This week, we're pleased to welcome Sharon Cabeen as a guest blogger to Plan Well, Retire Well. Sharon will be writing a series of posts on a financial issue that we have not addressed here before: student loans. Sharon is director of financial literacy program operations with TG. You can reach Sharon at (800) 252-9743, ext. 6781, or by email at sharon.cabeen@tgslc.org. Additional information about TG can be found online at www.tgslc.org.

College is an exciting time. It's a time for new friends and new experiences, for learning and for expanding one's horizons. Given this excitement, most new college students give little thought to what lies on the other end – entering the adult world, looking for a job, and, perhaps most crucially with today's high college costs, repaying student loans.

While no one wants to dampen the enthusiasm that comes with going to college, the unfortunate reality is that too many students leave college without a clear understanding of their responsibility to repay their federal student loans, or even of how they should go about doing so. Over the next couple of months, TG will be presenting a series of posts to help the readers of this blog – as well as the student loan borrowers they may communicate with – understand the repayment plans federal student loan borrowers can choose from, the options available should borrowers have difficulty with repayment, and the consequences of failing to repay student loans in a timely manner.

So what do students need to know as they sign on the dotted line – or, increasingly, as they press a button on their computer screens – for the student loans they need in order to pursue a higher education? For one thing, they should know that, for all the negative press associated with student loans in recent years, what often isn't emphasized are the positive effects of repaying student loans on time. These include retaining borrower benefits such as reduced interest rates, options for deferment and forbearance, and an improved credit rating.

Another thing recent graduates should be aware of is the possibility of having to make payments to more than one loan holder, involving multiple due dates and loan payment amounts. This circumstance can be confusing and cumbersome to manage, presenting a challenge to successful loan repayment.

Borrowers should also know that, as daunting as repaying their student loans may seem, they can choose from a variety of repayment plans to suit their income and their needs. Some of these plans can reduce the strain of high monthly payments for those with particularly substantial student debt. For those struggling to make payments at all, deferment and forbearance offer the possibility of postponing loan repayment until better financial circumstances arise.

Finally, students taking out loans should know that neglecting to make their student loan payments can lead to unpleasant consequences. These can include a damaged credit rating, increased financial burden from collection fees, and the possibility of garnished wages.

Clearly, new college students should enjoy the excitement and possibilities going to college offers. If borrowing for that education makes it possible, students should have no reservation about doing so. But they should also be aware of the obligation to repay their student loans, the repayment options available, and the benefits of managing loan repayment responsibly.

Look for a future post on the variety of repayment plans students can choose from, coming soon.

Sharon Cabeen

There are currently eight tax breaks that can help you reduce the cost of college or other post-secondary education. Whether you're saving for college for your kids, paying for classes you're taking right now, or making payments on student loans, there may be a tax break for you:

Saving for future expenses

• Coverdell Education Savings Account
• Qualified Tuition Programs (529 Plans)
• Savings Bond Interest Deduction

Paying for current expenses

• American Opportunity (Hope) Credit
• Lifetime Learning Credit
• Employee Assistance Plans
• IRA Withdrawals

Making payments on student loans

• Student Loan Interest Deduction

The Higher Education Expenses Deduction expired at the end of 2011. However, it has been extended several times in the past and there's always a chance that could happen again before the end of 2012.

Here are some facts you may not know about these tax breaks:

If your income is too high, you won't be eligible for most education tax breaks. And the limit varies from one tax break to another. A single person with a Modified Adjusted Gross Income (AGI) above $60,000 will begin to lose some of his student loan interest deduction, and it will phase out entirely when the income reaches $75,000. The numbers for a married couple filing jointly are $125,000 and $155,000 for 2012.

Yes, there is a deduction for savings bond interest that is used to pay for post-secondary classes. But the bond owner must be at least age 24 when the bond is purchased, and be either the sole owner of the bond or own it jointly with a spouse. Most people buy bonds in the name of the child, making the interest on that bond ineligible for the deduction.

You don't have to be working toward a degree to get a tax benefit. The Lifetime Learning Credit is can be used even if you already have a degree. Taking a single class to acquire or improve job skills qualifies; so classes for a graduate degree or a recognized credential. That's why it's called the Lifetime Learning Credit.

Married couples must file jointly in order to claim the American Opportunity Credit, the Lifetime Learning Credit, the Student Loan Interest Deduction, or the Savings Bond Interest Deduction.

If you're under age 59 ½ and you take distributions from an IRA that you use for graduate or undergraduate classes, you can avoid the 10% early distribution penalty – but not the income tax.

Not all of your expenses are eligible. Tuition and fees are qualifying expenses for all of the tax breaks. But the cost of your textbooks won't count for the Savings Bond Interest Deduction or the Lifetime Learning Credit.

To get more details, see my fact sheet on Tax Breaks for Higher Education and IRS Publication 970, Tax Benefits for Education.

I don't know about you, but doing taxes has never been on my top 10 things I like to do! However, I'm all for filing my tax return in an efficient manner that doesn't cost me money. And, many of us now have good choices for filing our returns for free.

E-File Your Form 1040 Series Returns

First, if you file a Form 1040 series, e-filing your tax return (submitting your tax returns electronically) has truly become easy and safe. Regardless of income, everyone can use the free, online Fillable Forms, which are an electronic version of the IRS paper forms.

And, if your income was $57,000 or less in 2011, you can use Free File Tax Software for free tax preparation and e-filing. Instead of being presented with forms to complete, the name brand software will ask you questions and guide you through the process of completing your tax return.

My son and I did his tax return last weekend and completed it in about 30 minutes by using Free File Tax Software. It was painless – quick, easy, and the explanations were clear.

Another advantage of e-file is that you can expect to get your refund in half the time; I know my son appreciates that! For more information about e-file, go to http://www.irs.gov/efile/

Keep in mind that you may also be able to file your Illinois tax return for free, as well as your federal return. Check out e-filing IL taxes.

Do you need help filing your return?

If you are either low-to-moderate income or elderly, there may be free help nearby. Over 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations tax preparation services for low- to moderate-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help generally to people who earn $50,000 and less. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

To locate the nearest VITA site, taxpayers should call 800-906-9887.

To locate the nearest AARP Tax-Aide site, call 888-227-7669 or visit AARP's website.

Make a Plan for Your Tax Refund

Once you have your tax returns filed, make a plan to use your tax refund wisely. Here are some ideas to consider:

• Pay past due expenses.
• Pay down credit card debt.
• Set aside some of your refund as an emergency fund.
• Save for your child's education.
• Save for a major appliance or other large purchase.
• Boost your retirement funds.
• Pay down a mortgage or save for a down payment on a home.

Consider using IRS Form 8888, Direct Deposit of Refund to More Than One Account, to split your refund among two or three different accounts. This way you can save or invest your refund immediately, and keep some to help with daily living expenses.