Adulting is scary! Suddenly, money is everywhere and confusing. Part of that confusion can definitely stem from filing taxes. Taxes, however, can be tackled, no matter how mysterious. Here are some FAQs about filing taxes as a college student.
***Please note that Let’s Go to College CA can not offer professional tax advice. This post serves as a collection of answers found online. Consult a tax professional for specific questions regarding your unique situation***
Q: Do college students need to file taxes?
A: ANYONE who is single (not legally married) AND earned more than $12,400 in 2020 is required to file taxes. Earned income includes salaries, wages, tips, professional fees, and taxable scholarships and fellowship grants.
Additionally, you are required to file taxes if your unearned income was more than $1,100. Unearned income includes taxable interest, ordinary dividends, capital gain distributions, unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.
Source: Internal Revenue Service (IRS)
Q: Can my parents still claim me as a dependent?
A: Yes! Your parents can claim you as a dependent until you are 24 years old AS LONG AS they provide more than HALF of your living support AND you are a full-time college student. If your parents provide less than half of your support and/or if you are not a full-time student, you should file your taxes independently from them.
Source: Internal Revenue Service (IRS)
Q: Can I file my own taxes as a dependent?
A: Yes! Even if you are a dependent, you may still file taxes if you had earned income in 2020. If you had a job where you were taxed, you may be entitled to a refund. All you have to do is note in your tax return that you will be claimed as a dependent with your parents. A tax preparer or tax preparing website will assist you with this.
Source: Internal Revenue Service (IRS)
Q: What is the American Opportunity Tax Credit?
A: If you/your parents make less than $80,000 a year, you may be entitled up to a $2,500 credit from the government. The credit is meant to help you pay for qualified education expenses. The main factors of eligibility are being enrolled at least half-time during the beginning of 2020, not having finished the first 4-years of higher education, and having no felony or drug conviction.
If the credit brings down the overall tax you owe to zero, you can have 40 percent of any remaining amount of credit (up to $1,000) refunded to you.
Source: Internal Revenue Service (IRS)
Q: What information do I need to file taxes?
A: The main things you will need to file your taxes are your social security number, your mailing address, a W-2 form(s) (provided by your employers), a 1098-T (provided by your school), and a 1098-E (provided by your school loan servicer).
Source: Internal Revenue Service (IRS)
Q: Can I file taxes if I am undocumented?
A: Yes! If you are undocumented, you are required to file taxes if you made more than $12,400 in 2020.
Source: The Balance
Q: What if I don’t have a social security number?
A: If you do not have a social security number, but still are required to file taxes, you can use an Individual Taxpayer Identification Number (ITIN). The ITIN does not allow you to work legally in the U.S., but can be used when reporting taxes. To get an ITIN, you can apply for one through the IRS.
Source: Internal Revenue Service and The Balance
Q: What if I don’t have a mailing address?
A: You can choose to use a P.O box for tax filing purposes. If you are experiencing homelessness, however, you can ask a shelter or service center if you may use their address on your records and they may allow it.
Source: Get It Back
Q: Can I claim a device such as a laptop or a tablet as a qualifying educational expense?
A: Yes! If you bought a device in 2020 because it was required for school, then it qualifies as an education expense. However, if you are claiming the Lifetime Learning Credit, you may not deduct equipment purchased from the education institution.
Source: Turbo Tax
The creation of the California Dream Loan was first introduced by then-Senator Lara back in 2014. Then in 2018, Assemblymember Ian Calderon introduced AB1895 and it was signed by the California governor. AB1895 provided repayment programs based on someone’s income for the loan. The latest piece of legislation signed by Governor Newson was SB354 by Senator Maria Elena Durazo which expanded the Dream Loan program to graduate students.
How to apply and know you if are eligible
Students are eligible if they are enrolled at a CSU or a UC where the loan is currently being provided and they are enrolled as an AB540 student. Students may also be eligible if they file the California act application with the financial aid office and show that they are in financial need. Students need to keep in mind that the loan is provided on a main campus basis so they have to make sure to talk to their campus because it is not administered by anyone else.
Important details about California Dream Loans
- The interest rate that you agree upon in your contract can not change, it is a fixed interest rate and the interest rates are the same as federal student loans.
