Student loan debt can be overwhelming. The process of navigating through the complex world of student loan repayment systems makes it a lot more complicated. However, there are ways to ease the burden, you can apply for the student loan forgiveness programs or claim a student loan tax deduction.
If you’re legally required to pay interest on a qualified student loan, then you may be eligible to claim the student loan interest tax deduction. The IRS offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. Here, you are allowed to deduct up to $2,500, depending on your AGI. The deduction is available for both federal and private student loans.
The following article will provide you with all the reasons you need to write off your student loan interest.
#1
First and foremost, taxpayers who pay interest on student loans can claim a deduction for the same. It isn’t an itemized deduction, but more of an adjustment to income; it’s subtracted from your taxable income to save you money.
So, anyone who owes student loan debt can claim the deduction. However, in order to qualify, you must meet the following conditions:
- You paid interest on a qualified student loan in the current tax year
- You’re legally obligated to pay interest on a qualified student loan
- Your filing status isn’t married filing separately
- Your MAGI is less than a specified amount which is set annually
#2
The student loan interest deduction is reduced or eliminated entirely for higher-income taxpayers.
So, if your MAGI is between $70,000 and $85,000 ($170,000 if filing jointly), you can deduct less than the maximum of $2,500. The deduction gradually reduces and is eventually eliminated by phaseout. The phaseout range generally depends upon your filing status.
| Filing Status | Phase-out Begins | Phase-out Ends |
| Married Filing Jointly | $140,000 | $170,000 |
| Qualifying Widow(er) | $70,000 | $85,000 |
| Head of Household | $70,000 | $85,000 |
| Single | $70,000 | $85,000 |
As per the data presented above, you can deduct up to $2,500 or the actual amount of student loan interest you paid, whichever is less, if your MAGI is under the threshold where the phaseout begins. Your limit is allocated if your MAGI falls within the phaseout range ($70,000 to $85,000 if you’re single).
#3
There are a variety of student loans that are eligible for the student loan interest deduction such as-
- Subsidized Federal Stafford Loan
- Unsubsidized Federal Stafford Loan
- Federal Perkins Loan
- Federal Grad PLUS Loan
- Federal Parent PLUS Loan
- Federal Consolidation Loan
- State Education Loans
- Private Student Loans
You can claim a deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. It applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
Moreover, the student loan interest deduction not only includes your tuition fee but also encompasses all your qualified education expenses. Some of the qualified education expenses include:
- Tuition
- Room and board
- Books, supplies, and equipment
- Transportation
- Fees
#4
Although the student loan interest deduction encompasses all the qualified educational expenses, there are some expenses that aren’t deductible. These include:
- Expenses for sports, games, hobbies, or non-credit courses do not qualify for the education credits or tuition and fees deduction.
- Traveling to gain experience to improve your skill or education. For example, a Spanish teacher who takes a trip to Spain to improve her knowledge of the Spanish language can’t deduct her travel expenses.
- Vacation expense or any annual leaves you took to attend classes.
Under certain circumstances, you may be eligible to deduct expenses for sports, games, or non-credit programs if the course or activity is part of your degree program.
#5
If you are self-employed, you can deduct your expenses for qualifying work-related education directly from your self-employment income. This also includes your student loan interest. Here are some examples of freelance professionals who can legitimately write off their student loan interest:
Performing Artists: If you are a performing artist (actor, dancer, singer, choreographer, acrobat) you can deduct your expenses for qualifying work-related education directly from your income as you figure your AGI.
Freelance Developer: If you are a freelance developer, and happened to have taken a student loan to pursue a degree or a program to advance your career, you can deduct the student loan interest since the education will help you improve the skills needed in your present work.
Real Estate Agent: If you’re a real estate agent, you are bound to pursue a continuing education course in Real Estate to renew your license, so you are allowed to claim a deduction for your student loans and tuition.
#6
Student loan interest deduction is extremely valuable especially if you’re self-employed since it’s subtracted from your taxable income to save you money. The student loan interest is an above-the-line deduction, not a tax credit. It serves as a method to help you reduce your taxable income.
For example, Jon filed his taxes as a single tax filer and his MAGI happens to be $60,000, he will fall into the 22% tax bracket. If he paid over $1,000 in student loan interest, which is about the average deduction, the student loan interest deduction will help him save around $220. The maximum he might get to save is $550.
#7
Aside from the above mentioned eligible student loans, there are a couple of tax credits and government-funded schemes that can help you reduce student loan debt:
American Opportunity Credit: The ACA allows you to claim up to $2,500 per year for the first four years of school as you work towards a degree or similar credential.
Lifetime Learning Credit: With the lifetime learning credit, you can claim up to $2,000 per student per year for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school.
Coverdell Education Savings Account: The Coverdell Education Savings Account is a trust account created by the U.S. government to assist families in funding educational expenses for beneficiaries below the age of 18 years. The account allows up to $2,000 a year to be put aside for a student’s education expenses.
Qualified Tuition Programs: With the qualified tuition program, you can claim a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans used to pay for higher education expenses. The maximum deduction is $2,500 a year.
#8
The IRS does not tolerate double-dipping, so if your parents and you, both took out a student loan to pay for your education, they cannot claim student loan interest on their tax returns since you weren’t marked as a dependent at the time they took out a student loan for you. However, you can claim, the deduction with respect to the loan that you took out for yourself as long as you meet the necessary requirements set forth by the IRS.
Calculating your student loan interest tax deduction can be a hectic task. There are far too many things have to be taken into consideration, so if think you are eligible for the deduction but aren’t sure about how to claim the deduction try using FlyFin’s Student Loan Interest Tax Calculator to figure got the exact amount you can claim to maximize your savings.
