Parents pay loans after school, implications?

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
1Losser
Posts: 2
Joined: Mon Oct 03, 2011 11:04 am

Parents pay loans after school, implications?

Postby 1Losser » Mon Oct 03, 2011 11:08 am

First time poster, long timer lurker. Question is this: say family is going to help with loans after law school, what are the logistics? In other words, can my parents directly pay the government for my loans without being taxed? They have an annuity that will pay my debt (about 70k) and I don't want them to give me the money cause I don't want to get taxed.

So can a parent just write a check to the government even if the loans are in my name?

kahechsof
Posts: 332
Joined: Fri Aug 26, 2011 7:26 pm

Re: Parents pay loans after school, implications?

Postby kahechsof » Mon Oct 03, 2011 11:20 am

1Losser wrote:First time poster, long timer lurker. Question is this: say family is going to help with loans after law school, what are the logistics? In other words, can my parents directly pay the government for my loans without being taxed? They have an annuity that will pay my debt (about 70k) and I don't want them to give me the money cause I don't want to get taxed.

So can a parent just write a check to the government even if the loans are in my name?


I am not a lawyer.
You are taxed when you owe money, and it is forgiven. So this seems like a bad idea.

But, you are not taxed when you are given a gift, and the gift giver is not taxed on the first 13k a year, and anything under the lifetime exemption which is currently 5 million. So they should give you the money and you will use it to pay the debt, and you will get the deduction for education interest paid. If you want, you can then gift them the amount you saved on the deduction. (notice, it would probably be better for them to take the deduction directly, assuming they are in a higher bracket.)

You might wonder if they can just pay the debt directly and call it a gift to you. Maybe. I don't know. I still doubt they would get the deduction.

1Losser
Posts: 2
Joined: Mon Oct 03, 2011 11:04 am

Re: Parents pay loans after school, implications?

Postby 1Losser » Mon Oct 03, 2011 11:42 am

Thanks for the help. I know that tuition isn't taxed when they give you a gift but I was wondering about debt from tuition. They can't get the money yet but want to help me out so I don't have to make 40k with nearly double the debt. Just gotta figure out all of this stuff.

User avatar
Tiago Splitter
Posts: 15467
Joined: Tue Jun 28, 2011 1:20 am

Re: Parents pay loans after school, implications?

Postby Tiago Splitter » Mon Oct 03, 2011 12:43 pm

You'll be fine. The only concern is whether the loan payments would count against the lifetime exemption, and whether they'd have to file form 709 if the payments exceed 13K in a year. If you could get them to just pay the tuition directly you wouldn't have to worry about it as payments to an educational institution are excluded from gift tax consideration.




Return to “Financial Aid”

Who is online

Users browsing this forum: No registered users and 2 guests