Not only are 40 million Americans struggling with more than $1 trillion in student loan debt, but a research by Lendedu finds that a majority of students don’t understand how student loans work, particularly when it comes to how the loans are structured, accumulate interest, and differences between federal and private loans.
That means that many borrowers may not be aware of all of the tax breaks Uncle Sam offers that could help relieve some of the pressure on their bottom lines.
Borrowers can claim all of the interest paid on loans up to $2,500 if your modified adjusted gross income is $80,000 if you file individually, or $160,000 if you’re married and file a joint return, even if you don’t itemize.
“If you’re up to date on your taxes and fall into the 25% federal income tax bracket that will translate into a $625 tax refund,” says Stephen Dash, the CEO of the multi-lender marketplace Credible, “At the very least, you can lower your taxable income,” Dash adds.
In addition to income, you and your loan must meet the following requirements to receive the deduction:
- The loan must be for you, your spouse, or a person who was your dependent when you took out the loan
- Enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.
To get a full understanding of how your student loans affect your tax bill, visit the IRS website.