If you've been diligently paying your student loans all year, you’ll want to take advantage of the student loan interest tax deduction.
This allows you to deduct the interest you’ve paid on your student loans up to $2,500. By claiming this deduction, you’re lowering the amount of income the government can tax.
Let's dig in to some common questions about student loan interest and taxes.
Can I write off my student loans on my taxes?
Not exactly. A write-off suggests that you’re eligible for a tax deduction in the amount of an expense or loss. So while you can’t write off the amount you’ve paid toward your student loans, you can deduct the interest you’ve paid. That won't add money to your tax return, but it will decrease the amount of money you have to pay taxes on.
If you are paying a loan that helped get you through post-secondary school, which you attended at least part-time, you should qualify to take the student loan tax deduction.
Am I eligible to take the deduction?
To qualify, your adjusted gross income must be less than $65,000 annually or $130,000 if you are married and filing jointly. If your adjusted gross income is between $65,000 and $80,000 (or 130,000 to $160,000 for married filing jointly), you can take a reduced deduction.
Refinanced student loans do qualify, as long as you haven’t refinanced for more than the original value of the loan.
However, if any of the following are true, you won’t qualify for this deduction:
- Your loan funded something other than educational expenses
- Someone else is claiming you as a dependent on their taxes
- The loan is under someone else’s name
- The loan is from your parents or your employer
- Your loan funds were used at a school that’s not designated as an eligible institution
If you aren’t sure about taking a tax deduction on student loan interest, speak with a tax professional.
Can a parent deduct student loan interest?
If a parent took out a loan for a spouse or a dependent, the parent is eligible to claim this deduction.
The same requirements stated above apply.
Stafford, Perkins, and Graduate PLUS loans will not be deductible for a parent since the student is the borrower.
Can I deduct student loan interest and take the standard deduction?
When filing your taxes, you generally have the option of claiming the standard deduction or itemizing your deductions.
The good news is that the student loan interest deduction is separate from the standard deduction, which means that you can claim both.
How do I know how much interest I paid in a year?
Each year, your lender has to report how much interest you paid. If you paid more than $600 in interest to a single lender during the year, you will receive a 1098-E form that lists the interest you paid.
If you have several loans from one lender, you may receive a separate form for each loan. If you paid less than $600 in interest to a lender, you can see the amount of interest on your year-end statement. If you don’t have that statement, contact your lender.
How else can I save money on my student loans?
While the tax deduction is a small advantage to paying back your loans, your best bet to save money in the long run is to pay off your loans quickly.
To find your way out of debt, check out some tips that will make it easier.
You might also want to consider refinancing your loans if you haven’t already. On average, people who refinanced saved about $259 a month. Visit our ReFi Ready calculator to find out how much you could save.