If you're a college or post-grad in America, odds are you're probably relying on some student loans to foot the bill for your education. But if you took out some money to pay for school, now that it's tax season you might be wondering if student loans count as taxable income? Take a deep breath, because while your loans are mounting debt, they're not income.
While student loans are big sums of cash that help you pay your tuition, the Internal Revenue Service (IRS) does not see them as income because it's expected that you'll pay them back eventually, according to Student Loan hero. However, some other means of carrying the financial burden of education don't get off that easy.
Your student loans might not be considered income, but things get a little more complicated when it comes to grants and scholarships. According to Student Debt Relief, you might have to declare some of the money you received from a scholarship or grant depending on how you spend it. The publication points out that the you don't have to claim the portion of the grant or scholarship that you used for "educational expenses." But what are those? Well, the IRS sees education expenses as tuition and associated fees like books. However, things like room and board are not included. For instance, let's say you get a grant for $4,000 and you spend half of it on tuition, $500 on books, and the rest on housing, then you'd only have to declare $1,500 when filing your taxes.
While you don't have to claim student loans as income, you may be able to deduct them once you start paying them off — well, sort of. While you can't deduct the loan itself, you might be able to deduct the interest paid on the loan during that tax year, according to USA Today. Hey, it's something?
But don't get overly excited just yet, there are a few stipulations. In order to deduct your interest, the loan must — again — have been used for education purposes like tuition, books, and room and board, according to the IRS. If you took out the loan but used it for something else, then you won't be able to deduct the interest on your taxes. Also, you must have been enrolled in "a degree, certificate, or other recognized educational credential at an eligible educational institution," according to the IRS.
If you hit all those boxes and are just itching to deduct your student loan interest, check your mailbox. If you paid over $600 in interest over the course of the year, then in February your loan servicer will automatically send you a 1098-E interest statement in the mail, according to USA Today. If you paid less than $600, don't worry. You can just request that they send you a form, and there you go.
The legacy of the student loan doesn't end when you leave school, unfortunately, so make sure you know all the basics — especially around tax season. If you know anything about student loans, you know that anything you can save is worth it.