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.

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.



comments powered by Disqus
Hot Definitions
  1. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific benchmark, such as a SPDR. Unlike actively managed ETFs, passive ETFs are not managed by a fund manager on a daily basis.
  2. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another market so that it balances out. So when examining a specific market, if all other markets are in equilibrium, Walras' Law asserts that the examined market is also in equilibrium.
  3. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  4. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  6. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
Trading Center