By: Mevish Jaffer
Because financial constraints are a big issue for most people who want to attend college due to large families or other extenuating circumstances that limit them financially, they tend to take out student loans in order to further their education. While student loans are a big asset for those with access to limited funds, repayment with added interest is inevitable. On the brighter side, there are certain deductions you may be eligible for as a borrower on your college loans.
What exactly is a student loan interest deduction? It’s defined as an adjustment to income for interest paid during the year on qualified higher education loans. If you have taken out qualified student loans in order to pay for associated fees and costs related to attending an accredited school for yourself, your spouse, or a dependent, then you are qualified to deduct the interest that you pay on those loans.
Qualified Loans for Interest Tax Deductions
Specifically, loans that qualify for interest tax deduction purposes include those taken out for tuition, fees, residential expenses, books, various related supplies, transportation, and equipment expenses. Generally, most federal and private education loans would be considered eligible for this type of deduction. While private student loans don’t automatically qualify, if you send your private loan lender a W-9S form, the interest paid on your private loans would qualify for deduction.
How Much Interest can be Deducted?
If you paid interest on qualified student loans, you may be able to deduct up to $2,000 of the interest paid. According to Ed Fed.com, the deduction is reduced as income increases, starting at $40,000 for single filters and $60,000 for joint filters. Lenders will automatically send you a 1098E form in which you can certify the amount of interest paid for the year if you are eligible. As a taxpayer, you are accountable to determine how much of the stated interest is qualified for the deduction. As of tax year 2002, the interest deduction of student loans can be taken for the life of the loan.
Benefits of Student Interest Deductions
While tax season is a hectic and often frustrating time for both parents and students, it can also be a time when the investment you made towards your college education in the form of student loans can be of help to reduce your tax bill. In comparison to tax credits, which place a requirement of earning a large enough income in order to qualify, student loan interest deductions work to reduce the amount of your income before the application of other tax deductions. This is especially advantageous if you are a recent college graduate who doesn’t qualify for the higher education tax credits due to mitigating factors such as how new you are to the workforce or the fickleness of the economy at any given time.
Tax Forms and Further Information
You can find the tax forms you need for student loan interest deductions such as the W-9S form, as well as extra information by consulting with reliable sources such as:
