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Student Loans

Student Loans & Taxes

Updated Jun 16, 2023   |   3-min read

Paying for school can be expensive, whether you’re trying to repay student loans you’ve already taken out or you’re currently paying tuition for a program you or your child is enrolled in.

Fortunately, there are tax breaks available to help you cover the cost of schooling and to make student loan repayment more affordable. This guide will help you understand more about how student loans and tuition costs can affect your tax liability.

5 Common Questions Regarding Student Loans and Taxes

1) Are Student Loans Tax Deductible?

If your income is not too high, you can claim a tax deduction for up to $2,500 in interest paid on student loans each year. You must be legally obligated to repay the student loans in order to claim this deduction.

You can learn more about this in our guide to the student loan interest tax deduction, and you can check out our student loan interest tax deduction calculator to see how much you could save.

2) Do Student Loans Count as Income for Taxes?

Student loans do not count as taxable income, even though some of the funds from the loans may be disbursed directly to you to help you pay for room and board or living expenses you incur while getting your education. Loans aren’t income because they’re a debt that must be repaid.

For more information about the tax treatment of student loans, check out our guide to whether student loans are taxable income.

On the other hand, student loan forgiveness is sometimes taxable. You can learn more in our guide to when you will be taxed for student loan forgiveness.

3) What are Education Tax Credits

Education tax credits help to defray the cost of getting an education by providing a credit for the tuition you pay. Tax credits include the Lifetime Learning Credit and the American Opportunity Tax Credit.

Tax credits are more valuable than deductions because they provide a dollar-for-dollar reduction in taxes owed rather than just decreasing your taxable income.

4) Should Married Couples With Student Loans File Taxes Separately or Jointly

Married couples with student loans generally should file their taxes as “married filing jointly,” rather than “married filing separately.” Filing separately could jeopardize your eligibility for certain deductions and credits, including the student loan interest deduction. 

However, if one or both spouses are using an income-driven repayment plan, filing separately could actually make more sense. Otherwise, your income level and monthly payments could increase.

5) How to Avoid a Tax Offset Due to Defaulting on Your Student Loans

Defaulting on your student loans can have a number of consequences. One of those consequences is that your tax refund could be offset. You can avoid losing your refund if you challenge your student loan offset or adjust your tax withholding.

You can learn more in our guide to how to avoid a student loan offset on your refund due to defaulting on your student loans.

>> Read More: How student loans work