Are Student Loan Payments Tax Deductible?

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Abigail Eun
Abigail Eun
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Abigail Eun is a freelance writer and personal finance expert. Through diligent research and continuous learning, she has honed her knowledge in budgeting, saving, investing, and debt management. Abigail is passionate about helping people get their finances in order. She believes that everyone should have access to the information they need to make sound financial decisions. Her goal is to provide clear and concise information that is easy to understand.

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Emma Östlund
Emma Östlund
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Emma Östlund works as a business operations analyst at Sparrow. Emma studied Psychology, Computer Science, and Markets & Management at Duke University. With a well-rounded background in business and analytics, Emma strives to deliver data-driven conclusions and insights.

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Camden Ford
Camden Ford
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Camden leads Sparrow’s business operations – everything from product management to business analytics. After graduating Cum Laude from Duke University where he studied Civil Engineering, Camden worked as a Consultant for A.T. Kearney where he worked in their Strategic Operations practice. With a strong background in analytics, Camden strives to deliver data-driven conclusions and insights.

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Updated
December 20, 2023

If you’re a borrower, you may be wondering, “Are student loan payments tax deductible?”

For qualifying borrowers, the answer is yes. Student loan payments ARE tax deductible. The student loan interest deduction is a federal tax break that lowers how much of your income is taxed. The federal government created this deduction to assist borrowers in paying for higher education.

To find out if you’re eligible for this tax deduction, keep reading.

What Is The Student Loan Interest Deduction?

The student loan interest deduction is a federal income tax deduction that allows qualifying borrowers to deduct up to $2,500 from their taxable income.

Your eligibility for this deduction depends on your filing status and income level.

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How Does the Student Loan Tax Deduction Work?

The student loan tax deduction enables you to subtract up to $2,500 from your taxable income for the interest paid on your student loans. Accordingly, this deduction helps you pay less in federal taxes. The Internal Revenue Service (IRS), the federal tax collection agency, offers various tax deductions, including student loan interest deduction.

To receive the deduction, you need to claim an “adjustment to income” on a 1040 form. Fortunately, you do not have to fill out a Schedule A, which is used for itemized deductions. To make this process as quick and easy as possible, gather the following information:

  • Filing status
  • Basic income information
  • Your adjusted gross income
  • Educational expenses paid with nontaxable funds

If you paid more than $600 in interest on your student loan debt, your lender/loan provider will give you a 1098-E.

Note: The deduction applies only to non-federal loans that gathered interest, as the Biden administration placed federal student loans in forbearance in 2021. Learn more about Biden’s student loan forgiveness.

Who Qualifies for the Student Loan Tax Deduction?

To qualify for the student loan tax deduction, you must meet the following eligibility requirements in income, filing status, loan timeline, and loan type.

Income

Your modified adjusted gross income (MAGI) is your income after subtracting applicable tax penalties and tax deductions. While you can calculate your MAGI manually, online calculators can simplify the process.

  • If you are a single filer, your MAGI must be less than $85,000 to qualify for the student loan tax deduction.
  • If you are a joint filer, your MAGI must be less than $170,000 to qualify.

Filing Status

To claim the student loan tax deduction, the eligible loan must have been borrowed for one of the following:

  • Yourself
  • Your partner
  • Your dependent

However, you cannot claim this deduction if:

  • You are married but filing separately. To qualify for the deduction, you must file jointly.
  • You are claimed as a dependent on someone else’s tax return.
  • You borrowed the student loan in your name but your parents are making the loan payments.
  • You are a parent paying for the loan taken out in your child’s name, as you are not the legal owner of the loan.

Loan Timeline 

The student loan must have been taken out during an academic period when you were enrolled for at least half the time at a qualifying post-secondary institution.

Additionally, it must have been used during a reasonable period after it was taken out, with loan amounts used within 90 days of the academic period.

Loan Type

Both federal and private student loans qualify for this deduction. However, you must have paid interest for the loan in 2019, as the student loan interest deduction was introduced in the 2020 Coronavirus Tax Relief.

Note: You can claim prepaid loan interest and origination fees for the student loan tax deduction.

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Is It Worth Claiming Student Loan Interest on Taxes?

Regardless of your income class, you should claim your student loan interest on taxes if you qualify. Claiming this deduction will not result in any loss, as it lowers your taxable income.

How Much Can You Save with the Student Loan Interest Deduction?

The amount of money you can save depends on your income. The following table shows the average deduction values you can expect, based on your income class.

Income Class

Deduction Value

Below $10,000

$214

$10,000 to $20,000

$89

$20,000 to $30,000

$136

$30,000 to $40,000

$142

$40,000 to $50,000

$155

$50,000 to $75,00

$213

$75,000 to $100,000

$183

$100,000 to $200,000

$214

$200,000 and over

$74

Closing Thoughts From the Nest

If you qualify for the student loan interest deduction, be sure to claim the adjustment on your 1040 tax form. Doing so will reduce your taxable income. Accordingly, it will reduce the amount of taxes you owe.

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