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College Students and Recent Grads

How a Student Loan Interest Deduction Works

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you have student loan payments on top of all your other bills and financial responsibilities, every little bit of savings helps.

The student loan interest deduction won’t make you rich, and it won’t completely relieve the burden of your payments. But it could save you a few hundred dollars per year, so it’s worth understanding how it works and how you can take advantage of it.

What is the student loan interest deduction?

The student loan interest deduction allows you to subtract some of the interest you paid on your student loans during the year from your taxable income. By reducing your taxable income, the deduction saves you money by diminishing the amount of taxes you owe.

The IRS allows you to deduct up to $2,500 of interest paid per year on “qualified student loans,” which is any loan that was:

  • Taken out for you, your spouse or a qualifying dependent
  • Used to pay qualified higher education expenses for an eligible student
  • Used within a reasonable time period after taking out the loan

According to Jason Speciner, CFP, enrolled agent and the founder of Financial Planning Fort Collins, the definition of “qualified student loan” is broader than you might think.

“Interest on loans that are specifically student loans obviously counts, but you’re allowed to take the student loan interest deduction for any debt as long as it meets certain standards,” said Speciner. “It has to be used only for education expenses [and] it has to be debt that isn’t otherwise deductible.”

As an example, Speciner says that a personal loan taken out within 90 days of receiving your tuition bill would count, as long as the loan is only used for education expenses. A home equity loan, however, typically wouldn’t be eligible since it is not strictly related to your education expenses.

Wendy Marsden, CPA, CFP and principal at ProsperiTea Planning, adds that private student loans are also eligible for the deduction and that you might be able to deduct the interest from your state tax as well.

“Many states have what are called ‘piggyback taxes’ that say that whatever your federal income is, that’s what they’ll use as your state income tax base,” said Marsden. “In that case, if it’s deductible at the federal level, then it’s deductible at the state level too.”

Marsden emphasized that it is only the interest portion of your student loan payment that’s deductible. Some of each payment goes toward the principal of your loan, and that portion isn’t deductible.

However, one of the big advantages of the student loan interest deduction, according to Speciner, is that it’s an above-the-line deduction, meaning that you don’t have to itemize deductions in order to claim it.

“That’s the beauty of this thing,” said Speciner. “If you look at the typical taxpayer who’s within the income range that’s allowed to claim the deduction, they’re typically not itemizing deductions. But here, they’re still allowed to take it.”

The bottom line is that if you’re repaying any debt taken out exclusively for education expenses, the student loan interest deduction can help ease the burden of those payments by reducing your tax bill.

Do you qualify for the student loan interest deduction?

The downside of the student loan interest deduction is that not everyone will qualify. There are several criteria you have to meet.

First, as explained above, the interest has to be paid on a “qualified student loan,” taken out for you, your spouse or a qualifying dependent.

Second, you must have personally paid the interest during the tax year in question, and you must be legally obligated to pay that interest. One of the implications here is that if you are a parent making payments on your child’s student loan and you aren’t a cosigner on it, you are not allowed to deduct those interest payments because you are not personally obligated to make them.

“For a personal example, I told my son that I would pay his student loans if he got [a grade point average of] over a 3.0,” said Marsden. “He did that, so now those loans are in his name, but I am paying them, and I can’t take the deduction even though I’m paying the interest.”

You also can’t claim the deduction if you are married but file taxes separately. You must either be a single filer or file jointly as a married couple, and you must not be claimed as a dependent on anyone else’s tax return.

Finally, the deduction is phased out once your income reaches a certain point. For single filers, the phaseout begins when your Modified Adjusted Gross Income (MAGI) reaches $65,000, and the deduction is eliminated completely once your MAGI reaches $80,000. For married couples filing jointly, the phaseout runs from $135,000 to $165,000.

“It’s almost always income that keeps people from being able to claim the deduction,” said Speciner. “I have clients come in with $5,000 of interest paid during the year, and I have to tell them they can’t deduct it because their income is too high.”

On the other hand, Marsden points out that there are a few sweet spots where the deduction can be incredibly valuable.

“Teachers are a really good example of people who can benefit from the student loan interest deduction,” she said. “Anybody with a medium- to low-earning career, or anyone who is early in their career, can benefit from it.”

How to calculate your student loan interest deduction

In a moment, you’ll learn how to report the exact right amount of student loan interest you paid for tax purposes, but first you might want to know ahead of time how much you stand to save.

