Tax Tip Tuesday: Student Load Debt Relief

Tax Tip Tuesday

According to Forbes.com, “The latest student loan debt statistics for 2022 show that there are 45 million borrowers who collectively owe approximately $1.7 trillion in student loan debt. Student loan debt is now the second-highest consumer debt category — second only to mortgage debt and higher than debt for both credit cards and auto loans.”[1]

By state, Pennsylvania has the third highest student loan debt at $39,375 average per student.  But Maryland has a plan to counteract that.  And perhaps that’s why Maryland is not showing up on the list of states with the highest average student loan debt per person.  But the plan has also not yet helped Maryland to show up on the list of states with the lowest average student loan debt either! [2]

What Maryland is offering to its taxpaying residents has totaled $41 million in tax credits benefitting more than 40,000 residents since the program was introduced in 2017.  And the window for applying for the next round of tax credits begins July 1, 2022, and closes September 15, 2022.

Here’s the deal.  Maryland taxpayers who have incurred at least $20,000 in undergraduate and/or graduate student loan debt and have at least $5,000 in outstanding student loan debt are eligible to apply for the Student Loan Debt Relief Tax Credit.  The tax credits are divided into two groups of eligibility, including Maryland residents who attended a Maryland institution and Maryland residents who attended an out-of-state institution.

Who is eligible?

Determination of who gets awarded the credit is based on the following qualifications:

  • did not receive a tax credit in a prior year;
  • was eligible for in-state tuition;
  • graduated from an institution of higher education located in Maryland; or
  • has higher debt burden to income ratios.

The credit is claimed when the recipient files their Maryland tax return. If the credit happens to be greater than the amount of tax owed, a tax refund is issued.  Of course, under Maryland law the recipient must provide proof of payment to the Maryland Higher Education Commission (MHEC), showing that the tax credit was used for the purpose of paying down the qualifying student loan debt.  Proof of payment requires recipients of the Student Loan Debt Relief Tax Credit to, within two years from the close of the taxable year for which the credit applies, pay the amount awarded toward their college loan debt and provide proof of payment to MHEC.  Failure to do so will result in recapture of the tax credit back to the State.

Although the website for applying for this Maryland credit does not open until July 1, here’s the link to use when it does become active: MHEC Student Loan Debt Relief Tax Credit

Now for those who are not residing in Maryland, there may be hope on the horizon.  The White House is considering a wide-spread federal program for student loan forgiveness.  It’s just that it is not a done deal as of yet.  The current consideration on the table would wipe out $10,000 of student debt per borrower benefitting approximately 11.8 million borrowers.

The Education Department has also confirmed it is “working on new regulations that will permanently improve a variety of the existing student loan relief programs, significantly reduce monthly payments, and provide greater protections for students and taxpayers against unaffordable debts.”

Until there is a federal program, check with your state to see what may be available.  And of course, claim the American Opportunity Credit and Lifetime Learning Credit on your federal return IF you qualify.  Click HERE for more info on these 2 federal tax credits.

And of course, my staff and I are always available to help with all your financial questions and life events.  Simply contact me or my staff at Saunders Tax & Accounting.


[1] https://www.forbes.com/sites/zackfriedman/2022/05/16/student-loan-debt-statistics-in-2022-a-record-17-trillion/?sh=55766444d5a6

[2] https://www.forbes.com/sites/zackfriedman/2022/05/16/student-loan-debt-statistics-in-2022-a-record-17-trillion/?sh=55766444d5a6

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