Student Loans and Taxes

Save Money on Your Student Loans

Student loans are eligible for a number of beneficial tax incentives you need to be aware of come tax time.

Deducting Student Loan Interest

Most people dread tax season. However, if you have student loans, you may have reason to smile. You are eligible to deduct some, if not all, of the interest you paid on your educational loans, that’s money used to pay for education expenses only. The deduction is based on the interest paid on the loan during the previous tax year with a maximum deduction of $2,500. Restrictions on income limits apply. Check with your tax advisor to see if you qualify.

HOPE Scholarship Tax Credit

The Taxpayer Relief Act of 1997 provides for the HOPE Scholarship. The HOPE Scholarship provides up to $1,500 in tax credits for the first two years of college for every child in a higher education program. Tax credit is based on the money paid toward tuition only.

Lifetime Learning Credits

Lifetime Learning Credits pick up where HOPE Scholarship Tax Credits leave off. These tax incentives are designed for upper classmen who have completed their first two years of college or for adult learners taking classes for professional reasons. Eligible taxpayers may qualify for a credit equal to 20% of the first $10,000 in educational costs.

Employer-Provided Education Benefits

Your employer has a vested interest in your continuing your education. By doing so, you bring enhanced skills to your job function. Employers can “reward” employees who are enrolled in certain programs by providing tax benefits. For example, you may be able to exclude up to $5,250 of employer-provided education benefits from your taxable income. Ask your employer what employee education benefits may be available.

Education Savings Accounts

The government encourages you to save for your education, too. You may make annual deposits into an account that are tax-free. Annual tax-free deposits may not exceed $500 per child under the age of 18. Withdraw the money and use it tax-free when it’s applied toward tuition, fees, books, equipment, and room and board.

Consult your tax advisor for complete details of each tax incentive. Any way you can make education more affordable, the better.