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Are student loans tax deductible?

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Written by Adren Setian
Updated: January 3, 2023
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The complicated system of student loans is often extremely confusing for college students, and adding the equally complicated system of taxes into the mix just makes things more frustrating when it comes to the issue of if student loans are tax deductible.

The short answer is that there are opportunities to count your student loan payments as a tax deduction on your annual federal income tax return, though there are some limitations.

This article aims to clear away some of the confusion, providing clarity for college students about the process and filing status of their taxes and federal student loans by consolidating information and presenting it in a clear format. By the time students have finished reading this article, they will be better equipped to file taxes.

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How much of student loans are tax deductible?

Students who are currently enrolled in an institute of higher education and are receiving student loans, will not see a difference in their tax return because a student loan is not considered taxable income due to the fact you must pay it back.

Additionally, the initial amount of your student loan is not eligible for tax deductions. The student loan interest that accumulates once you start making federal student loan payments is eligible for tax deductions up to a certain amount. The student loan interest deduction can reduce your taxable income by up to $2,500.

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Are private student loans tax deductible?

Private student loans are subject to similar stands as the ones federal student loans are subject to. The initial amount of a student loan is not eligible for deductions, but the interest paid on a qualified student loan may be eligible for tax deductions. In the case of a private student loan interest deduction, you should check with your loan servicer to see the details for your specific loan and if it is eligible for a student loan interest deduction.

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Is student loan interest deductible?

Yes! Being familiar with the student loan interest deduction is a very important aspect of being able to make good financial decisions when it comes to having to pay interest and make student loan payments.

Student loan interest deduction is the amount you can deduct from your taxable income return based on interest payments you have made on a qualified student loan. The amount that can be deducted is whichever is lesser: the amount you paid or $2,500.

Student loan interest is eligible for student loan interest deduction if a few criteria are met, the central criteria being income limits. When deducting student loan interest, you are able to deduct up to $2,500 if your modified adjusted gross income is under $70,000 (filing status single) or $140,000 (married filing jointly).

However, if your income is between $70,000 and $85,000 (single filers) or between $140,000 and $170,000 (married filing jointly) you are limited to a smaller student loan interest deduction. Note that if you are married and filing separately these parameters change further, and you may be rendered ineligible. And if your status is married filing jointly neither you nor your spouse can be listed as a dependent on someone else's tax return.

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Frequently asked questions about student loans and taxes

What is the lifetime learning credit?

The lifetime learning credit is a feature you can claim on your taxes if you are eligible, intended to help pay for qualified higher education expenses. It is worth up to $2,000 per tax return and there is no limit on the number of years you can claim the credit.

In order to claim the lifetime learning credit, you must:

  1. Pay qualified higher education expenses for higher education
  2. Pay the education expenses for an eligible student enrolled at an eligible educational institution
  3. Be the eligible student, or your spouse or dependent must be the eligible student.

To be considered an eligible student, you must:

  1. Be enrolled or taking courses at an eligible educational institution
  2. Be taking higher education courses to get a degree or other educational credential
  3. Be enrolled for at least one academic period beginning in the tax year. An academic period can be a semester, trimester, quarter, summer session, etc. Academic periods are determined by the school.

What is the American opportunity tax credit?

The American opportunity tax credit is one of the tax credits you can claim to help pay for higher education expenses. This tax credit is to help pay for the first four years of education completed after high school. The maximum annual credit you can receive is $2,500 per student who is eligible, this credit is subject to some income limitations.

To be eligible for the American opportunity tax credit a student must:

  1. Be yourself, your spouse, or your dependent listed on a tax return
  2. Be pursuing a degree or other education credential
  3. Have qualified educational expenses at an eligible educational institution
  4. Be enrolled at least part-time for at least one academic period beginning in the tax year
  5. Have not completed the first four years of higher education at the beginning of the tax year
  6. Have not claimed the American opportunity tax credit for more than four tax years
  7. Not have a felony drug conviction at the end of the tax year

What form should I use to deduct student loan interest?

You can claim the amount of your student loan interest deduction in Schedule 1, Line 33 of Form 1040.

If your paid interest amount was more than $600 for a single loan, you will receive Form 1098-E. This form is specifically for student loan interest deduction, but you are still able to claim a deduction even if you paid less than that.

Are consolidated student loans tax deductible?

Yes, as with unconsolidated student loans, the principal amount of the loan is not deductible. However, you are able to get the tax benefits for student loan interest paid, because with consolidation you have "paid off" your loans including interest payments.

The income limits for consolidated student loans are the same as defined above: when deducting student loan interest, you are able to deduct up to $2,500 if your modified adjusted gross income is under $70,000 (filing status single) or $140,000 (married filing jointly).

However, if your income is between $70,000 and $85,000 (single filers) or between $140,000 and $170,000 (filing jointly) you are limited to a smaller student loan interest deduction.

Are foreign student loans tax deductible?

The student loan interest on loans taken from foreign lenders is eligible for the student loan interest deduction. The loan must be a qualified student loan, and the income parameters are the same as for loan interest deductions from loans taken from domestic lenders.

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Adren Setian

About Adren

Adren has always loved writing both fiction and nonfiction, always with the intention to help other people. At Bold.org, she loves being a specialist who works to help students reduce their student debt and make financially wise decisions about the future of their education. 

Past experience that informs Adren’s expertise includes working with the Education and Employment Team of Catholic Social Services Refugee Assistance and Immigration Services. Being a research assistant analyzing data for research projects at the University of Alaska Anchorage. Several years as the Assistant Manager of an Equine Education program where responsibilities included creating and developing curriculums. Time spent volunteering as the Vice President and Senior Graphic Designer for the University of Alaska Anchorage’s Psychology Club and Psi Chi Honor Society chapter with the goal of furthering students’ professional skills and knowledge of the field of Psychology and building a sense of community.

Adren would like to end her introduction with a land acknowledgement relevant to Anchorage, Alaska, her hometown and place of residence: “Dena'inaq ełnen'aq' gheshtnu ch'q'u yeshdu. (Dena'ina)” [I live and work on the land of the Dena’ina. (English)] — Translated by Joel Isaak and Sondra Stuart

Adren is no longer with the Bold.org Writing Team, but we continue to value and appreciate her contributions.

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