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 and non-certified private student loans?

    Learn the main differences between certified and non-certified private student loans, and see why non-certified student loans are much harder to find.
  2. Savings

    Choosing The Right 529 Education Savings Plan

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

    Tuition Insurance Takes Sting Out Of Withdrawal

    Dropping out of school can mean forfeiting all your tuition. Find out what protection is available.
  4. 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?
  5. Budgeting

    Pay For College Without Selling A Kidney

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

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  7. Credit & Loans

    Student Loan Deferment: Live To Pay Another Day

    Extending your principal repayment date can increase your chances of fighting off default.
  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. Credit & Loans

    Student Financial Aid Changes: FAFSA 2009

    The Free Application for Federal Student Aid got an upgrade in 2009. All those applying should be aware of these improvements.
  10. Credit & Loans

    All About Student Loans

    Student loans bridge the gap between college savings, scholarships and the part-time work.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center