Want to save money on your taxes?
Here’s what you need to know about student loans and taxes.
Student Loans: Taxes
If you made payments on your federal student loans in 2018, you may be able to save money on your federal income taxes.
1. Student Loan Interest Deduction
In certain cases, you can deduct on your federal income taxes the student loan interest you paid on your federal student loans.
Your student loan servicer for your federal student loans will provide you with a Student Loan Interest Statement, which is also known as Form 1098-E. Focus on the amount of interest you paid, not your total student loan payment. The amount of interest you paid on your federal student loans is what may help you receive a tax deduction.
If you paid $600 or more in interest: you will receive at least one 1098-E from your federal student loan servicer.
If you paid less than $600 in interest: if you do not receive a 1098-E, ask your federal student loan servicer to provide you with the total amount of interest you paid.
If you have more than one federal student loan servicer, you may receive more than one Form 1098-E. If you do not receive this form each of your federal student loan servicers, make sure to contact them in advance of filing for your income taxes. Some student loan servicers provide the form electronically, while others will send it via U.S. mail.
3. You may receive a tax deduction
The student loan interest deduction is capped at $2,500.
A tax deduction lowers your income that is subject to income tax, which can lower your overall income tax bill. The student loan interest deduction is an “above the line” tax deduction, and it can be taken whether you choose the standard deduction or itemize your deductions on your federal income tax return.
If student loan interest paid is more than $2,500: The maximum tax deduction you can receive is $2,500.
If student loan interest paid is less than $2,500: You income taxes may be reduced by the actual amount in federal student loan interest paid.
4. There are income limitations to receive the student loan interest deduction
- Individual Tax Filers: Your modified adjusted gross income must be less than $80,000.
- Married Tax Filers: Your modified adjusted gross income must be less than $165,000.
Importantly, the student loan interest deduction begins to phase out – meaning it is reduced – beginning at $65,000 for individuals and $135,000 for married couples.
5. There are also other requirements.
To qualify for the student loan interest tax deduction:
- Student must be enrolled at least half time in a degree program.
- The loan must be for qualified education expenses (think: tuition, books, supplies).
- The person filing the taxes and the person who borrowed the student loan must be the same (unless you are claiming a qualified dependent or the person is your spouse).
Remember, the $2,500 maximum tax deduction is per income tax return, not per individual taxpayer.
6. What if you don’t know who your student loan servicer is?
If you don’t receive your tax form, and don’t know which student loan servicer to contact, visit www.nslds.ed.gov or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243; TTY 1-800-730-8913).
Here are the student loan servicers for Direct Loans and for FFEL Loans:
|FedLoan Servicing (PHEAA)||1-800-699-2908|
|Granite State – GSMR||1-888-556-0022|
|Great Lakes Educational Loan Services, Inc.||1-800-236-4300|
7. What if you paid for qualified education expenses, but it wasn’t with a student loan?
If you borrowed money from your Uncle Tony, then no.
If you borrowed money from a bank or other lender – such as a personal loan, credit card or home line of credit – to pay your qualified education expenses, then you may be able to deduct the interest from those sources.
Everyone loves student loan tax tricks.
Put more money in your pocket — make sure to maximize your tax savings, and take advantage of the student loan interest deduction.