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. Interest Deduction

    A deduction for taxpayers who pay certain types of interest. ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently ...
  3. Tax Deductible Interest

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

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  5. Tax Deduction

    A deduction from gross income that arises due to various types ...
  6. Stafford Loan

    A type of federal, fixed-rate student loan that was available ...
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. Financial Advisor

    Federal Direct Loans

    These are the most popular type of federal student loan. Read this guide to the types you can get, how much you can borrow and repayment options.
  4. 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.
  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

    Don’t Fail Student Loan Debt 101

    Don't be a statistic! According to a recent study, six in 10 Millennials don’t know what they owe or what to do with student loans after they graduate.
  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

    Fund Your Schooling with PLUS Loans

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

    A Beginner's Guide to Getting Student Loans

    Follow these 5 steps and you'll be well on your way to knowing which loans to go after – and which college really offers you the best deal.
  10. Personal Finance

    Managing Student Loans: 3 Things to Consider

    You can better manage the burden of student loan debt by following these three steps.
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 >>
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center