.00	N/A
2015	$70.00	$377.00	N/A
2016	$70.00	$373.00	$325.00
2017	$68.00	$364.00	$317.00
2018	$74.00	$377.00	$328.00
2019	$77.00	$367.00	$338.00
2020	$77.00	$367.00	$341.00

It’s Better than $0.00

4. Maryland OneStop Opportunity Zone

The State of Maryland offers the Student Loan Debt Relief Tax Credit to Maryland Residents & Maryland Part-year Residents who have incurred at least $20,000 in student loan debt for undergraduate and/or graduate education. However, your current balance must be at least $5,000 when you apply, to receive the tax credit of $5,000.

It’s definitely a great Opportunity

To clarify, the undergraduate and/or graduate degree (i.e., associate, bachelor, masters, professional graduate, doctoral, or post-doctoral degree) must be from an accredited college or university.

MD Student Loan Tax Credit Recipient Priority

Priority is given to individuals who meet both of the following criteria: (1) they have not received the Maryland tax credit in any prior years; and (2) they incurred their loans in order to pay in-State tuition to an institution located in Maryland.

It is likely that you can continue to apply annual and as long as there is money available, you get a tax break.

You can apply from July 1, 2021 through September 15, 2021. The application fee is $0.00.

5. Crazy Cold, Minnesota (MN)

Minnesota residents with student loan debt could qualify for the state’s student loan credit.

The credit amount depends on your income, loan payments, and original loan amount.

The maximum credit is $500 each year or $1,000 for married couples who file a joint return (if both spouses made payments on their own qualified loans).

6. The Big Apple, New York (NY)

The New York State Tuition Tax Credit/Deduction offers resident taxpayers a deduction or a refundable credit for allowable undergraduate tuition paid for themselves, their spouse, or their dependents enrolled in qualified institutions.

Student Loan Debt Solutions: Cancellation, Forgiveness and Tax Credits

Administrative bloat and the advent of the luxury college experience, it is no wonder why costs are so high. No matter how you lean politically, we all know that debt is a problem in America. As a society, we have to re-calibrate and move closer to the mean vs social media lifestyle creep.

While I don’t think wholesale cancellation is in order since it’s federal revenue for other social programs, I’m a stronger proponent of (1) not taking out rampant loans, (2) seeking forgiveness or tax credits, or (3) devising a plan and paying them off.

Opportunities+

In summary, you can always see if you can claim the federal student loan interest deduction for up to $2,500 tax reduction, and see if you are eligible for the American Opportunity Credit or Lifetime Learning Credit for qualifying educational expenses.

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.