<p>Hi all,</p>
<p>So I was looking online and saw that there is a tax credit, up to $2,500 (above the line) for student loan interest paid during the year. Currently it’s open to everyone, but in 2013 it will revert back to being only during the first 60 payments (first 5 years of the loan).</p>
<p>So, based on that…if I paid my student loan off within 5 years, wouldn’t it be interest free if my interest is under $2,500 a year?</p>
<p>No one ever mentions that when they talk about loans going into repayment.</p>
<p>* >>> If I paid my student loan off within 5 years, wouldn’t it be interest free if my interest is under $2,500 a year? *</p>
<p>I’ll let someone else reply in more detail, but the answer is no. It is not a tax “credit” but a tax “deduction”. </p>
<p>If you take a look at this article at [Tax</a> Deductions: Above-the-Line, Standard, Itemized, and Miscellaneous - The Finance Buff](<a href=“http://thefinancebuff.com/tax-deductions-above-the-line-standard-itemized-and-miscellaneous.html]Tax”>Tax Deductions: Above-the-Line, Standard, Itemized, and Miscellaneous), it describes the differences between tax deductions vs. credits. Above the line deductions will reduce your Adjusted Gross Income. So if you qualify for it, you won’t pay TAX on the amount you paid for interest. </p>
<p>The article gives a very nice example and even in the screenshot of the 1040 it shows the line you are referring to.</p>
<p>Thanks for the info! That makes more sense.</p>
<p>NP. When you start actually earning a decent income from that degree, you’ll realize how much taxes (used to pay for others’ school loans, and much much more of course) start taking a bite out of your available take home pay. Every deduction does help.</p>
<p>Yes I agree very few people mention tax implications (for anything). Even when they are in the industry itself. For example, A/C and Solar sales people should know all about the rebates and tax deductions/credits out there, but they only know the smallest inkling that makes their product look inexpensive. Ask any deeper questions like “do I even qualify for that?” or examine the fine print and you realize everyone avoids the topic, stating taxes are too complex and you should consult a professional. </p>
<p>I think anyone with a BA/BS degree can understand the vast majority of their own tax return and thus learn basics of how it all works to participate in our form of economy/social system, etc. </p>
<p>Good luck in your education & career.</p>
<p>Do remember that if you are claimed on a parent’s return, you are not able to deduct student loan interest on your return (and they can’t claim interest payments for your loans on their return if they claim you). Your parents may be eligible for an education tax credit that is generally more beneficial than deducting interest.</p>