Here’s a process that will help you estimate the value of your student loan interest deduction:

    • First, make sure you’re not above the income limits. For single filers, that’s a MAGI of $80,000, and for joint filers, it’s a MAGI of $165,000. Click here for an overview of how to estimate your MAGI. If you are over those limits, you won’t be able to claim the deduction.
    • For each individual student loan, multiply your current balance by your interest rate to get the approximate amount of interest you’ll pay during the year. For example, if you have a $10,000 loan with a 6.8% interest rate, you can multiply them together to get an estimated annual interest payment of $680.
    • Add together the estimated interest for each loan to get the total amount of interest you expect to pay across all your student loans.
    • Cap that number at $2,500.


  • If you’re single and your MAGI is between $65,000 and $80,000, or if you’re married and your MAGI is between $135,000 and $165,000, you’ll have to calculate your phaseout. To do that, first subtract the bottom MAGI limit ($65,000 for singles, $135,000 for couples) from your estimated MAGI, then divide that result by either $15,000 if you’re single or $30,000 if you’re married filing jointly. Here’s an example:
    • You’re married, filing jointly and your estimated MAGI is $150,000.
    • Subtract $135,000 (the bottom MAGI limit) from $150,000 to get $15,000.
    • Divide $15,000 by $30,000 (single filers would divide by $15,000).
    • That result is 0.5.
    • Multiply 0.5 by the total interest you calculated in Steps 3 and 4 to determine the final amount you’ll be able to deduct.
  • Multiply the amount of interest you’re able to deduct by your federal tax rate to get your estimated savings. For example, if you are in the 22% tax bracket and you can deduct $2,500 in student loan interest, you stand to save $550 at tax time. If you’re not sure what your tax rate is, you can use this tool from TurboTax.
  • If the interest is deductible for state income tax purposes as well, you can multiply your state tax rate by the amount of your eligible interest to calculate your additional savings.

However, there are a few other factors to consider.

According to the IRS, the interest is only deductible to the extent that the loan was used to pay qualified education expenses, and those expenses are reduced by other money that was received tax-free for that same purpose, including:

  • Employer-provided education assistance
  • Tax-free distributions from a 529 plan or Coverdell ESA
  • Savings bond interest used for education
  • Scholarships and grants
  • Veterans’ educational assistance
  • Other tax-free payments used for education, aside from gifts or inheritances

In other words, if you used any of those sources to pay for education expenses, and you think that as a result, your entire student loan balance may not have gone toward qualified education expenses, you may want to consult with a CPA before deducting all of your student loan interest.

On the other hand, the IRS does allow you to count a few additional expenses as interest for the purpose of the student loan interest deduction:

  • Loan origination fees
  • Capitalized interest, which is interest that has been added to the principal of the loan
  • Interest on credit card debt, as long as that debt was used solely to pay for qualified education expenses
  • Interest on refinanced and consolidated student loans

Steps to claiming your student loan interest deduction

For the most part, claiming your student loan interest deduction is fairly simple. The biggest potential hang-up is simply figuring out exactly how much interest you paid.

In general, any lender that received $600 or more in interest payments from you during the year must send you a Form 1098-E, which will specify exactly how much interest you paid. However, that form might not include things like loan origination fees or capitalized interest, which would also be eligible for the deduction.

You may not always receive a Form 1098-E, either because you didn’t pay at least $600 in interest or because your lender didn’t mail it out, in which case you may need to do some digging.

“The lender is going to have a statement or a website where you can see how much interest you paid during the year, as well as other relevant information,” said Speciner. “And if you used another type of debt, like a personal loan, you won’t get a Form 1098-E, and you’ll definitely have to use the lender’s records at that point.”

Once you have that information, Speciner says it’s simply a matter of providing it to your tax professional or entering it into the tax preparation software you’re using. Your allowed deduction will be calculated and added to your return.

If you’d like to fill out your tax return on your own without the help of a professional or software, IRS Publication 970 has detailed guidance on both calculating and reporting your deduction.

Taking full advantage of the student loan interest deduction

The student loan interest deduction doesn’t completely relieve the burden of making payments, and it doesn’t eliminate the cost of your loans. But it’s a helpful way to save a little bit of money if you’re able to claim it, and as Marsden points out, the best way to take advantage is to simply be aware that it exists.

“The hardest part is not knowing that it’s there,” she said. “So just knowing that there’s a deduction, you can find the other information you need to find.”

