How Using TurboTax Could Help With Your Student Loans

Loans, Student Loans
turbotax_studentloans

There could be an unexpected silver lining to filing your taxes this year: help tackling your student loans.

As part of a new feature and partnership with the student loan refinancing company Earnest, Intuit Inc.’s TurboTax now lets users elect to receive student loan refinance estimates based on their tax data. This estimate will tell users how much they could save by lowering their interest rate if they refinance with Earnest.

Later this tax season, TurboTax will also alert you to federal income-driven repayment plans and forgiveness programs you may qualify for, TurboTax spokesperson Julie Miller says. Five million TurboTax users may have student loans, according to an estimate in an Intuit press release.

Keep in mind that whether you use TurboTax or not, you can apply for student loan refinancing and sign up for federal repayment plans on your own at any time.

How it works

Letting TurboTax give you student loan recommendations based on your tax data is optional. The software will ask your permission after you finish filing.

If you opt in, TurboTax will share your tax data with Earnest. Earnest will use information from your taxes and a soft credit inquiry to give you a personalized interest rate quote if you qualify, and estimate how much you could save by refinancing. The typical borrower who refinances through Earnest has a credit score above 700 and regularly contributes money to savings accounts.

If you decide to refinance with Earnest, you’ll have to complete a full application, which includes a hard credit inquiry, before you can get a firm offer, says Jorge Tapias, vice president of partnerships at Earnest.

» MORE: NerdWallet TurboTax review 2017

How to tackle your student debt now

You don’t have to wait for TurboTax to tell you how to handle your student loans. Here are your options and when each might make sense for you.

If you have excellent credit: Student loan refinancing can save you money by lowering your interest rate. Earnest is one of several companies that refinance student loans. To make sure you’re getting the lowest rate, it’s a good idea to get rate estimates from multiple companies before you choose a lender.

To qualify for refinance, you typically need a credit score at least in the mid-600s and enough income to afford all of your bills every month. If you’re not sure what your score is, you can find out with NerdWallet’s credit score tool. Remember, though, you’ll lose access to income-driven repayment and forgiveness if you refinance federal loans.

If you’re struggling to afford your monthly payments: A federal income-driven repayment plan may be a good option. The plans cap your monthly payment at a percentage of your income and offer loan forgiveness after 20 or 25 years, but they’ll likely increase the total amount of interest you pay in the long run.

  • Tax tip: Loan amounts forgiven through an income-driven plan may be taxed as income.

If you work for the government or a nonprofit: Federal forgiveness programs, such as Public Service Loan Forgiveness or Teacher Loan Forgiveness, may be the way to conquer your debt. If you’re eligible, these programs offer loan forgiveness after you make qualifying payments for five or 10 years, depending on the program.

  • Tax tip: Loan amounts forgiven through Public Service Loan Forgiveness or Teacher Loan Forgiveness will not be taxed as income.

If you have Federal Family Education Loans: Federal student loan consolidation may be necessary to qualify for income-driven repayment or federal loan forgiveness. Contrary to popular belief, consolidating your federal loans won’t save you money; it’s simply a way to combine multiple federal loans into one loan so you have a single monthly payment.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.