Student Loan Interest Reductions and Tax Deductions

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Student loan interest increased dramatically on July 1, however President Obama signed the Student Loan Certainty Act of 2013, which will roll back student loan interest rates to the lower interest rates charged prior to July 1st.

That’s really good news for millions of students who would have been affected by the increase.

Student loan interest rates will now be linked to the financial markets, so most students will experience lower interest rates.

Undergraduates will be able to borrow at about a 3.9% interest rate this fall,  saving the average undergraduate about $1,500 in interest this year.

The recent signing of the Student Loan Certainty Act of 2013 will help save millions of students (and parents) money, but how do you save money on student loan interest at tax time?

Student loan interest may be a tax deduction for most taxpayers, even if they don’t itemize deductions. And it isn’t just their own interest that’s tax deductible. You can deduct student loan interest on loans for you, your spouse (on a joint return), and your dependents.

That’s the good news, but there are two limitations: first of all, the amount of student loan interest you can claim as a tax deduction is limited to $2,500. And secondly, there are income limitations for being able to claim the deduction.

If your income is over $60,000 ($125,000 for a joint return), then your deduction for student loan interest will be phased out. For income over $75,000 ($155,000 on a joint return), your student loan interest is not deductible. If you are married but file a separate return, you are not eligible for the student loan interest deduction.

Comments (2) Leave your comment

  1. IRS sent me a CP2000 notice for 2011 taxes that states my modified gross income is between $120,000 and 150,000 for married taxpayers filing jointly so I cannot claim student loan interest. The worksheet form 1040, line 33 from TurboTax 2011, under Part II, number 3 modified AGI, states you cannot take deduction if $150,000 or more for joint returns. Which is correct?

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