In most cases, all you need to do at tax time is get an accurate record of the amount of student loan interest you paid during the year on each eligible loan and make sure you report it either to your professional tax preparer or into your tax-prep software. Doing so will allow you to take full advantage of the student loan interest deduction.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here


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College Students and Recent Grads

College Ave Private Student Loans Review: Accessible Eligibility Criteria, Flexible Repayment

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


If you’re concerned about eligibility for a private student loan, consider that College Ave Student Loans stands out for its accessibility.

You could be an international student without a GED seeking an associate degree on a part-time basis, for example, and still qualify for College Ave private student loans.

Founded by former Sallie Mae executives in 2014, the online-only company offers competitive interest rates to students in college as well as career or graduate schools, as well as their creditworthy parents.

To ensure it’s the right lender for you, consider our review.

College Ave Student Loans review: The basics

While you could qualify for College Ave private student loans with several different educational backgrounds and ambitions, you still need to be creditworthy. Having a credit score of at least 660 is a good start.

The lender doesn’t disclose its specific credit criteria, but you could gauge your (or your cosigner’s) eligibility using the lender’s pre-qualification tool. Passing that test would unlock these loan features:

  • Loans for part- or full-time undergraduates, graduate students, career school students and parents
  • Prequalify with a three-minute application (and without affecting your credit)
  • No fees to apply
  • Fixed and variable interest rates

  • Borrow between $1,000 and your school’s full cost of attendance
  • Choose from four in-school repayment options, including full deferment
  • Select one of four repayment term options: five, eight, 10 or 15 years
  • Receive your loan in as little as 10 days after applying
  • Cosigners are accepted — and encouraged (note that they are required for international students who have a Social Security number)
  • Release your cosigner after more than half your repayment term has elapsed
  • Enjoy a federal loan-like six-month grace period after leaving school
  • Net a 0.25% interest rate reduction for enrolling in autopay
  • No penalty for paying off your loan early
  • Forbearance — the ability to temporarily suspend payments — is awarded on a case-by-case basis
  • Student loan forgiveness in the case of the borrower’s permanent disability or death

While the majority of the loan characteristics above are true no matter your status in school, there are some notable differences for graduate students, career school students and parents.

Graduate students

Whether you’re seeking a postgraduate, master’s, doctoral or professional degree, you can count College Ave private student loans as an option. Note that the ceiling on College Ave’s interest rate ranges as of early June 2019 was significantly lower for graduate students compared to undergrads.

In summer 2019, College Ave also added unique perks for postgraduate students seeking an MBA or other professional degree. The loans include longer grace periods, for example, with 12 months for dental students and 36 months for medical students.

There are also deferments available for students who enter a residency program — or, in the case of law school students, a clerkship — after receiving their degree. Additionally, students seeking these advanced credentials might be able to select a longer loan term (20 years) than their peers.

Career school students

If you’re pursuing an associate, bachelor’s or graduate degree in a career-focused program, including at some community colleges, keep this bonus in mind: College Ave offers borrowers of this loan type a $150 statement credit for completing their program.


College Ave gives parents even more repayment term flexibility. The lender said on its website that it would assist creditworthy parents in choosing one of 11 possible repayment terms, spanning between five and 15 years.

Another plus of borrowing from College Ave: The lender allows Mom or Dad to directly receive up to $2,500 of the loan funds to cover smaller, secondary expenses including books and supplies. (The balance would be sent directly to the student’s school.)

On the downside, however, the floor on College Ave’s interest rate ranges as of early June 2019 was noticeably higher for parents than for undergraduate students. Plus, parent borrowers only have three in-school repayment choices, not including full deferment. Making interest-only payments is the cheapest option available.

What we like about College Ave Student Loans

It’s rare to find a lender that’s so accessible. In College Ave’s eyes, you don’t need a high school diploma or GED, don’t need to be pursuing a four-year degree, don’t need to be enrolled full time — you don’t even need to be an American student (as long as you have a Social Security number).

Aside from flexibility on qualifying, below are a few more features of College Ave private student loans that benefit from additional context.

A bevy of in-school repayment options

Many private lenders offer fewer repayment options than College Ave. But College Ave provides four payment methods, including:

  • Deferred: Postpone payments until six months after leaving school, allowing interest to pile up on your balance.
  • Flat: Submit monthly dues of $25 to eat into the accruing interest on your loan.
  • Interest-only: Pay only enough each month to cover accruing interest to ensure you face the same balance you borrowed upon leaving school.
  • Full: Enter repayment immediately by making interest-and-principal payments, so you’ll owe less than what you borrowed once you step off campus.

For cash-strapped students, making (significant) in-school payments isn’t always possible. For other students with income or parental support, entering repayment sooner could pave the way for a faster route out of debt. That’s why it’s so nice to have options.

