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College students and their parents who took on debt to pay for their education can benefit from the student loan interest deduction. It permits you to deduct interest paid from your taxable income up to a maximum of $2,500.
Since March 13, 2020, most federal student loan interest has been suspended due to the ongoing pandemic. However, you might be able to deduct interest payments made on loans that aren’t qualified for this relief, like private student loans, as well as payments made toward an accrued or capitalized federal loan interest balance.
Is student loan interest deductible?
If your modified adjusted gross income, or MAGI, is less than $70,000 ($140,000 if filing jointly), student loan interest is deductible. You may only deduct up to $2,500 if your MAGI was between $70,000 and $85,000 ($170,000 if filing jointly).
The student loan interest deduction is taken above-the-line, not as an itemized deduction. In order to save money, it is deducted from your taxable income. For instance, the maximum student loan interest deduction would return $550 to you if you are in the 22% tax bracket.
Who can deduct student loan interest?
You may deduct interest paid on federal and private student loans in the following situations if your MAGI is under $85,000 ($170,000 if filing jointly):
If your filing status is married filing separately, you cannot claim the student loan interest deduction. Additionally, if you are listed as a dependent on another person’s tax return, you are not eligible.
The number of years you can deduct interest from student loans is unlimited. If you meet the additional eligibility requirements, repay a qualified student loan, and are within the income limits, you can claim this deduction every year.
Student loan interest deduction form
You will automatically receive form 1098-E, a student loan interest deduction form, in the mail or via email if you paid more than $600 in interest in 2021.
Due to the federally held loans’ interest rates being frozen at 0% and the suspension of payments for the majority of the year, you might have paid less than that amount. However, if you are still eligible, you may deduct the amount you actually paid.
Ask your student loan servicer or private lender to send you a student loan interest deduction document if you haven’t received one. You may also find a copy of the form and information about the amount of interest you paid in your online account portal.
Are student loan payments deductible?
When you pay back student loans, you reduce both the principal and the interest that has accumulated on that principal. However, the full amount of student loan payments is not tax deductible, only the interest.
Take your $29,000 student loan, for instance, which carries a 5% interest rate. You would pay approximately $308 per month at the beginning of the standard 10-year repayment plan, with approximately $121 of that amount going toward student loan interest.
You would pay back $3,691 in total during your first year of repayment: $2,293 in principal and $1,398 in interest. You could lower your taxable income by the amount that went toward interest if you were eligible for the student loan interest deduction.
This includes any funds used to pay off interest that was capitalized, or added to your balance, when you entered repayment, as well as any newly accrued interest, such as that $1,398.
Additional education tax breaks
The government provides additional education tax credits and deductions if you are still enrolled in school or paying for educational expenses. If you don’t qualify for a credit, you can choose to take the tuition and fees deduction instead, or you can claim the American Opportunity Credit or the Lifetime Learning Credit.
Even if you used student loans to pay for expenses, you are still eligible for these benefits. You can choose the option that will save you the most money based on your income and other factors. Similar to the student loan interest deduction, in order to qualify for these tax benefits if you are married, you must file your taxes jointly.
Should you refinance your student loans?
Your monthly payment and the amount of interest you pay can be decreased by refinancing student loans. Use the calculator below to calculate your potential savings if you have private loans. While interest and payments on federal student loans are suspended, do not refinance them.
Ryan Lane is a NerdWallet assistant assigning editor whose work has been highlighted by The Associated Press, U S. News & World Report and USA Today. Read more.
FAQ
At what income level can you no longer deduct student loan interest?
What is the income threshold for the student loan interest deduction in 2022? If your modified adjusted gross income is greater than $85,000 ($170,000 if you file a joint return with your spouse), you are not eligible to claim the student loan interest deduction.
Can student loan interest be deducted in 2021?
You may be able to deduct the cost of your student loan interest on your 2021 federal tax return. A deduction lowers the portion of your income that is taxable, which may benefit you by lowering the potential tax liability.
Can I deduct student loan interest if I make 100k?
The student loan interest deduction is most advantageous to filers who make more than $50,000. And those making both more than $100,000 and less than $10,000 claim the highest average student loan interest deduction ($214).
How do I qualify for student loan interest deduction?
If your modified adjusted gross income, or MAGI, is less than $70,000 ($140,000 if filing jointly), student loan interest is deductible. You may only deduct up to $2,500 if your MAGI was between $70,000 and $85,000 ($170,000 if filing jointly).