Your Guide to Filing Taxes With Student Loans
Get answers to questions about student loans and taxes, including: Are student loans taxable?
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Contributing Writer When tax season rolls around, those who received student loans, scholarships or repayment assistance may have questions about how that money impacts their taxes. Here are answers to key questions related to student loans and taxes.
Do student loans or scholarships count as income?
Student loan money you receive for college is not taxable because you’ll eventually repay the loan.
Free money used for school is treated differently. You don’t pay taxes on scholarship or fellowship money used toward tuition, fees and equipment or books required for coursework. If your entire scholarship is nontaxable, you don’t have to report it on your return.
But any portion of those funds used for room and board, travel or optional expenses is taxable, as is any money received for teaching, conducting research or other services related to the scholarship. You’ll want to report any taxable amount of the rewarded money as part of your gross income.
If you benefitted from an employer student loan repayment program, up to $5,250 is considered nontaxable, and any amount over that must be reported as income.
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Can I deduct student loan interest?
If you repaid student loans last year, you may be eligible for the student loan interest deduction. Here’s how to claim the deduction:
- Get a student loan interest statement. If your interest payment was over $600, your student loan servicer will automatically send you Form 1098-E, a student loan interest statement.
- Contact your servicer if you paid less than $600. You can still deduct interest if you paid less than $600. You'll just need to ask your servicer or access your online account to get the exact amount.
- Calculate your deduction. Use the IRS’s student loan deduction worksheet to calculate your deduction. You’ll need this amount to complete your tax paperwork.
What's the impact of filing jointly or separately with student loans?
With student loans, your tax filing status mainly affects your income-driven repayment plan, if you have one. Income-driven repayment plans use the adjusted gross income listed on your taxes to determine your monthly payments.
If you file as single or head of household, your payments will be based on your income alone. If you’re married, then filing jointly or separately can increase or decrease your student loan payments.
- Married filing separately: Most income-driven repayment plans will consider only your income to calculate payments if you file separately.
- Married filing jointly: You’ll pay more than if you filed separately because payments will be based on two incomes instead of one.
- Married filing jointly, and your spouse has federal student loans: This changes the income-driven repayment calculation, as the Department of Education will account for your spouse’s federal debt when calculating your payment. Its math doesn't factor in private student loan debt.
Filing separately could save you money in student loan payments each month, but it may not make up for a smaller tax refund. For 2024, married couples who file jointly are eligible for a standard deduction of $29,200, compared with $14,600 for those who file separately. Filing separately also disqualifies you for certain tax breaks, including the student loan interest deduction and education credits.
Do I qualify for education tax breaks?
If you paid for education expenses in the past year, you might qualify for an education tax credit. You can choose from either the American Opportunity Tax Credit or the Lifetime Learning Credit.
The American Opportunity Tax Credit allows you to claim up to $2,500 while the maximum for the Lifetime Learning Credit is $2,000.
You can even qualify for one of these breaks if you paid for qualifying costs, like tuition and books, with a student loan. Your school will send you Form 1098-T, a tuition statement, to help you track qualified expense payments.
As with most tax-related topics, if your student loan situation seems complex, consider discussing your options with a tax professional. They can help you determine which combination of filing status, tax deductions and credits will save you the most money now and in the future.
You also may want to talk to a tax professional if you can’t afford your tax bill after student loan forgiveness. They may be able to help you reduce or avoid those charges, especially if it means your total liabilities are now more than your total assets.
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