Student Loan Interest Deduction

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. PLUS Loan

    A low-cost student loan offered to parents of students currently ...
  2. Educator Expenses Deduction

    An above-the-line deduction for teachers and other education ...
  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. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  6. Full-Time Student

    A status that is important for determining dependency exemptions. ...
Related Articles
  1. Credit & Loans

    All About Student Loans

    Student loans bridge the gap between college savings, scholarships and earnings from part-time work.
  2. Credit & Loans

    Student Loan Deferment: Live to Pay Another Day

    Extending your principal repayment date can increase your chances of fighting off default.
  3. Savings

    Choosing The Right 529 Education Savings Plan

    Before you fund one of these education-savings vehicles, be sure you know their differences.
  4. Insurance

    Tuition Insurance Takes Sting Out Of Withdrawal

    Dropping out of school can mean forfeiting all your tuition. Find out what protection is available.
  5. Taxes

    Newlyweds? Tips For Filing Your Tax Return

    For many couples, it pays to file for taxes together. But what are some of the obstacles you should watch out for?
  6. Budgeting

    Pay For College Without Selling A Kidney

    Save thousands of dollars on tuition with these tricks and little-known programs.
  7. Retirement

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  8. Budgeting

    Student Debt: Is Bankruptcy The Answer?

    Student loans can be a huge financial burden, but bankruptcy won't necessarily save you from paying.
  9. Options & Futures

    Should Parents Pay For College?

    When federal student loan resources are exhausted, parents and students face tough decisions on how to pay.
  10. Savings

    529 Plan Tutorial

    This comprehensive guide goes through what a 529 plan is and how to set one up, contribute to it and withdraw from it.
RELATED FAQS
  1. What is the difference between certified and non-certified private student loans?

    All student loans in the United States are required by federal law to be used only for their intended purpose: obtaining ... Read Full Answer >>
  2. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  3. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  4. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  5. Who is eligible for student loan forgiveness?

    Your eligibility for student loan forgiveness depends on the type of student loan in question. If you have a federal loan, ... Read Full Answer >>
  6. What’s the difference between the two federal student loan programs (FFEL and Direct)?

    The short answer is that one loan program still exists (Federal Direct Loans) and one was ended by the Health Care and Education ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center