How will Student Loans Impact My Taxes?

Featured Stories

Filter By Categories

If you have student loans, then you may be wondering how they will affect you at tax time.  The good news is that you can deduct interest paid on the loans, but depending on your repayment plan, there are additional important aspects that you need to consider.


Student Loan Interest Deduction

The interest you pay on student loans is tax deductible, provided that all of the following criteria is met:

Borrowers who meet all of the above criteria are eligible to deduct up to $2,500 from their taxable income for student loan interest expenses.  According to the IRS, student loan interest is an above-the-line tax deduction, which means that you are not required to itemize any expenses in order to claim the deduction.  


Tax Filing Status Considerations for Married Couples

While you cannot deduct student loan interest expenses from your taxable income if you are married but file taxes separately from your spouse, you may still want to consider paying taxes separately.  If you are enrolled in an income-driven repayment plan for your student loans, then your monthly payment is limited to a fixed percentage of your discretionary income.  (Another perk of the program is that unpaid loan balances are forgiven after 20 or 25 years.) However, it is important to realize that under an income-driven repayment plan, your income is determined by the taxable income that you report to the IRS.  If you are married and file taxes jointly, then you and your spouse’s income combined will be considered for the purposes of your income-driven repayment plan.  If your combined household income is high enough, then you may not even qualify for an income-based repayment plan.  Therefore, if you are married, you may want to consider filing taxes separately. The loss of the Student Loan Interest Deduction could be more than offset by lower monthly payments under an affordable income-driven repayment plan.


Tax Implications of Student Loan Forgiveness

If you are enrolled in an income-driven repayment plan or qualify for the Public Service Loan Forgiveness program, then your outstanding student loan balance is automatically forgiven after a certain number of years.  Pretty cool, right? Yes, but there are important tax implications to consider. While participants in the Public Service Loan Forgiveness program are not taxed on their forgiven balances, borrowers who utilize income-driven repayment plans are not so lucky.  These borrowers, in the year that their remaining debt is forgiven, are required to pay income tax on the forgiven amount. Although that year may be far in the future, students or parents with large loan balances may face a very substantial tax bill when the time eventually comes.  


If you are enrolled in one of these programs, you may be wondering how much of your debt will be forgiven.  The Federal Student Aid Office of the U.S. Department of Education provides this handy Repayment Estimator tool to compute loan payments and forgiveness under different repayment programs.  Borrowers can utilize this tool to explore all the available repayment options available to them.


Need More Information?

If you or your dependent is still enrolled in school, check out the IRS’s useful Interactive Tax Assistant tool to determine your eligibility for education-related tax credits and deductions.

Edmit's advice helps you to be better off after graduation.

Merit and financial aid estimates based on your student profile

Earnings estimates and financial scores for your college and major

Recommendations to save thousands on college

I'm ready

Sign up for updates

Popular Tags

Financial Aid and Scholarships* Cost of College* paying for college financial aid FAFSA Student Loans* grants and scholarships Saving for College* federal student loans college tuition 529 plan cost of attendance expected family contribution Salary and Career* college financial planning financial aid award private student loans taxes college savings plan room and board on-campus housing merit scholarships budgeting for college college expenses federal financial aid merit-based financial aid private universities public universities edmit hidden gems college costs edmit team parent PLUS loan college applications living expenses CSS profile education expenses financial need income application fees financial aid appeal off-campus housing career choosing a college choosing a major college majors loan forgiveness affordable college degree programs loan repayment repayment plans student loan assistance student loan debt work-study application fee waivers college search coronavirus edmit scholarship institutional aid net price SAT college visits in-state tuition prepaid tuition plans private scholarships ACT budget free tuition international students internships need-based financial aid need-blind colleges qualified higher education expenses retirement savings southern colleges standardized testing tuition discount tuition guarantee tuition payment plans 401k UGMA UTMA applying to college college financial health college ranking systems college spending college transfers credit score discretionary income distance learning education savings accounts fees financial literacy full ride scholarship gap year grants health insurance options investment ivy league schools liberal arts degree meal plans midwestern colleges need-aware colleges out-of-state tuition saving school-based scholarships state aid tuition increases western colleges 568 presidents group Inversant MEFA asset protection allowance best price campus life college advisor college credits college deposit college viability community college concurrent enrollment cost by region cost by state crowdfunding dorms early decision educational expenses esports fee waivers financial wellness for-profit universities fraternities and sororities full tuition graduate school home equity loan income share agreements line of credit lists medical expenses medical school military benefits net price calculators new england colleges non-profit universities online learning online tuition out-of-state students percent need met private college consultant remote learning small business state schools student bank accounts student organizations subsidized loans title IV schools travel expenses tuition decreases tuition insurance tuition reciprocity undocumented students unsubsidized loans