You may have heard that student loans can give you a tax break, but what exactly does that tax break look like and is it worth it? In today’s post I’ll talk about how student loans impact income taxes for different groups of borrowers.
Estimated read time ~3 min estimated watch time ~2.5 min.
Your income determines if you can deduct student loan interest
Borrowers who file taxes as single can deduct up to $2,500 of student loan interest annually if their income is <$80,000. The deduction is progressively phased out between $65,000 – $80,000 of income.
Income limits for deduction if you’re married filing jointly
Borrowers who are married filing jointly can deduct up to $2,500 of interest annually if their combined income is <$165,000. The deduction is progressively phased out between modified adjusted gross income of $135,000 – $165,000.
How much is the student loan interest deduction actually worth?
The student loan deduction isn’t something so lucrative that you should hang on to your student loan debt for. Remember it doesn’t save you $2,500, it just reduces your taxable income by that amount. Best case scenario is just over $600, but that number will vary based on your financial situation.
You can deduct interest paid on both federal and private student loans
Both federal and private student loans are eligible for the interest deduction as long as they were used for a student enrolled, at least half time, in a program leading to a degree, certificate, or other recognized educational credential. You will get a 1098-E statement of your student loan interest paid from your lender(s).
Ultimately the student loan interest tax deduction isn’t a good reason to keep your student loan debt around. But if you’re repaying your debt anyway it’s helpful to know if you can deduct that interest from your taxes.
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