The Student Loan Interest Deduction: What You Need to Know for Your 2018 Taxes

Katie Taylor Updated on April 1, 2019

Figuring out how to fill out your tax return each year is enough to send anyone running for the exit. But this year your student interest loan deduction doesn't need to be a source of anxiety or frustration for two reasons:

  1. The Tax Cuts and Jobs Act of 2017 kept the deduction in place (phew!) 
  2. We've explained everything you need to know right here.  

taz form-217729-edited

What Is the Student Interest Loan Deduction?

If you paid interest on your student loans last year, then you may be eligible for a deduction of up to $2500 on your 2018 federal tax return. 

How it works

The student interest loan deduction is an above-the-line deduction. That means it's deducted from your modified adjusted gross income (MAGI), not from your final tax payment.

So don't expect to see a $2500 refund just because you qualify for the deduction. Instead, if your MAGI is, say, $43,000, then the deduction lowers the income amount you're taxed on to $40,500.

To take the deduction, you need to meet four requirements:

  1. You paid the interest on an eligible loan (or loans)
  2. Your modified adjusted gross income is under the cap
  3. You're not being claimed as a dependent by anyone else
  4. You're not filing as married filing separately 

Let's dig into each requirement.

What is an eligible loan? 

A qualified student loan is one that you took out for you, your spouse, or your dependent. Unfortunately, borrowing money from grandma and grandpa doesn't count. It has to be a bona fide public or private loan.

You also must have taken the loan out for qualified education expenses, like tuition, room and board, books and supplies, and other necessary expenses — for instance, transportation. 

How do you know if your modified adjusted gross income is under the cap?

The Internal Revenue Service provides for a deduction up to $2500, but the amount of your actual deduction depends on your MAGI.

If your MAGI is above $80,000 for a single person or $165,000 for a married couple filing jointly, you're out of luck — no deduction. And the amount of the deduction will be reduced if your income is between $65,000 and $80,000 (for a single person) or $135,000 and $165,000 (for a married couple). 

What filing status should you use to get the deduction?

If you're being claimed as a dependent by anyone else on their federal filing — a.k.a. mom and dad — then you won't be able to take the deduction. You also can't take the deduction if you're filing as married filing separately. 

As long as you file as a single head of household or married filing jointly and don't exceed the MAGI cap, then you should get a deduction up to $2500. #taxwin

What if you've had a loan forgiven?

In general, forgiven debt is treated as taxable income by the Internal Revenue Service. So if, for instance, you reached the end of your term on an income-driven repayment plan last year and had the remainder forgiven, you'll be responsible for paying taxes on that forgiven amount. 

However, the Public Service Loan Forgiveness Program (PSLF) is an exception to this rule. If your debts (or your spouse's or dependent's) are forgiven through PSLF — or because of death or permanent and total disability — you will not owe taxes on the forgiven amount. 

If you get a refund on your taxes this year, remember to allocate at least a portion of it to your student loan payments. Paying ahead, even just small amount, can save you big money over the life of your loans. 

See also: Why Paying Ahead Can Have a Big Impact on Your Student Loans

And if you're looking for ways to ease the burden of your debt, consider refinancing your student loans  

Published in: Student Loan Debt

About the Author
Katie Taylor

Katie Taylor is a content writer and editor with expertise in law and policy, finance, and entrepreneurship. She writes for startups and small businesses about everything from bookkeeping to telecom. Her work has been featured in The Washington Post and SheKnows.com. She is continuing to pay off law school loans and lives in Richmond, Vermont with her wife, son, and an unruly dog. Read more by Katie Taylor

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