Read this if you’ve heard “student loans are good for your taxes” a time or two. Estimated read time ~3 minutes.

 

What is the student loan tax benefit everyone is talking about?

 

In short if you meet certain income requirements you can reduce your taxable income (and therefore your taxes) by subtracting the amount of interest you paid on your student loans.

 

How much interest can a borrower deduct?

 

Borrowers can deduct up to $2,500 from their taxable income if they fall below certain income limits.

 

What are the income limits for the student loan interest deduction?

 

This deduction starts to phase out once you make over $65,000 if you file as single and you can’t take the student loan interest deduction at all if you make more than $80,000 annually. If you make more than $165,000 as a couple filing jointly you can’t take this deduction at all but it starts to phase out at $135,000.

If you’re married filing separately you’re not eligible for the student loan interest deduction.

 

What is the most money I can save with the student loan interest tax deduction?

 

The most money a borrower can save by claiming the student loan interest tax deduction is $625.

Here’s how you can quickly estimate your savings: Student loan interest paid (max of 2,500) X % tax in your tax bracket

For this example that was $2,500 X 0.25 = $625

The tax deduction decreases once you’re over $65,000 as an individual or $135,000 as a couple but I’m not able to find a clear estimate of how that deduction phases out and changes. Essentially your maximum deduction happens when you make from $38,000- $65,000 per year (that means you fall into the 25% tax bracket) and you pay the maximum of $2,500 in interest.

 

How do I claim the student loan interest tax deduction?

 

Claiming the student loan interest tax deduction is pretty simple. You simple find your 1098-E form from your lender. Typically these forms are located in a “documents” type section of your online account or it gets emailed, or snail mailed to you. Then you plug your number into the indicated box on your tax form.