Student loans have become a huge burden for many parents and young adults. With college costs through the roof and little hope of covering tuition without taking out some type of loan, being stuck with those student loan payments after graduation is almost a reality.
Although you can’t escape payments, there is some COVID relief provided by the Student loan interest deduction phase out 2020 Act, the American Rescue Plan, and the President’s executive orders to help students with federal student loans. Aside from temporary relief, are there any tax breaks that will ease the burden of student loans?
Fortunately, taxpayers who make payments on a qualified student loan may be able to get some relief if the loan they took out was only used to pay for higher education expenses.
You can deduct interest on a student loan if you are a single taxpayer with income less than $70,000; however, your total tax deduction is phased out (is reduced little by little) between $70,000 and $85,000 ($140,000 and $170,000 for married filing jointly). If your income exceeds those limits, the interest paid on a student loan will not be tax-deductible.
The other good news regarding the student loan interest deduction is that you don’t need to itemize deductions to claim them. This makes sense when you consider that many recent college graduates don’t itemize taxes but instead claim the standard deduction.
If you paid more than $600 in interest to a single lender during the year, you should receive a 1098-E form showing how much interest you paid for that period. If you made student loan payments but did not receive a 1098-E, you are still entitled to claim the interest deduction, but you may need to call the lender or retrieve your records online.
A specific provision of the student loan interest deduction phase out 2020 Act, the US government’s stimulus and aid package designed to help Americans during the pandemic, allows employers to make student loan payments on behalf of employees up to 5,250 dollars per employee each year from 2021 through 2025 (for a total of up to $26,250).
It’s important to know that if your employer-provided you with student loan repayment assistance, that money could be considered taxable income.
The student loan interest deduction phase out 2020 Act initially suspended student loan payments and interest until the end of September 2020. However, President Joe Biden’s January 2021 executive order expanded the aid and suspended student loan payments and interest until September 30. September 2021.
On August 6, the Biden Administration approved the final extension of the federal student loan payment pause, interest, and fees through January 31, 2022.
The pause includes the following relief for eligible student loans:
- Suspension of loan payments
- 0% interest rate
- Suspension of collections of delinquent loans
You do not need to pay a fee to get 0% interest or payment suspension on federal student loans.