The end of tax season is just weeks away. More than sixty-nine million taxpayers have already filed their returns for 2016 and more will do so by the April 18 deadline.
Most of these filers will also be getting a tax refund. So how do they plan to spend it?
One smart use of a tax refund is making an extra payment toward student loan debt. We recently conducted a survey to find out how many student loan borrowers plan to use their refunds to get their balance to $0 faster.
2 out of 5 tax refunds will be put toward student loan debt
Among more than a thousand student loan borrowers surveyed who expect a tax refund for 2016, two out of five (39 percent) say they will use it to repay their student loans.
This includes 14 percent who say they plan to put their entire tax refund toward repaying student loans. An additional 25 percent plan to use at least some of their tax refund on student loan debt.
About eight out of 10 tax returns result in a refund. Additionally, the average tax refund for the 2016 fiscal year is $2,973 so far, according to the IRS. That’s a pretty decent windfall that can be put to good use by making an extra, lump sum payment toward student loans.
For example, if you apply that amount to a typical 2016 graduate’s $37,172 educational debt, it would shave a whole year off of their repayment period. And they would lower the amount of interest they pay over the life of a standard 10-year loan by $1,504.
If you’re planning to use your tax refund toward your student loans, use the calculator below to see how much you could save.
Lump Sum Extra Payment Calculator
1 in 4 student loan borrowers unaware of important tax deductions
Some tax filers might also miss out on the opportunity to save on their taxes thanks to the student loan tax deduction. Around three-quarters (77 percent) of student loan borrowers surveyed said they know they can deduct their student loan interest.
But the other 23 percent who have student loans said they didn’t know that student loan interest is tax-deductible. The IRS allows filers to write off up to $2,500 in student loan interest.
Borrowers who are unaware of these potential savings and fail to claim their student loan interest on their tax returns could be missing out on up to $625 in tax savings.
Additionally, a third of this group (32 percent) is unaware of the student loan interest deduction despite filing with tax software or an app. These programs usually prompt users to deduct student loan interest, so it’s surprising they don’t know about it.
Wondering how much you’re likely to save by claiming the student loan interest deduction? The calculator below can give you an estimate.
Interest Deduction Calculator
45% of student loan borrowers file with tax software
The survey also asked student loan borrowers how they file their taxes. Filing using an online tax software or an app was the most popular method used by 45 percent of respondents.
An almost equal amount of filers, 41 percent, say they have someone else do their taxes for them. This includes six percent whose parents file for them.
But it also includes a third of filers who pay someone to prepare and file their tax returns. In fact, the second-most popular filing method overall is to hire a CPA or an accountant, which 22 percent do. Another 12 percent rely on H&R Block to file their returns.
Filers are (mostly) honest on their tax returns
The survey revealed that 94 percent of filers do not think it’s okay to lie when filing taxes. The other six percent say it could be okay.
When asked whether they have lied or “cheated” when filing taxes, 91 percent say “no.” Only three percent say they have lied on their returns. Another five percent aren’t sure whether they have or not.
Respondents were also asked if they thought certain kinds of lies would be acceptable on a tax return. They could choose as many of the following as they think are acceptable:
- Not reporting income (less than $5,000)
- Not reporting income (more than $5,000)
- Claiming a dependent who isn’t one
- Claiming more donations than you made
- Claiming business expenses you didn’t have
- Claiming education expenses you didn’t have
Respondents could also select “none of the above,” which respondents overwhelmingly did (89 percent).
However, leaving off income below $5,000 was the tax “cheat” respondents found most acceptable, with seven percent indicating they thought it was okay.
Student loan borrowers are smart and careful with their taxes
Overall, the survey results reveal that student loan borrowers are responsible tax filers. They are very unlikely to try to lie or cheat on their taxes. And if they get a refund, chances are they will put some of that cash toward student loan debt.
Survey Methodology: This survey was conducted as a Google Consumer Survey, run from March 11-14, 2017. It collected answers from 1,018 respondents who have student loans. The largest margin of error present in any survey response was 3.1 percent.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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