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There’s one upside to your student loan payments: They might reduce your 2024 tax bill.
The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the deduction, according to higher education expert Mark Kantrowitz.
Most borrowers couldn’t claim the deduction on federal student loans during the pandemic-era pause on student loan bills, which spanned from March 2020 to October 2023. With interest rates on those debts temporarily set to zero, there was no interest accruing for borrowers to claim.
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But interest on federal student loans began accruing again in September of 2023, and the first post-pause payments were due in October of that year.
By now, borrowers could again have interest to claim for the full tax year’s worth of payments, experts said.
“All borrowers should explore whether they qualify for the deduction as it can reduce their tax liability,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.
Student loan interest deduction worth up to $550
The student loan interest deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.
Your lender or student loan servicer reports your interest payments for the tax year to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.
If you don’t receive the form, you should be able to get it from your servicer.
Depending on your tax bracket and how much interest you paid, the student loan interest deduction could be worth up to $550 a year, Kantrowitz said.
There are income limits, however. For 2024, the deduction starts to phase out for individuals with a modified adjusted gross income of $80,000, and those with a MAGI of $95,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $165,000, and those with a MAGI of $195,000 or more are ineligible.
