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Paying Off a Student Loan as a Gift


Student Loans

Published November 30, 2020

Hey Lin-Manuel, here’s some fodder for your next musical: A 2018 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

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 to add another individual as an authorized payer. This facilitates direct payments and eases the graduate’s burden from being the only person able to pay down the debt. There will be a few steps for the borrower to grant this access to a someone new, so they’ll want to check their student loan servicer’s website for more information on setting up “third-party account authorization” or “account authorization” for this option.

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.

Don’t forget the gift tax

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. Learn more about gift taxes here.

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.

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