Q&A: Student loan payoff and gift taxes

Dear Liz: I adopted my granddaughter when she was 2. She has a number of student loans. Do I have the right to pay off her loans as her parent without tax consequences to her or to me?

Answer: Paying off someone’s student loans would be considered a gift. You may have to file a gift tax return, but you’re extremely unlikely to owe gift taxes.

The IRS requires you to file a gift tax return if you give any individual more than a certain amount in a year. (The 2023 annual exemption limit is $17,000.) You don’t owe gift taxes until the amount you give away above this annual limit exceeds the lifetime limit (which is 2023 is $12.92 million).

Your relationship doesn’t matter unless the recipient is your spouse. (You can give an unlimited amount to a spouse who is a U.S. citizen without gift tax consequences.)


  1. Dale strom says

    Regarding the grandmother that would like to payoff her granddaughters student loans.
    Agreed that if the funds go to the granddaughter, that would be a gift. However, if the grandmother paid the funds to the institution that originated the student loan. Would it not be a gift to the granddaughter? This would exempt Grandma from filing the gift tax return.

    • Liz Weston says

      You may be thinking of the unlimited exemption for a family member’s medical expenses or education. Only tuition costs are eligible and the payment must be made directly to the educational institution, not to a student loan lender.