Student Loans

Student Loan Interest Deduction

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Student loans can be the financial vehicle to attain an education and a better job. When tax time rolls around, you’ll want to be able to deduct your student loan interest on your taxes. We’ve put together the information below to help you understand how the student loan interest deduction works, as it can save you a lot of money when filling your yearly income taxes.

Student Loan Interest Deduction Eligibility
 Qualification Description
 Max Benefit $2,500
 Income Limit Single $80k, Married $160k
 Eligible Person You, your spouse, your dependent
 Student Status At least part-time
 School Status Must be accredited and eligible for student aid

Who Qualifies?

If you took out a loan for qualified education expenses, then it’s likely you’ll qualify to deduct the interest on that loan. But let’s make sure you qualify. Here are the things you have to consider:

What is a qualified education expense? Qualified education expenses include tuition, fees, room and board, books, supplies, and equipment.

How much? You may deduct up to $2,500 in student loan interest each year.

Eligible educational institutions: Your school must be an eligible educational institution. This includes almost all accredited public, nonprofit, and private schools. Make sure yours is accredited.

Income limits: If you’re an individual, you must make less than $80,000/year, and less than $160,000/year if married and filing jointly.

Enrollment: You must be enrolled in school part-time in order to take the student loan interest deduction.

Who doesn’t qualify? There are three situations where you can’t deduct the interest. First, if the loan was from someone related to you, it doesn’t qualify. Second, if the loan was made under an employer plan, you can’t deduct the interest. Last, if you are married and filing separately, you can’t both deduct the interest.

Frequently Asked Questions

I’m the parent, can I take the deduction?

You may be wondering whether the parent or student can take the tax deduction. The IRS states that the person whose name is on the loan may take the deduction.

Will I pay taxes on scholarships?

A scholarship is tax-free if you meet the following conditions: You are a candidate for a degree at an eligible educational institution, and you use the scholarship to pay qualified education expenses.

What is a 1098-E?

If you pay more than $600 in interest, you will receive a Form 1098-E Student Loan Interest Statement from your student loan provider showing the amount of interest you paid on your eligible student loans.

I borrowed money from my parents, can I deduct the interest?

No. Personal loans are not eligible for tax deductible status.

Are PLUS loan payments tax deductible?

Up to $2,500 interest is deductible for Parent Plus loans, although you must make less than $155,000 for a two-parent household.

Additional Education Tax Breaks

As a full-time student, you may reduce your taxable income by $4,000 for money you paid for tuition and fees. You may also reduce the amount of taxes you owe by claiming the American Opportunity Tax Credit, and/or the Lifetime Learning Credit, worth up to $2,500 and $2,000, respectively.

Parents saving for a child’s education may consider a Coverdell Education Savings Account, which allows you to put $2,000/year away for a student’s education expenses, tax free. As long as the disbursement doesn’t exceed educational expenses, disbursed funds are not subject to being taxed.

Learn more about tax deductible student loan interest on the IRS website.