How to calculate your interest deduction on student loans

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The interest deduction on student loans is a tax benefit that can help offset the costs of borrowing and paying off that debt. When filing their income taxes in 2020, borrowers can deduct the interest they paid on student loans in the previous year, saving up to $ 625 on their taxes.

However, not everyone will get the full value of the student loan interest deduction. Find out how much lower your taxable income could be if you deduct interest from your student loan.

Average interest deduction on student loans valued at $ 188
2019 Student Loan Interest Deduction: High Income Filers Benefit Most
What is the value of the interest deduction on your student loan?
Are you eligible for the student loan interest deduction?

Average interest deduction on student loans valued at $ 188

Like other tax deductions, the interest deduction on student loans helps you by reducing your share of taxable income.

In this case, your taxable income is reduced by the amount of student loan interest you paid in 2019 – up to $ 2,500. This can reduce your tax bill by up to $ 625. And that could mean paying less tax or getting a bigger refund.

For student loan borrowers who are relying on their tax refund to make ends meet or meet their financial goals, this can be of great help.

However, few filers get the maximum value of $ 625 from the student loan interest deduction. Here are some statistics on the interest deduction on student loans, according to the 2019 congressional tax estimates:

  • 12.1 million Americans will be able to claim the interest deduction on student loans on their return for the 2019 tax year.
  • The average dollar value of the student loan interest deduction is $ 188.

2019 Student Loan Interest Deduction: High Income Filers Benefit Most

However, some filers score higher than average, as you can see in the table below:

Income class Average deduction value
Less than $ 10,000 $ 214
$ 10,000 to $ 20,000 $ 89
$ 20,000 to $ 30,000 $ 136
$ 30,000 to $ 40,000 $ 142
$ 40,000 to $ 50,000 $ 155
$ 50,000 to $ 75,000 $ 213
$ 75,000 to $ 100,000 $ 183
$ 100,000 to $ 200,000 $ 214
$ 200,000 and more $ 74

Filers who earn more than $ 50,000 benefit the most from the interest deduction on student loans. And the highest average student loan interest deduction ($ 214) is claimed by those earning both over $ 100,000 and under $ 10,000.

The fact that in most of the above cases, high income earners benefit the most from the student loan interest deduction is likely the result of several factors. First, those who pay interest on student loans and qualify for this student loan interest deduction are more likely to have a college degree and earn higher income.

Additionally, low-income borrowers might pay less interest if they take advantage of repayment options such as deferment and withholding or income-dependent reimbursement plans. These repayment plans reduce borrower payments, sometimes to $ 0. If these borrowers pay little on student loans, they won’t have a lot of student loan interest to claim.

Regardless of your income level, if you paid student loan interest last year, you should consider claiming a student loan interest deduction for 2019. Otherwise, you could lose some of that money.

What is the value of the interest deduction on your student loan?

As you prepare your taxes, you may want to better understand the value of your student loan interest deduction for 2019.

The average value of this tax benefit is $ 188. But the value of your The interest deduction on student loans will depend on the specifics of your situation. From the amount of interest you paid in the past year to the tax rate on your income, your own student loan and tax details are essential.

Fortunately, our student loan interest deduction calculator can quickly and easily estimate your personal savings if you claim this tax benefit. Using this tool can give you a better idea of ​​the type of tax refund you can expect.

Interest deduction calculator

Are you eligible for the student loan interest deduction?

The IRS makes it clear who can and cannot claim the interest deduction on student loans. Here are a few factors that determine whether you qualify for the 2020 student loan interest deduction for the 2019 tax year:

  • Your income: This tax deduction is being phased out to $ 85,000 modified adjusted gross income (MAGI) for single filers and $ 170,000 MAGI for married filers and jointly filing.
  • Filing status: You cannot claim the student loan interest deduction if you are claimed as a dependent on someone else’s return or if you are married but filing separately. It doesn’t matter if you take a standard or itemized deduction. The deduction of interest on student loans is an “adjustment to income”, according to the IRS, and can be claimed anyway.
  • Eligible student loan: You must have paid interest on a student loan that was originally borrowed to fund qualifying educational expenses. Federal and private student loans may be eligible, but student loans from a family member cannot.
  • Student loan interest paid: You must have paid the interest on the qualifying student loan in 2019, and it must be student loans that you are legally required to pay. Prepaid interest on student loans and loan origination fees can be claimed and deducted as interest paid.

The last point is perhaps the most delicate since the person who pays off a student loan is not always the person who owns it. Here’s when tax filers can and can’t claim the student loan interest tax deduction:

  • Unable to claim: If a student loan is in your name but your parents are making the payments, your parents cannot claim the interest they paid since they are not the legal owners of the loan.
  • Unable to claim: You cannot claim the student loan interest tax deduction if someone else, such as a parent, is making payments, even if your name is on the loan.
  • Can claim: Your parents can deduct the interest they paid on student loans they co-signed with you since their names are on those loans.
  • Can claim: You can claim the interest you paid on student loans that are in your name, whether they were taken out to pay for your education or someone else’s.

If you paid more than $ 600 in interest charges on your student debt in 2019, you’ll get a 1098-E showing the student loan interest you paid. Using the information on your 1098-E, you can claim your 2019 student loan interest deduction and get the full benefit you are entitled to.

If you haven’t received a 1098-E from your lender, don’t worry. You can still claim your interest, but you may need to take additional steps to determine how much student loan interest you have paid:

  • Take a look at your account summary or payment statements for each student loan manager you are repaying to see how much interest you paid in 2019.
  • If this information is not readily available, contact each student loan officer and ask for that number.

With this information in hand, you can claim your student loan interest deduction when filing your 2019 tax return. Then comes the fun part: deciding on the smarter way to spend your 2019 tax refund.

This blog does not provide tax or accounting advice. If you need tax and / or accounting advice, please contact an accountant directly.

André Pentis contributed to this report.

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