Strategies for Minimizing and Reducing College Debt

If your child is approaching college, currently in college, or paying off student loans, several special programs and tax breaks can help you reduce college costs and lessen the impact of student-loan debt.

Build up a tax-free source of money for college in a 529 college-savings plan. You can contribute to any state’s plan, but your state may offer an income-tax deduction for contributions to its plan. See for more information about each state’s plan.

Apply for financial aid. Go to the Department of Education’s Federal Student Aid site ( to find out more about loans, grants, work-study, and other types of aid, and how to apply through the Free Application for Federal Student Aid (FAFSA).

Search for scholarships. and the College Board’s Scholarship Search ( include searchable information about thousands of scholarships. Also ask your high school guidance counselor for ideas — especially to find out about local scholarships. After your child starts college, continue to check with the college’s financial aid office about scholarships every year — some may only be available for upperclassmen or after a student has selected a major. Also, see if your employer or any organizations you belong to offer scholarships. The ICMA-RC Memorial Scholarship Fund, for example, offers scholarships for the surviving children and spouses of local and state government employees who have died in the line of duty.

Take advantage of tax breaks. The American Opportunity Credit can cut your tax bill by up to $2,500 per student for the first four years of college. To qualify, your income must be less than $90,000 if single or $180,000 for joint filers. See IRS Publication 970 at for more information.

Deduct student-loan interest. You (or your child) may be able to deduct up to $2,500 of student loan interest paid if your modified adjusted gross income in 2019 is less than $70,000 if single or $140,000 if married filing jointly (the deductible amount gradually phases out as income rises, up to $85,000 if single or $170,000 if married filing jointly).

Learn about loan-forgiveness programs. The Department of Education offers several special programs through which federal student loans can be forgiven, canceled, or discharged. Certain public service employees, for example, can have their student-loan balance forgiven after working 20 years full-time for an eligible organization, such as a federal, state, or local government, a tax-exempt 501(c)(3) nonprofit organization, or a private nonprofit organization that provides emergency management, military service, public safety, law enforcement, early childhood education or other qualifying services. Only federal direct student loans count, and you must have made 120 monthly payments before the remaining loan balance is forgiven. See more information about the Public Service Loan Forgiveness and other programs.

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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