DEFINITION of 'Student Loan Interest Deduction'

A tax deduction for interest paid on higher education loans during the tax year in the U.S., the deduction amount being the lesser of $2,500 or the actual interest paid. The student loan interest deduction can be claimed by the taxpayer if the student loan was taken out solely to pay qualified education expenses; the loan cannot be from a related person or made under a qualified employer plan.

In addition, the IRS stipulates that the student must be the taxpayer, spouse or dependent, and should be enrolled at least half-time in a degree program. Moreover, the deduction is limited by the taxpayer's income; student loan interest cannot be deducted if the taxpayer's gross income exceeds $75,000 or $150,000 if filing a joint tax return with the spouse.

BREAKING DOWN 'Student Loan Interest Deduction'

As the student loan interest deduction is claimed as an adjustment to income, it is not necessary to itemize the deduction on Schedule A of Form 1040. The amount of interest paid in a given tax year can be found on Form 1098-E, which is furnished by the lender to the borrower.

In Canada, taxpayers can claim interest paid on student loans as a tax credit, subject to certain conditions. A Canadian taxpayer may be eligible to claim interest paid on a student loan in a given year or the preceding five years for post-secondary education, if the loan was received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial government laws.

RELATED TERMS
  1. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  2. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  3. Stafford Loan

    A type of federal, fixed-rate student loan that was available ...
  4. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
  5. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students ...
  6. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate ...
Related Articles
  1. Personal Finance

    Benefits of Federal Direct Loans

    Federal Direct Loans are the most popular federal student loans. This list of benefits will explain why.
  2. Personal Finance

    Can I Pay Off Student Loans with My 529 Plan?

    Not yet. A bill that would let people use 529 plans to pay off student loans is working its way through Congress.
  3. Personal Finance

    Facts You Didn't Know About Private Student Loans

    Take a close look at the characteristics of private student loans before deciding it's the best path to take.
  4. Personal Finance

    What New Student Loan Repayment Options Mean

    American college graduates are facing an increasing amount of student loan debt. There are new rules for repaying that debt. Here's what you need to know.
  5. Financial Advisor

    Deal with Your College Debt Using These Steps

    The worst thing to do with college debt is to ignore it. The best way to start tackling it is with a clear roadmap to financial freedom.
  6. Personal Finance

    50% of College Students Believe Their Loans Will Be Forgiven by the Federal Government

    Candidate Trump suggested reforms, but will student loans be forgiven by the federal government across-the-board?
  7. Personal Finance

    10 Ways Student Debt Can Destroy Your Life

    If you're getting a student loan, think critically about how you will manage your loan. Student debt could have a profound negative impact on your life.
  8. Personal Finance

    Managing Student Loans: 3 Things to Consider

    You can better manage the burden of student loan debt by following these three steps.
  9. Personal Finance

    Fund Your Schooling with PLUS Loans

    Find out what they and are whether you're eligible to apply for these no-maximum loans.
  10. Personal Finance

    Is Student Loan Debt The Next Financial Crisis?

    The student loan system is in desperate need of reform, as more and more graduates struggle to find work and pay off their student loans.
RELATED FAQS
  1. Is the interest on my student loan tax deductible on my federal income taxes?

    Find out how you can deduct interest payments for qualified student loans from your income taxes, and learn about restrictions ... Read Answer >>
  2. Are Student Loans Tax-Deductible?

    Learn how and when to deduct the interest on student loan payments, which allows individuals to reduce their taxable income ... Read Answer >>
  3. Why are private student loans generally more expensive than federal loans?

    Make the right decision between a federal student loan and a private student loan when looking for financial aid for your ... Read Answer >>
Hot Definitions
  1. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  2. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  3. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  4. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
  6. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security ...
Trading Center