Hey Lin-Manuel, here’s some fodder for your next musical: Last year, a survey found that only 17% of grads would prefer being gifted a ticket to Hamilton on Broadway vs. an equivalent payment toward their student loans.
As Hamilton’s George Washington might say, “Dying is easy, young man. Living [with student loans] is harder.”
We’re all well aware of the burden of mounting student loan debt. Since it directly affects many of our closest friends and family, here’s how you can help them enjoy this holiday season a little more by gifting student loan payments.
Give cash or check to the borrower
There aren’t many arguments against the appeal of a good ol’ cash gift. Your friend or loved one might appreciate those dollars even more when you give them money specifically to help pay down their loans.
Become an authorized payer
Most student loan servicers give you the option of making a family member an authorized payer. This facilitates direct payments and eases the graduate’s burden from being the only person able to pay down the debt.
Pay a loan together
Sit down with your family member or friend and have them walk you through making a payment on their behalf. It’s an easy way to get it done together, so you don’t have to jump through any hoops on your own.
Use a third-party student loan payment service
Services like loangifting.com facilitate transactions between the borrower’s loan servicer and those who wish to contribute. They’ll make a payment directly to the loan servicing company for you.
Know your tax limits
The person giving the student loan payment as a gift will be responsible for paying all applicable gifting taxes. If you intend to gift a single payment, then the gift tax shouldn’t be a concern. However, if you would like to gift a sizable amount, it could be a consideration. Keep in mind there are annual and lifetime exclusions that can help to minimize those taxes, but check your state laws regarding specifications. Currently, the annual gift tax exclusion is $15,000, and not taxable. If you’d like to give more than that as an individual it would, in theory, be taxed – unless you’re married. In that case, both of you could gift up to $15,000. Please note: Loan co-signers—usually a parent—can make tax free donations of any amount.
Pay-offs during school vs. after graduation
Remember, it’s never too early to get started chipping away at student loan debt — a student can still be in school while student loan debt is paid down. Setting a borrower up for greater financial freedom upon graduation is gift that can go a long, long way.
Give a student the gift of financial freedom
It’s easy to forget that many of us, particularly millennials, value experiences over things. By gifting a student loan payment, you’re freeing the graduate to spend their money elsewhere (on travel, for example), while paying down the very ‘thing’ that most prevents them from attaining financial freedom. It’s an important reminder as to why material gifts are losing sway, and a chance for all of us to refocus our resources on gifting that directly improves life satisfaction and wellbeing.
In the end, isn’t that what we most want for the ones we love?
This publication is not intended to provide legal, tax or accounting advice. You should consult with your own tax, legal and accounting advisors before engaging in any transaction.
Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank N.A. of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.