Monday, June 18, 2018
Business

Stocking stuffer for debt-burdened students: cash

All Elizabeth Starkey wants for Christmas is a little help paying her student loans.

With a monthly payment topping $1,000, the 31-year-old digital designer for Bravo cable television network said even a small contribution would provide some breathing room. "The only things I really need are a new computer, which is more than anyone wants to spend, or student loan money," said Starkey, who owes more than $51,000. "That is the biggest burden for me, financially, other than rent."

So after she learned about a new service that allows people to send cash gifts to student loan providers, Starkey alerted her family. But she's not terribly optimistic they'll comply. "People said, 'I want to get you something fun,' " she said.

Cash gifts are often written off as too impersonal. But as you're scrambling to find the perfect gift for a loved one, particularly the students and graduates who collectively hold about $1.2 trillion in student debt, a little financial wiggle room might be exactly what they want and need.

Here are some ideas, with instructions on how to minimize taxes and other unintended consequences.

PLAIN CASH: If you're not too concerned about exactly how your gift is spent, there's really nothing easier than old-fashioned cash. Individuals can legally give gifts of up to $14,000 to as many people as they wish in 2013, with no tax consequences.

STUDENT LOAN PAYMENTS: There are a few ways to help graduates chip away at debt. Anyone can make a payment on behalf of a borrower by check, though you need to know the loan servicer, the borrower's account number and the monthly payment amount, according to student loan experts.

A more effective method: Send a letter with your check that states the money should be used to prepay or reduce the principal of the loan, and not for a future loan payment.

A new service, through Tuition.io, makes this easier since it requires only that you know the gift recipient's email address.

TUITION HELP: Anybody can pay for some or all of a student's tuition directly. There are no gift tax implications, as long as the payment is made directly to the institution. But if you pay a big chunk of college tuition, or provide a large cash gift, it could hurt the student's ability to get financial aid. One workaround is to give the cash to the parent.

529 CONTRIBUTIONS: All contributions to these state-run, college-savings accounts grow tax-free. And the money can be withdrawn without paying capital gains taxes as long as the proceeds are used for education expenses. A majority of states provide state income tax deductions for contributions, but rules vary.

Services like GiftofCollege and GradSave try to make this easier: They allow you to contribute to anyone's account through a college gift registry.

APPRECIATED STOCK: Given the stock market's ascent over the last few years, you may be sitting on stock that has also risen appreciably. If you give those shares to a relative or friend in a lower tax bracket, he can sell them for cash and may pay far less in capital gains taxes than you would. But parents who give stock to younger children may not achieve the same sort of tax savings.

CONSUMER DEBT: Helping pay down a loved one's credit card debt can help ease stress at the start of the new year.

"If someone has $5,000 or less in credit card debt and can add a mere $50 a month to a minimum payment every month until the debt is paid off, depending on the interest rate, you can literally shave off a decade or more from the paydown period and wipe out thousands in extra interest," said Manisha Thakor, who runs MoneyZen Wealth Management. The same goes for gifting a lump sum.

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