Student Loan Interest Deduction

AAA

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.

INVESTOPEDIA EXPLAINS '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. Educator Expenses Deduction

    An above-the-line deduction for teachers and other education ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently ...
  3. Filing Status

    A category that defines the type of tax return form an individual ...
  4. Income Tax

    A tax that governments impose on financial income generated by ...
  5. Full-Time Student

    A status that is important for determining dependency exemptions. ...
  6. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
Related Articles
  1. Credit & Loans

    What is the difference between certified ...

  2. Savings

    Choosing The Right 529 Education Savings ...

  3. Insurance

    Tuition Insurance Takes Sting Out Of ...

  4. Taxes

    Newlyweds? Tips For Filing Your Tax ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center