Note that the government has paused all repayment on federally held student loans through the end of 2022, with no interest to be charged during that period and no loans to be held delinquent or in default.
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If you owe student loan debt, student loans likely take a good chunk out of your budget. But the good news is, the government gives most borrowers a little help with interest costs. While there isn’t a student loan tax credit for borrowers who are repaying student loans, there is a tax deduction for up to $2,500 in student loan interest that allows qualified borrowers to reduce taxable income.
There are also a few credits you can take to help cover costs while you’re in school. Read on to find out more about whether the student loan interest deduction or a student loan tax credit could help you.
- Your options for claiming a student loan tax credit
- Claiming the student loan interest deduction
- Making the most of student loan tax credits and deductions
There are tax credits for education, but eligibility varies depending upon whether you’re currently in school and paying tuition or whether you’re out of school and already paying back student loans.
The Department of Education lists the two student loan tax credits that are available:
The American Opportunity Credit
The American Opportunity Credit (AOC) is worth up to $2,500 per student per year, but it can only be claimed for a maximum of four total tax years per student. There are specific qualifying requirements including:
- The student must be attending school at least half-time for at least one academic term.
- The student must not have finished the first four years of a post-secondary program prior to the end of the tax year.
- The student must be pursuing a program that will end with a degree or other recognized credential.
Parents often claim this credit while their kids are in college. To claim the credit, parents or students should make sure they have Form 1098-T, which is provided by the school to report tuition received.
The Lifetime Learning Credit
This credit is worth up to $2,000 per year per student for tuition, books, fees and supplies for any student pursuing college or career education. Students don’t need to be enrolled for a minimum number of hours to claim the credit, and there’s no limit on how many years the credit can be claimed.
Unfortunately, if you’re already out of school, you aren’t eligible for either of these credits even if you took out student loans to pay for education.
If you’re already out of school, you might be eligible for a valuable tax deduction even though you don’t qualify for student loan tax credits anymore. For each year you pay your loans, you can deduct up to $2,500 of student loan interest.
This deduction could save you hundreds of dollars on your tax bill. However, it’s important to realize the deduction will save you less than a credit would. Deductions reduce your taxable income, while tax credits reduce the amount you owe in taxes. For example:
- If you owed $1,000 in taxes and receive a $500 credit, you’d subtract the credit from your taxes due. Your new tax bill would be $1,000 (taxes due) – $500 (credit) = $500. Your savings is $500.
- If you receive a $500 deduction and you’re in the 15% tax bracket, your taxable income is reduced by $500 and you save 15% on the money you didn’t pay taxes on. Your savings is $500 (the money you’re not taxed on) * 15% (your tax bracket). Your savings is $75.
How much can the student loan tax deduction save you?
The amount you’ll save if you claim the student loan tax deduction varies depending on your tax rate and the amount of student loan interest you deduct.
The student loan tax deduction is classified as an “above-the-line” deduction. This means you don’t have to itemize your taxes in order to claim the deduction. You can directly reduce your taxable income by including the interest amount on your tax return.
In particular, this deduction reduces your adjusted gross income, thereby reducing the amount of income you’re declaring that’s subject to taxation. If you had $40,000 in income but you claim the $2,500 student loan interest deduction, you’d only have to pay taxes on $37,500 in income. Since you pay taxes on less income, you reduce the total taxes you owe.
You can get a rough idea of how much you’ll save by multiplying the amount of student loan interest you can deduct by your tax bracket. If you paid $1,000 in student loan interest and you’re in the 22% tax bracket, you’d multiply $1,000 * 22% to determine that you’d save around $220.
If you want to estimate how much you could save, use our student loan interest deduction calculator.
Are you eligible to take the student loan tax deduction?
Whether you are eligible for the student loan interest deduction will vary depending upon your income, how you file your taxes and whether anyone claims you as a dependent.
If your modified adjusted gross income (MAGI) was less than $70,000 as a single filer or less than $140,000 as joint filers in 2019, you could deduct the full $2,500. If you made between $75,000 and $85,000 (or between $140,000 and $170,000 as joint filers), you could deduct a reduced amount. Over $85,000 (or $170,000, jointly),the student loan tax deduction is no longer available.
You also have to meet other requirements. The IRS indicates you can claim the deduction if:
- You paid interest on a qualified student loan: A qualified student loan is a loan that was taken out for you, your spouse, or any person who was your dependent at the time you took out the loan. The loan must have been taken out for educational expenses during an academic year and the interest that you are deducting must have been incurred or paid out within a reasonable time period before or after you took out the loan.
- You were legally obligated to pay the interest that you paid. Your modified adjusted gross income was below the annual maximum at which the deduction phases out.
If you file using the married filing separately status or if someone else can claim you on their return, you won’t be eligible for this deduction.
You can also only take the student loan tax deduction when you’re paying interest on student loans that you actually used to pay for school-related expenses.
Room and board during school counts; however, if you used any of your student loans to fund personal expenses not related to education, you must reduce your deduction so you aren’t deducting interest paid on this portion of your loans.
How to claim the student loan interest deduction
To claim your student loan tax deduction, you must be the legal owner of the loan. If you’ve made payments on a loan that isn’t yours, you won’t be able to take the deduction. However, the good news is, if someone else made payments on your loan for you, like a parent, you can take the deduction anyway.
To get started, you’ll need to know how much you paid and will need to fill in the right form on your tax return.
Your school or student loan servicer should send you a form called a 1098-E, which will show how much student loan interest you paid over the year. You’ll enter this amount on your taxes to claim the deduction and reduce your taxable income.
To make the most of your student loan tax credits and deductions, be sure to claim any tuition credits you are eligible for while still in school. Once you graduate and begin paying interest, claim your student loan deduction in any year which you are eligible.
There’s never a reason not to claim student loan tax credits that you are eligible for, as you don’t want to pay more taxes than you need while trying to cover the costs of your education.
Interested in refinancing student loans?Here are the top 9 lenders of 2022!
|Lender||Variable APR||Eligible Degrees|
|2.49% – 11.72%1||Undergrad & Graduate|
|2.50% – 6.30%2||Undergrad & Graduate|
|4.13% – 7.39%3||Undergrad & Graduate|
|2.49% – 7.99%4||Undergrad & Graduate|
|2.49% – 7.99%5||Undergrad & Graduate|
|3.24% – 8.24%6||Undergrad & Graduate|
|2.48% – 7.98%||Undergrad |
|1.74% – 7.99%7||Undergrad & Graduate|
|3.69% – 9.92%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 6, 2022.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $9 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
3 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 09/09/2022 student loan refinancing rates range from 4.13% APR – 7.39% Variable APR with AutoPay and 2.99% APR – 9.93% Fixed APR with AutoPay.
4 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
You can choose between fixed and variable rates. Fixed interest rates are 3.99% – 8.74% APR (3.74% – 8.49% APR with Auto Pay discount). Starting variable interest rates are 2.74% APR to 8.24% APR (2.49% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.
5 Important Disclosures for Navient.
6 Important Disclosures for SoFi.
Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 3.24% APR to 8.24% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
7 Important Disclosures for Purefy.
Purefy Student Loan Refinancing Rate and Terms Disclosure: Annual Percentage Rates (APR) ranges and examples are based on information provided to Purefy by lenders participating in Purefy’s rate comparison platform. For student loan refinancing, the participating lenders offer fixed rates ranging from 2.73% – 7.99% APR, and variable rates ranging from 1.74% – 7.99% APR. The maximum variable rate is 25.00%. Your interest rate will be based on the lender’s requirements. In most cases, lenders determine the interest rates based on your credit score, degree type and other credit and financial criteria. Only borrowers with excellent credit and meeting other lender criteria will qualify for the lowest rate available. Rates and terms are subject to change at any time without notice. Terms and conditions apply.
8 Important Disclosures for Citizens.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 3.69%-9.92% (3.69%-9.92% APR). Fixed interest rates range from 4.49%-10.11% (4.49%-10.11% APR).
Undergraduate Rate Disclosure: Variable interest rates range from 6.39%- 9.60% (6.39% – 9.60% APR). Fixed interest rates range from 6.58% – 9.79% (6.58% – 9.79% APR).
Graduate Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR).
Education Refinance Loan for Parents Rate Disclosure: Variable interest rates range from 3.69%- 9.09% (3.69%- 9.09% APR). Fixed interest rates range from 4.49% – 9.28% (4.49% – 9.28% APR).
Medical Residency Refinance Loan Rate Disclosure: Variable interest rates range from 3.69% – 9.16% (3.69% – 9.16% APR). Fixed interest rates range from 4.49% – 9.35% (4.49% – 9.35% APR).