- Just like federal student loans, you have a six-month grace period before you have to pay it back.
- There is an income-based payment program that schools have come up with. This is based on what you are making as someone who has entered their career and are you eligible to repay this program.
To learn more about CA Dream Loans click the video below!
To qualify for Public Service Loan Forgiveness (PSLF), you must make 120 total monthly payments while:
- Enrolled in an Income-Driven Repayment Plan
- Have Federal Direct Loans or have consolidated other federal student loans
- Working full-time for a government agency or certain types of nonprofit organizations
Before Graduating or Immediately Upon Graduation – check these eligibility requirements first and early on to plan for Public Service Loan Forgiveness:
- Check what kind of loan you have by logging in to www.StudentAid.gov.
- Confirm that you have a Federal Direct Loan that is not in default. This is the only federal loan that is eligible for PSLF.
- If some of your federal student loans are not Direct Loans (FFEL and Perkins Loan), they need to be consolidated to qualify; this is likely your situation if you borrowed before 2011. Payments on FFEL or Perkins Loans made before you consolidate will not be counted. Depending on your circumstance there may be pros and cons to consolidating in order to apply for PSLF.
As You Start Working in Public Service – Document Your Employment Using the PSLF Application Form:
- Submit a PSLF application form every year or when you change employers. You’ll want to have documented every qualified employer where you worked while you made a payment towards PSLF. Especially if you have multiple public service employers.
- Make sure that your PSLF application form has all required fields completed. Incomplete forms or inconsistencies may affect your eligibility. If you do not meet a PSLF qualification, the response letter to your application will provide more information.
- Make sure you have all the information required: employer’s address, Employer Identification Number (EIN) which can be found on your Wage and Tax Statement (W-2), and consistent info with your previous application.
As You’re Working in Public Service – Submitting your forms using the PSLF Help Tool:
- Log in with your FSA ID. The tool will import your loan info automatically.
- The Tool will ask a series of questions to confirm you’re on the right track to loan forgiveness and that your employer qualifies for PSLF.
- Find out if your loans qualify and options available to you if they don’t.
- Get a signature from an “authorized official” at your employer, typically someone in your human resources office.
- Print and mail your completed form. Save and archive your documentation (PSLF application, response letters from FedLoan Servicing, and employment documents) in case there are any discrepancies.
After Working at Least 10 Years in Public Service – Applying for PSLF and Getting Your Loan Forgiven:
- Upon making your 120th payment you’re ready to apply for PSLF. You must still be working for a qualified employer when you submit your application.
- Gather your current employer information and any documentation used to prove previous employers qualified while you made payments towards PSLF.
- Complete and submit the PSLF application by using the PSLF Help Tool (see above), by mail, or fax.
- If your PSLF application is approved, then all remaining balance including interest and outstanding principal will be forgiven. Any payments made after the required 120 will be refunded as well.
What are the Differences Between Federal & Private Student Loans?
Federal student loans are provided by the government after a student or their family fills out a FAFSA. The conditions are mandated by law and include specific protections (such as fixed interest rates and income-driven repayment plans) not usually associated with private loans. Unlike federal loans, private loans are provided by private companies like banks or credit unions. Private loans have terms and conditions that are set by the lender. Private student loans are generally more expensive and offer fewer benefits and protections than federal student loans.
How Do I Know If I Have a Private or Federal Loan?
Federal student loan information can be found by going to www.StudentAid.gov. If you do not know the name of your lender or servicer, and you cannot find your loan information at StudentAid.gov, you most likely have a private loan. You can find information about your private loan by checking your credit report.
Any student loan information that shows up on your www.StudentAid.gov account are federal loans. It is common that borrowers have both Federal and private loans. If you have a loan that doesn’t show up on your www.StudentAid.gov account, it is important to check your credit report to find out who your private loan company is.
Are There Different Interest Rates With Federal and Private Loans?
Federal loans have fixed interest rates that are usually lower than private loans. Private student loans can have variable or fixed interest rates. The interest rate on private student loans can be higher or lower than the interest rate on federal loans.
Do Private Student Loans Have Repayment Plans?
