Should Student Loan Borrowers File a Tax Extension?

For many taxpayers, filing an income tax extension is a necessity — they simply need more time to get their paperwork in order. But the decision can be strategic, particularly when using a tax extension to lower federal student loan payments.

Keep reading to learn how and when student loan borrowers should file a tax extension.

Filing a tax extension: How it works

When you file a tax extension, you’re requesting additional time to submit your federal income tax return. If you request an extension by the April tax filing due date (generally April 15), the IRS will extend your deadline to October 15 — giving you an additional six months to file your return.

Note that a tax extension does not extend the time for paying your tax liability. The Internal Revenue Service (IRS) still expects you to pay any owed taxes by the original tax filing due date. Therefore, you’ll need to estimate your tax liability prior to April 15 and plan to make payment (if taxes are owed) when you file your tax extension.

There’s no penalty or fee to file a tax extension. However, the IRS imposes a hefty penalty if you fail to file your tax return or a tax extension by the April deadline. The late filing penalty is 5% of the balance due for each month your tax return is late.

How to file a tax extension

Filing a tax extension is simple compared to most other tax situations. There are several ways depending on your preference:

Make a payment online through IRS Direct Pay. If you use the online payment option, you don’t need to file Form 4868. The IRS will automatically process an extension if you pay part or all of your estimated tax liability.
Use tax software. IRS Free File allows you to request an extension electronically, and there’s no income limit for extensions. Alternatively, you can use your favorite online tax software service.
Request an extension by mail. Mail Form 4868 using the addresses found on page 4.
Tap into your tax professional. SLP Wealth offers high-level advice for personal and business tax returns. Our team can walk you through the benefits of filing a tax extension in partnership with your student loans and overall financial plan.

To verify your tax extension has been processed, we recommend creating an account on the IRS website to track your status. This helps ensure your extension is officially on file, so you won’t be subject to a significant late filing penalty.

Here’s an example of a tax extension that’s been processed:

Source: Internal Revenue Service

Do you need to file a state tax extension?

Some states — notably New York — don’t automatically accept a state income tax return extension if you file for a federal extension. In which case, you might need to file a separate form to get a state income tax extension.

Always check your state’s rules or consult a tax professional before assuming you don’t need a separate state extension. The same applies if you have a local income tax that has its own jurisdiction rules.

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Should you file a tax extension if you have student loans?

Now that we understand the logistics of filing a tax extension, including important deadlines and penalties, let’s shift to why a student loan borrower might consider filing a tax extension.

Two main reasons fuel the decision to file a tax extension if you have student loans:

You need more time to prepare your tax return. This is common for business owners and those who have private investments that issue a K1.
You want to lower your federal student loan payments. This is a strategy that can be advantageous for borrowers on an income-driven repayment (IDR) plan.

Let’s focus on the second reason to see how filing a tax extension can affect your student loans.

Scenario 1: Your IDR recertification date is between April and October

Borrowers with IDR recertification dates between April and October can benefit from filing a tax extension. This repayment strategy forces the Department of Education to use income information from the previous year’s tax return instead.

Let’s say Kendrick is doing some physician financial planning. He has $275,000 in federal student loan debt with the following adjusted gross income (AGI) history:

$60,000 in 2023 as a resident.
$180,000 in 2024 as he became an attending in July.
$300,000 in 2025 at his full earning potential.

Kendrick’s IDR recertification date is set for May 1. If he files his federal tax return by the regular April 15 deadline, he’ll recertify using significantly higher income. But filing a tax extension lets him use last year’s tax return to recertify his IDR plan, saving him around $12,000 per year (assuming his payments aren’t capped). That’s an extra $1,000 per month that can go toward other financial goals.

Kendrick can then file his tax return anytime between June and October, with no requirement to update income with the Department of Education until his next certification date.

Note that if your anniversary date is after October 15 (the tax filing extension deadline), you won’t be able to capitalize on this student loan repayment strategy.

Scenario 2: You want to switch IDR plans or consolidate your student loans

This tax season is a little different considering the millions of student loan borrowers stuck in administrative forbearance after enrolling in former President Biden’s Saving on A Valuable Education (SAVE) plan. Borrowers must choose whether to stay on SAVE while it bounces around the courts or switch to a different income-driven plan.

Let’s say Marian is currently on the SAVE plan, which includes a 0% interest subsidy at the moment but no credit toward forgiveness while in forbearance. Depending on her repayment goals (e.g., working toward Public Service Loan Forgiveness, PSLF, versus paying her loans in full), she might want to switch to Income-Based Repayment (IBR) to continue progressing toward loan forgiveness. In which case, she could benefit from filing a tax extension and using her prior year’s income to calculate her new IBR payments.

Unfortunately, switching from SAVE to another IDR plan hasn’t been easy and there continues to be roadblocks. As of February 26, 2025, the Department of Education under the Trump administration has removed the online application for IDR plans, as well as the paper IDR application from the forms library. Loan consolidation applications are also unavailable at this time.

Source: Department of Education, Federal Student Aid website

To say it’s a confusing time for student loan borrowers is an understatement. If you’re unsure of what to do, we recommend moving forward with filing a tax extension. You can then wait until you have more information to decide to switch from SAVE. Filing a tax extension will allow you to enter IBR using lower income from the prior year’s tax return. It can also give you some measure of control to make a more educated decision based on new developments that are sure to come over the course of this year.

Get tax planning help that factors in student loan repayment

Filing a tax extension is just one of many tax planning strategies that can help lower student loan payments. Understanding the timing of your IDR recertification date and staying informed of student loan policy changes can help with some of the uncertainty borrowers are feeling leading into this tax season.

If you’re able to take advantage of using lower income from a prior year to calculate your monthly payments, it makes sense to file a tax extension. If you’re on SAVE and unsure what to do, filing a tax extension can provide breathing room while we wait to see what comes next from the Trump administration. And, as always, we’re here to help!

Our SLP Wealth team offers profession-specific financial planning — everything from student loan repayment to tax services to retirement savings and more.