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Annual Tax Season Reminder: You May Qualify for a Student Loan Interest Refund in 2021

Kathryn Morstad
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2021-student-loan-interest-deduction

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Before You Read, Lower Your Student Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.

Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

People who are getting ready to file their 2020 taxes may be eligible for additional refund money if they paid student loan interest during the past year. But like so many things affecting 2020, student loan payments were treated differently than previous years and this will affect your 2020 tax returns as well.

With the unusual circumstances of the last year, just how much interest you paid may be less than during a normal year. With all federal student loan payments deferred starting on March 13, 2020, the interest amounts eligible will be from payments made on federal student loans made prior to the deferral date or on payments made on private student loans.

When are 2020 tax returns due?

Last year, the 2019 tax return due date was postponed until July 15, 2020, to give ample time to people affected by the coronavirus pandemic. However, this year the deadline has gone back to Thursday, April 15, 2021. So personal tax returns have to be postmarked no later than midnight on that day or be subject to penalties and interest charges.

What is the student loan interest deduction?

The student loan interest deduction was reintroduced under the Taxpayer Relief Act of 1997 after being repealed in 1986. Starting with a maximum amount of $1,000 in 1998, it has since grown to the current amount of $2,500 and is treated as an adjustment to income before any deductions (like the standard or itemized deductions).

Who’s eligible for the student loan interest deduction?

To be eligible to use the deduction, you must be legally obligated to pay the loan(s). That means the loan must be in your name whether you are the student or the parent for either federal or private loans.  Also, the loan must be used for qualified education expenses – tuition, room and board, books and supplies, and school fees.

You also must file according to limits set by the IRS tax code (adjusted annually for inflation), which for 2020 include:

  • Single, head of household, or qualifying widow(er)
    • Full deduction if your modified adjusted gross income (MAGI) is less than $70,000
    • Partial deduction if your MAGI is between $70,000 and $85,000
    • No deduction if your MAGI is over $85,000
  • Married taxpayers filing jointly
    • Full deduction if your combined MAGI is less than $140,000
    • Partial deduction if your MAGI is between $140,000 and $170,000
    • No deduction if your MAGI is over $170,000

Unfortunately, you are ineligible if you are claimed as a dependent on someone else’s tax return. Also, there is no carryover from year to year on student loan interest deductions.

How does the student loan interest deduction work in 2021?

Known as an “above the line” adjustment to income, your student loan interest deduction adjusts or deducts the amount paid up to the maximum from your MAGI.

This allows you to use the Standard Deduction which, for the 2020 Tax Year, is $12,400 for Single, $18,650 for Head of Household, and $24,800 for Married Couple Filing Jointly and a Qualifying Widow(er) and is on line 12 of 2020 Tax Form 1040. This adjustment can also be used when itemizing your deductions on Schedule A as well.

Subtracted from line 20 of Schedule 1, 2020 Tax Form 1040, this student loan interest deduction will reduce your MAGI impacting the amount you pay for federal and state taxes, as well as positively affecting other possible deductions and credits that are based on your MAGI.

How to make sure you’re getting the biggest student loan refund possible next year

For 2021, the Biden Administration has extended the loan payment deferral until the end of September. So, again, next year, the only interest paid will be on federal loans during the last quarter of 2021 and on private loans. That could mean another year where you aren’t getting the full benefit of the tax deduction, but interest was deferred so it evens out.

If you have private loans, you may want to consider refinancing those loans now to score a lower interest rate and save money over the life of the loans.

Depending on the amount of student loan debt you have, you can lower your interest rate and still take advantage of the student loan deduction for 2021 and years beyond.

How would refinancing help?

Interest rates have never been lower.

If you are like most people, you accumulated loan debt over the course of your education and now have several different loans at interest rates as high as 6% or 7%.

By refinancing, you could consolidate all of your loans at a lower interest rate. With good credit and a stable, solid income, many private lenders are loaning money with rates as low as 2% and 3%. That means savings each month on your loan payments and your interest is still deductible on next year’s tax return up to the maximum amount of $2,500.

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What interest rate can you qualify for?

We have developed a best-in-class rate comparison tool to help you analyze your debt and refinancing opportunities. By using our tool, our industry-leading team of private lenders each give you a specific pre-approval offer that you can compare side-by-side to find your optimal package.

All that’s required is for you to fill out some basic information — it’s free and, if you choose to refinance with one of our lending partners, there are no fees to apply and no pre-payment penalties on any of the loans.

To sum up

The student loan tax deduction can save you money on your 2020 taxes by deducting up to the maximum of $2,500 “above the line” as an adjustment to income. That could work out to a savings of $550 depending on your tax rate.

For 2021, consider refinancing your private loans to lower interest now while still being able to use interest you do pay when you prepare your taxes in 2022.

Check out what our best lenders have to offer at Purefy.

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Ascent Rate Disclosure

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills or DR Bank, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs.

Rates are effective as of 12/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized back account each month. For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates.

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

ISL Rate Disclosure

Earnest Rate Disclosure

2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.44% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.97% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

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THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.67% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.64% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

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THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10/13/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 12/11/2023. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

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