Only federal student loans have mandated repayment plans by the government. If you have a private student loan, and are struggling to make your monthly payment, you should contact your loan servicer to inquire about any repayment plans they offer.
What Are Income-Driven Repayment Plans?
Income-Driven Repayment (IDR) can make monthly payments more affordable for borrowers with lower income. In an IDR Plan monthly payments are calculated as a percentage of ‘discretionary income’ based on income and family size. If your income increases while on an IDR plan, your payments can increase. Conversely, if you lose income perhaps due to losing your job, your monthly payment can be reduced to $0.00. After completion of an IDR Plan, any remaining debt may be forgiven. Below is a chart with how different IDR Plans monthly payments are calculated and an estimated timeline for the plan.
|Different IDR Plans
||How is my monthly payment calculated?
*percentage of “discretionary” income*
|How many years can I stay in the plan for?
*any remaining debt is forgiven after completing these timeframes*
|Revised Pay as You Earn (REPAYE)
|Pay as You Earn (PAYE)
|“New” Income-Based Repayment (IBR)
|Income Based Repayment (IBR)
|Income Contingent Repayment (ICR)
When Do I Sign Up For an Income-Driven Repayment (IDR) Plan?
After your 6-month grace period ends (when you leave your higher education program or graduate) you will automatically enter the 10-year Standard Repayment Plan. You can enroll in an IDR Plan at any time when you are paying off your student loans.
To remain in an IDR plan, you must recertify your income and family size with your servicer annually. If you don’t recertify by your specific deadline, your monthly payment will increase to the amount you would pay under the 10 year Standard Repayment Plan.
If you don’t recertify your income by the annual deadline any unpaid interest will be capitalized (added to the principal balance of your loans). This will increase the total cost of your loans over time because you will then pay interest on the increased loan principal balance.
Borrowers who fail to recertify can still reenter an IDR plan at any time. And, borrowers can recertify their income at any time if they need to adjust their payments due to loss of income or job.
What Happens If My Income Increases Under the Income-Driven Repayment (IDR) Plan?
If your income ever increases to the point that your calculated monthly payment amount would be more than the 10-year Standard Repayment Plan, you’ll remain on the IDR plan, but your payment will no longer be based on your income.
Instead, your required monthly payment will be the amount you would pay under the 10-year Standard Repayment Plan, based on the loan amount you owed when you first began repayment. Again IDR Plans are especially beneficial to borrowers who are lower-income or may have become unemployed.
What is the CARES Act & Executive Action?
The CARES Act provides relief to some student loan borrowers during COVID-19 by mandating that federally-held, direct student loans are automatically placed in an administrative forbearance that suspends both payments and interest until September 30, 2020. President Joe Biden used executive action to extend this relief until September 30, 2021.
Who qualifies to have loans paused?
Under the CARES Act and executive actions, federal Direct Loans all qualify as well as Federal Family Education Loans (FFEL) that are held by the Department of Education. The only loans that do not qualify are commercially-held FFEL Loans, Perkins Loans owned by your college, and private loans.
Is the pause automatic or do I need to opt-in?
The pause on most federal student loans is automatic and you DO NOT need to opt-in. Eligible federal loans are automatically placed in administrative forbearance from March 13, 2020, to September 30, 2021. If you made a payment after March 13, you can request a refund by contacting your servicer.
How does the pause work with the grace period upon graduation?
Existing rules allow for students who leave their program or recent graduates to not begin making payments on their federal student loans until 6 months after leaving school – this is called the “grace period.” Those whose “grace period” ends during the pause on federal student loan payments will automatically have their payments paused as well. Those whose “grace period” ends after the pause on federal student loan payments expires will immediately enter repayment.
How does this affect Public Service Loan Forgiveness?
The Department of Education states that suspended payments WILL be counted toward Public Service Loan Forgiveness (PSLF) if you meet all other loan forgiveness requirements. These requirements include if: (1) you have Federal Direct Loans, (2) continue to work for an eligible employer, and (3) were on a qualifying repayment plan prior to the implementation of the CARES Act.
What happens if I am already in default?
