The cold, hard facts about student loan debt are quite brutal. As of January, 44 million Americans owe more than $1.48 trillion in total student loan debt. The average 2016 college grad owes roughly $37,100. Despite these stats, there is one bright side to student loan debt once you begin to pay them off: Lower taxes.
As Yahoo Finance reports, “borrowers who have paid up to $2,500 in interest payments over the last year are eligible for the government’s student loan interest deduction,” which will lower your taxes. The IRS’s site states that the deduction includes both required and voluntarily pre-paid interest payments. The deduction is also gradually reduced and eventually phased out once your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status. The catch here is that the deduction is only possible for the interest you actually paid throughout the year. If you’ve missed payments or owe interest, you’re out of luck. If you have kept up your payments, look for a 1098-E form in the mail. It will come from your lender and show how much you’ve paid in interest over the past year. Once you have that info, plug it into your tax return software and you’ll be granted the deduction.
If you’re curious about how much you’ll get from the deduction, check out a student loan interest calculator. Keep in mind that the maximum deduction is $2,500. That means if you’re in the 25 percent tax bracket, you’d save 25 percent of your deduction, or $625. That’s a good chunk that you could use to stock your emergency fund. Every little bit helps when you’re trying to rid yourself of those student loan debt blues.