Can You Write Off Student Loan Payments?

Your student loan payments could help reduce your tax burden.

Your student loan payments could help reduce your tax burden.

You invested in your education when you took out student loans, but you also invested in tax savings at the same time. When you start repaying the loan, you might be able to deduct the whole payment on your return depending on your student status and where you make the payments. Even if you don’t qualify to deduct all of your payment, you still might be able to deduct part of it.

Student Status

If you’re still a student when you begin repaying your loans, you can deduct tuition and fee payments, as long as the payments go toward loans taken out for tuition and fees expenses during the same tax year. You can also deduct unpaid balances of your loan in the year you borrow the money if you qualify for the deduction. You’re eligible to take a deduction up to $4,000 if your filing status is not married filing separately and you attend an eligible college or university. To take the deduction, you must earn less than $160,000 if you’re married and file a joint return, or earn less than $80,000 if you’re single.

Payments Made to Your School

Some loans you take out must be repaid directly to your school instead of to a loan servicer. An example of this type of loan is a Perkins loan, although schools can offer other types of private loans. If you’re no longer a student, you can deduct loan payments you make directly to your school in the year your school credits your account. The IRS allows you to deduct these payments as a "Tuition and Fees" deduction.

No Double Dipping

The IRS offers several education credits in addition to the tuition and fees deduction. You can count loan balances as education expenses for these credits in the year you take out the loan. If you claimed one of these credits in the past, you can’t write off loan payments you make toward the balances you used to calculate the credit. You already receive a tax benefit for including the balances in a prior tax year, so you would not be allowed to claim a double benefit.

Student Loan Interest Deduction

Many people don’t begin repaying student loans until they stop going to school. If this is the case, the IRS has another tax deduction for you. With the exception of loan payments made to your school, you won’t be able to deduct loan payments you make after you stop attending. However, you can deduct the interest you pay on your loan. When you make a loan payment, part of it goes directly toward the interest on your balance. This is the portion you can deduct for most loans. Your loan servicer will send you a 1098-E at the end of the year that shows the interest received from you. You can use this amount, plus loan origination fees and capitalized interest to figure your deduction. If you have a credit card that you used only for education expenses, you can also deduct the interest paid on the card’s balance. The "Student Loan Interest" deduction could knock up to $2,500 off your taxable income and is available to you if you file a joint return and earn less than $150,000, or if you’re single and earn less than $75,000.

About the Author

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.

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