The student loan interest tax deduction sounds like a great thing. You pay down your student loans, and the government gives you a tax break for lowering your debt.
But how much is the student loan interest deduction actually worth to borrowers? While it’s possible to deduct up to $2,500 in student loan interest payments, there are several other rules and limitations (more on this below).
Try out our Student Loan Interest Deduction Calculator below to see how much you could save on your taxes.
Tax Deduction Calculator
What was your Modified Adjusted Gross Income (MAGI) in 2020? MAGI is a bit complicated to calculate. Your MAGI may be simialr to your AGI, but it's generally not the same. You can use your previous year tax return to calculate your MAGI. However, you deduction will depend on your MAGI in the current tax filing year.
How are you filing your 2020 taxes?
Did someone claim you as a dependent on 2020 taxes?
Were the student loans you made payments on in 2020 disbursed in your name?
What was your spouse's MAGI in 2020? MAGI is a bit complicated to calculate. Your MAGI may be simialr to your AGI, but it's generally not the same. You can use your previous year tax return to calculate your MAGI. However, you deduction will depend on your MAGI in the current tax filing year.
How much student loan interest did you (and your spouse, if Married Filing Jointly) pay in 2020? If you paid at least $600 in student loan interest, your student loan servicer must issue a 1098-E. This form displays how much interest you paid. If you paid less interest, check your account or contact your student loan servicer to find how much interest you've paid.
What state do you live in?
|Student Loan Interest Deduction||$1,000|
|Estimated Federal Tax Refund||$220|
|Estimated State Tax Refund*||$50|
|Lower IDR Payment**||$100|
|Total annual savings in federal and state taxes||$270|
|Total annual savings in federal and state taxes and IDR payments||$370|
*State income tax assumes single person making $70,000 and married couple making $140,000
** The student loan interest deduction reduces your AGI, which reduces your student loan payment on PAYE, REPAYE, IBR, or ICR
Looks like you may not be eligible!This could be because your loans are in someone else's name, you're being claimed as a dependent on someone else's taxes, or your income is too high.
Student Loan Interest Deduction Calculator FAQ
Assuming you meet all the requirements to receive the student loan interest tax deduction, you can deduct up to $2,500 in qualifying interest payments within the tax year.
Yes, you will be able to deduct qualifying student loan interest payments for the 2020 tax year when you file your tax return in 2021.
In terms of the types of student loans, both federal and private student loans are eligible for the deduction. You must also meet all other requirements. Contact a finance or accounting professional for advice on your specific situation.
The upper limits are a Modified Adjusted Gross Income (MAGI) of $85,000 for a single tax filer and $170,000 for a joint return. However, the tax benefits begin to be phased out starting at a MAGI of $70,000 for single and $140,000 for joint filers.
No. The deduction is what’s called an “above-the-line deduction,” so you don’t need to itemize to claim the benefit.
No, you cannot claim this deduction if filing separately from your spouse.
No. If you’re filing taxes as married filing jointly, you can only deduct up to $2,500 total for both you and your spouse.
In addition to the restrictions listed here, there are a few other important conditions to note. You (or someone on your behalf) must’ve paid interest on a qualified student loan (federal or private).
You must be legally obligated to pay this interest (i.e., someone who pays the interest but isn’t legally required to, such as a family member or friend, cannot claim the deduction).
Finally, you can’t be claimed as a dependent on someone else’s return to be eligible.
Yes, you can. You do not need to itemize your deductions to claim the student loan interest deduction.
More on the student loan interest deduction
For more information on the student loan interest deduction, check out these articles from the Student Loan Planner blog: