How to get the student loan interest tax deduction

Student loan debt can be a burden, but there are ways to offset the cost. (iStock)

No matter what your interest rates are or how much your tuition was, one thing’s for certain: student loan debt is a burden. It can keep you from buying a home, saving for your future or even just living comfortably in the here and now.

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And while student loan help exists (refinancing and consolidation options abound), you can also offset those costs yet another way: by leveraging the student loan interest deduction on your annual tax return.

What is the student loan interest deduction?

The student loan interest deduction is a long-standing tax benefit that allows you to write off a portion of the interest you pay on student loans in any given year. Unlike many other tax deductions, the student loan interest write-off was not eliminated or changed as a part of the Tax Cuts and Jobs Act of 2017.

WHY YOU SHOULDN'T REDUCE STUDENT LOAN PAYMENTS

By using the deduction, you can reduce your total taxable compensation and therefore pay less in taxes when you file your return. In total, you can deduct up to $2,500 in interest paid — whether it was required or paid voluntarily.

At the beginning of each year, you should receive a Form 1098-E in the mail from your lender. This will break down how much you’ve paid in interest in the previous calendar year.

Claiming the student loan interest deduction

The student loan interest deduction is used simply as an adjustment to income, and does not require itemizing your returns.

There are some other requirements you’ll need to meet in order to claim it, though:

  • You’ll need to fall under a certain income threshold ($85,000 if you’re single or $170,000 if you’re married and filing jointly).
  • The loan needs to be what the IRS calls a “qualified” student loan. That means you took it out only to pay for higher education expenses and nothing else — tuition, fees, housing, books, supplies, etc. You also need to have used the funds within a reasonable amount of time of taking out the loan — 90 days before or after an academic period for you, your spouse, or a dependent.
  • When you took out the loan, you need to have been enrolled at least half-time in a degree, certificate or credential-issuing program.

WHAT QUALIFIES YOU FOR STUDENT LOAN FORGIVENESS?

Another quick note: The student loan interest deduction is per return, so if you’re married and filing your returns jointly, you can’t claim a $2,500 write-off each — just one total.

Other deductions you can leverage

The student loan interest deduction isn’t the only write-off you can leverage to lower your income and reduce your tax burden.

Here are some other deductions under the Tax Cuts and Jobs Act of 2017 that you can take advantage of:

  • Standard deduction - The TCJA nearly doubled the standard deduction for most Americans. The write-offs now clock in at $12,200 for single filers, $18,350 for heads of household and $24,400 for those filing jointly. The standard deduction can only be used if you don’t itemize your return.
  • SALT deductions - You can deduct property taxes and state and local sales/income taxes, up to $10,000 per year. This can only be claimed if you’re itemizing.
  • Mortgage interest deduction - If you own a home and have a mortgage, you can also deduct the interest you paid on your loan — as long as you itemize. You can deduct the interest on up to $750,000 of total mortgage debt.

There are other deductions you can take, like ones for charitable contributions and medical expenses that exceed 10 percent of your income, but keep in mind: these all require itemizing, too. It’s important to work with your tax advisor to determine whether the standard deduction or itemized deductions (combined with the student loan interest deduction) are best for your bottom line.