The Department of Education announced a pause on debt collection against defaulted borrowers, including wage garnishment, reduction of tax refunds, and reduction of Social Security and Social Security disability benefits. Recent guidance states that the pause on debt collection applies from March 13, 2020, to September 30, 2021. If collections against you were being processed after March 13, you are eligible for a refund on that amount.
What happens after September 30, 2021?
At this time, federal student loan payments will resume on October 1, 2021. If you are concerned about your ability to make payments, the guidance states that your federal loans are eligible for an income-driven repayment (IDR) plan, setting your payment based on your income for the next 12 months.
Public Service Loan Forgiveness (PSLF) is a federal program that could erase your federal student loan debt. This program is designed to support people working in lower-paying, but vitally important public service jobs, like non-profit work, social work, healthcare, and others.
It is important for you to understand that there are requirements you must meet to receive this loan forgiveness – your student loans won’t just be automatically forgiven after a couple of years of public service work. There are several requirements you must meet to receive public service loan forgiveness. You must meet these requirements for a total of 120 monthly payments, so it is important that you are on track early on. Make sure to read all the requirements carefully. After meeting all the requirements, and after you’ve paid 120 monthly payments (that’s at least 10 years of cumulative payments), you will need to submit an application to apply for PSLF to have your debt forgiven. Here are some steps you can take to ensure you receive the loan forgiveness you are expecting.
- Have the Right Type of Loan – Federal Direct Loans
- Federal Direct Loans are the ONLY type of loan that qualifies for PSLF. If you have a different type of federal loan, for example, Family Federal Education Loans (FFEL) or Perkins, don’t worry! You can consolidate your loan to qualify. Word of caution here – there are many different factors to consider when consolidating a loan as this creates a new loan with new terms. Depending on your circumstance there may be pros and cons to consolidating in order to apply for PSLF.
- Have the Right Type of Employer:
- You must work full-time for a qualifying employer while you are making your 120 monthly payments to be eligible for PSLF. Working full-time means working at least 30 hours per week or meeting your employer’s definition of full-time. This is about who your employer is, not your job title. Many qualifying employers include non-profits, government jobs, and public service work. Check if your employer qualifies by asking your Human Resources Department.
- Be in the Right Type of Repayment Plan – Income-Driven Repayment:
- To benefit from PSLF, you should repay your federal student loans under an income-driven repayment (IDR) plan. Income-driven repayment plans require you to update (or “recertify”) your income/family size each year. Income-driven repayment plans can be highly beneficial for borrowers that have lower-incomes. Payments can be as low as $0.00 per month, especially for borrowers facing a loss of income or job, and still, qualify towards the required 120 monthly payments for PSLF.
There are other federal repayment options that do NOT count towards PSLF. These include Extended Repayment, Graduated Repayment, and Extended-Graduated Repayment. Also, you can’t make a qualifying payment while your loans are in any of these statuses: in-school status, the grace period, deferment, forbearance, and default.
You can’t qualify for PSLF faster by making larger payments. In fact, making larger payments can create a domino effect that disqualifies future payments as well. So, you will need to make a payment equal to the exact amount owed for that month to receive credit for a qualifying PSLF payment.
For full PSLF requirements and details go to www.studentaid.gov.
The Institute for College Access & Success (TICAS) has put together tools and advice for students and borrowers impacted by the Coronavirus. They have compiled a list of what you need to know about your student loans during the COVID-19 pandemic, including:
- The basics of student loans during COVID
- Are your loans covered by new benefits?
- What happens if your loans are in a grace period?
- Late payments
- What happens if your loan is in default?
- What happens if your federal loans aren’t covered by COVID protections?
- Options if you have private students loans
Visit their page Resources for Student Loan Borrowers for more information.
This resource was provided by TICAS
Paying for college can seem intimidating, but after calculating your net price, you’ll get a better sense of your education’s affordability. Though you may receive grants, scholarships, and other money you do not have to pay back, you may have to take out loans to pay for school.
What exactly is a loan?
Simply put, a loan is money that is borrowed. Unlike your grants and other aid, you will eventually have to repay your loan. That said, there are varying types of loans that have different terms and conditions. This article will cover the most common types of college loans.
