(Editor’s note: This post features tax info from Canadian contributor Bridget Casey. U.S. students may also be able to claim education deductions. Check out publication 970 for more details on how these work.)
It’s been a while since I shared an update on my student loan payoff progress. For the past few months, there hasn’t been much to report: I made payments, and the balance decreased accordingly. Yawn.
Are you as bored as I am? Well, no one said debt was exciting.
It’s That Time Of Year Again
Now, I’m going to say something I’ll probably never repeat: I’m so glad it’s tax season. Before you disagree, my reasoning is simple: This week, I got a break from my regular student loan payment drudgery and was able to make a huge lump sum payment toward my debt using my income tax refund.
In Canada, you can claim an income tax credit for tuition and fees paid to an accredited institution you attend for a degree or diploma program. You don’t have to claim these deductions the same year you attend. In years that you earn very little or no money—like those that you’re still a student—you can carry this deduction forward and use it in a higher income year. Being able to claim future tax credits can really relieve the cost of a post-secondary education when it comes to paying the bill.
My Tax Refund Spared Me Thousands Of Dollars In Debt Payments
After 4 years of attending and paying for my university education, I received enough tuition credits to avoid paying a hefty tax bill both this year and last. Consequently, when it came time to file my income taxes in the years following graduation, I received big refunds. Last year, I made an extra $1,000 payment to my student loans using my income tax refund. This year, I managed to put a whopping $3,000 against the balance.
OK, so maybe I could have paid a little more than that, but tax season is also ideal snowboarding season, so I book a weekend in the Rocky Mountains every time my refund comes in. Who said life is all debt and no play?
Almost Debt-Free … And Taxable
Nevertheless, this means that $4,000, or nearly 20% of my original student loan debt total, has been paid for by tax credits I received for attending university and earning my degree.
It’s hard to believe that only a year and a half ago I was nearly $21,000 in debt, and now I have less than $5,000 left to go. Compared to the mountain of debt I started with, what remains now is nearly an inconsequential sum.
I’m really looking forward to being debt-free in 2013 … though I’m not really looking forward to paying taxes.
Do you put your tax refund toward your debts? Let us know your plan in the comments.
This post is for informational purposes only. It is not meant as tax or legal advice. Please see your tax professional for additional guidance.
(Photo: GSFC Photo Club)