There are a few benefits post-college beyond hopefully an increase in earnings potential and a newfound confidence from higher education.
The Federal Government allows for certain tax provisions to those who are paying down their student loans. For years the tax code allowed a maximum deduction of $2,500 of student loan interest to be deducted from one’s income.
So How Do I Know If I Can Claim The Deduction?
There are a few questions that need to be answered to determine if you are able to claim your interest on your student loans as a deduction; the first question being whether or not you are being claimed as a dependent. If you are, then you are not able to claim the deduction.
However, the person claiming you as a dependent may claim the student loan interest deduction if they both are legally obligated to repay the loan and actually made the payments.
If you are not being claimed as a dependent, then you are able to claim the student loan interest deduction if you are both legally obligated to repay the loans and you actually made the payments yourself.
Are There Any Other Restrictions?
If you were to have landed a good job after college, the amount you are able to deduct may be reduced even if you meet all of the other requirements. The phaseout for this deduction starts at a modified adjusted gross income of $60,000 for single filers and $125,000 for married filers.
Are There Any Other Caveats?
A nice feature of the student loan interest deduction is that it is what is referred to as an “above-the-line deduction,” meaning that it can be deducted regardless of whether a taxpayer itemizes their deduction or uses the standard deduction.
The student loan interest deduction therefore is deducted in addition to either the standard deduction or your itemized deductions.
This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.