Federal subsidized loan
After reviewing your FAFSA application, your school may offer you a subsidized loan if they deem you high-need. The amount they offer you will depend on the rest of your financial aid package. They will never offer you a subsidized loan that exceeds the cost of your school’s attendance.
With a subsidized loan, you are not required to pay interest while you are a student (half time or more). After you graduate, you have six months until you are required to begin paying. This loan is offered by the federal government.
Federal Unsubsidized loan
Regardless of your financial need, your school will offer you an unsubsidized loan. The amount they will offer you will depend on the rest of your financial aid package.
With an unsubsidized loan, you are required to begin paying interest as soon as you take out the loan. If you do not want to pay the interest immediately, you may defer your payments (postpone them). Deferring your payments, however, will add the interest due to your capital (the original amount of money you borrowed). Read more on interest and capital below.
Federal vs Private loans
Despite the complexity of federal loans, they are both better options than a private loan from a bank or other financial institution. Federal loans have lower interest rates than banks, meaning that in the long run, you will pay less back. Some of the federal loans perks include:
- Terms and conditions set by law. Conversely, private lenders can change their terms and conditions whenever they want.
- Fixed interest rates. This means you won’t be subjected to a higher interest rate because of the market or your credit score. Private lenders can change their interest rates as they see fit. With lower interest rates, you pay less in the long run!
- Loan forgiveness programs. Your federal debt may be forgiven if you work in certain public service sectors.
CA Dream Loan Program
If you are an undocumented student in California, you are not eligible for federal student loans. However, California has the CA Dream Loan Program available to undergraduate and graduate students attending the CSU and UC.
Your school’s financial aid office will offer you the loan based on your Dream Act application. The maximum loan is $4,000 a year. You are not required to pay interest while you are in school and have six months to start paying your loan off. The terms and agreements are almost identical to the federal subsidized loan.
Read more about the difference between government (state and federal) and private loans here. We at Let’s Go to College CA, highly encourage you to use government loans over private loans; we believe the terms and conditions are better than private loans.
Principal and Interest Rate
What is a principal?
In finance, the principal is the amount of money that you owe. If you take out a $1,000 loan, your principal is simply $1,000.
What is interest?
Interest is the cost of borrowing money. A financial institution will charge you a percentage of the capital, that you have to pay back on their terms. You can pay the interest monthly, yearly, or however often required.
People often think that when you pay interest, you are paying off your loan. This is incorrect. You are simply paying the financial institution for the privilege of having the capital.
Let’s say you take out a $1,000 loan. The interest rate (the percentage of the capital) is 10%. This means that monthly, you are paying the financial institution $100. Even though you are paying $100 every month, your capital, the $1000 you originally borrowed, is still $1000. Again, this is because you have only been paying interest.
The only way to decrease the capital is to pay extra money in addition to the interest. If your capital is $1000 and your interest rate is 10%, then you may want to pay $150. That way, $100 goes towards interest and $50 towards your capital. Then, your capital is $950. This means that your interest payment is now $95. Remember, interest is simply a percentage of the capital you owe.
Please note that with unsubsidized loans, your deferred interest becomes part of your capital. Let’s say you took out a $1000 loan. You differ your 10% interest rates for a whole year (12 months), meaning you did not pay $1200 worth of interest. This amount gets added to your capital, so instead of owing $1000, you now owe $2200. This is how student debt accumulates significantly!
Check out these Youtube videos for more explanation on capital and interest rates.
Check out this US News Report article on college financial literacy. It includes links and brief explanations on budgeting, living on your own, filing taxes, and more.
Here is a quick rundown of the terms mentioned above!
Federal Subsidized – a loan that does not charge interest until six months after you have graduate college given by the federal government.
Federal Unsubsidized – a loan that charges interest as soon as you take the loan out given by the federal government.
Private loan – a loan that charges interest as soon as you take it out, given by a private lender like a bank, credit union, or other financial institution.
Capital – the amount of money that you owe.
Interest – a percentage of the capital that you are charged for the privilege of the loan
Please know that Let’s Go to College CA is student-led and student-centered. We understand the burden of student debt and will constantly advocate for better affordability. Please check back soon for more information on paying back loans, loan forgiveness, and more.