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Question for the esteemed tax advice folks:

My father (bless his heart) is considering paying off my student loans. If he pays the debt off directly to the lender (in this case the US Dept. of Education), is this considered subject to gift tax (the amount in question is over 10K).

I understand that payments to cover tuition are not subject to gift tax. Are payments to cover student loans also exempt? If not, what other strategies might be pursued?

Thanks in advance,
Jon
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<<My father (bless his heart) is considering paying off my student loans. If he pays the debt off directly to the lender (in this case the US Dept. of Education), is this considered subject to gift tax (the amount in question is over 10K).>>

I believe so, yes. He's not paying directly for the education. He's paying indirectly by paying off the loan. This "indirect" issue is an important distinction. So that being the case, I believe that the gift tax rules would be in play.

<<I understand that payments to cover tuition are not subject to gift tax.>>

Basically correct.

<< Are payments to cover student loans also exempt?>>

Nope...I don't believe so.

<< If not, what other strategies might be pursued?>>

Have him gift you $10k a year for the next number of years. You pay the loan down at that pace and deduct the interest on your tax return. I'm sure that the loan will be paid in full in no time.

TMF Taxes
Roy
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