Borrowers Who Restarted Student Loan Payments May Get a Tax Break

December 21, 2023

Amid the resumption of student loan payments, borrowers may find a silver lining when they go to file their 2023 taxes.

The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 per year in interest paid on their private or federal student loans.

Borrowers may have forgotten about this deduction over the course of the past three years when loan payments and interest accrual were paused. Most borrowers were ineligible for the deduction during this period, as the deduction only applies to amounts actually paid.

Interest on federal student loans began accruing again in September, ahead of the resumption of regular payments in October. This means that borrowers, assuming they have made their payments, will have three or four months’ worth of payments eligible to be deducted on their 2023 taxes.

Borrowers who made interest payments of at least $600 should keep an eye out for a tax form called a 1098-E from their lender or loan servicer.

The student loan interest deduction is considered “above the line,” meaning that you do not need to itemize your taxes to claim the deduction. 

There are, however, income limits. The deduction begins to phase out for individuals with a modified adjusted gross income (MAGI) of $75,000, and those with a MAGI above $90,000 are not eligible at all. For married couples who file jointly, the phaseout begins at $155,000, and those couples with a MAGI above $185,000 are ineligible for the deduction.

Borrowers may be getting an even larger tax benefit in the future. Lawmakers in the House recently introduced a bill to expand the annual student loan deduction from $2,500 to $10,000, and, under the proposed law, borrowers will be able to deduct their total student loan payments, not just the portion paid toward interest. The deduction’s current cap of $2,500 has not been raised since 2001.

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