According to the lender, about 6 in 10 College Ave borrowers elect to submit in-school payments to whittle down interest before the reality of repayment hits upon graduation.

Pick your repayment term

Some lenders, including Sallie Mae, assign you a loan repayment term based on your creditworthiness.

One benefit of borrowing College Ave private student loans, however, is that you (and your cosigner) could independently choose your term. You might select five, eight, 10 or 15 years, depending on your budget and future income. (Unlike with federal loans, however, private lenders like College Ave don’t allow you to change terms later, extending or shortening your repayment term as you wish.)
College Ave said on its website that 84% of borrowers choose a term of 10 years or less.

Receive strong customer service

Nearly 400 College Ave borrowers had awarded a 4.8-out-of-5 rating of their lender — at least according to the lender website.

For a more objective accounting, Trustpilot lists a four-star rating for College Ave, and the Better Business Bureau gives the lender an “A+” grade.

What to keep in mind about College Ave Student Loans

If you like what you’ve learned about College Ave private student loans, keep in mind that no lender is perfect for every borrower.

Decide for yourself whether the following facts should point you in the direction of a competitor.

A long trek to cosigner release

By College Ave’s math, 96% of undergraduates have a cosigner on their loan. After all, teens and 20-somethings can make up for their thin credit files by piggybacking on a creditworthy cosigner, usually Mom or Dad.

The majority of top-rated lenders allow you to release that cosigner (from their legal obligation to repay your debt, if you can’t) after 12 to 48 months of successful payment history.

With College Ave private student loans, however, it’s a long haul. To remove your cosigner from your loan agreement, you must:

  • Reach the halfway mark of your loan term
  • Make 24 consecutive on-time payments
  • Show twice as much income as your loan balance
  • Pass a credit check

If you want to reward your cosigner by sending them on their way, you might avoid a 15-year loan term. Under that scenario, you wouldn’t be able to release them until you’ve been in repayment for seven-and-a-half years.

To make matters worse for some borrowers, international students can’t achieve cosigner release at all.

If cosigner release essential to you and your guarantor, you might consider borrowing from Sallie Mae, which offers a 12-month route to release.

A limited form of forbearance

Forbearance is a vital component of any student loan, as it allows you to press pause on your repayment in the face of hardships such as unemployment.

Unfortunately, College Ave is cagey about its forbearance policy, leaving details off its otherwise resource-heavy website.

It turns out, the lender evaluates forbearance applications on a case-by-case basis. In other words, if you find yourself out of work or under another sort of financial duress during repayment, there’s no guarantee College Ave will grant you a reprieve.

If you think you might need a more clear-cut safeguard built into your loan, you might opt to borrow from Discover, as the bank offers a variety of protections, from payment extensions to as many as 12 months of forbearance.

Third-party loan servicing

If you’re attracted to College Ave, in part, because of its modern, easy-to-use platform and strong customer service record, you might be disappointed to learn that the company outsources the servicing of its loans.

Repayment of College Ave private student loans even takes place on a different website. University Accounting Service (UAS) handles statements and payments and fields customer concerns.

When deciding whether College Ave is right for you, factor UAS into the equation, too. You might be wise to contact the latter company to get a sneak peek of its effectiveness in answering your loan management questions.

If you’re left wanting more, you might be better off walking into your local bank or credit union, where your loan will be funded and managed under the same roof.

Are College Ave Student Loans right for you?

If you’re an atypical college student — maybe you’re attending part time or seeking an associate degree — College Ave private student loans are more accessible than education financing found elsewhere.

Even if you’re attending a traditional four-year school, you could be drawn to the online lender’s assortment of in-school and postgraduate repayment options. They give you the power to customize a loan that works best for your borrowing situation. Plus, if you (or your cosigner) are especially creditworthy, you could unlock some of the lowest interest rates offered by banks, credit unions and online competitors.

College Ave won’t be as appealing, however, if you’re counting on a fast pathway to cosigner release or federal loan-like safeguards such as mandatory forbearance. To pit College Ave against the competition, find out where the lender ranked among our top-rated student loan companies.

MagnifyMoney has independently collected the above information related to this review, which is current as of June 3, 2019, unless otherwise noted. College Ave. neither provided or reviewed the information shared in this article.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Andrew Pentis
Andrew Pentis |

Andrew Pentis is a writer at MagnifyMoney. You can email Andrew here

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Building Credit, College Students and Recent Grads, Credit Cards, Earning Cashback

How You Can Have a Good FICO Score Just One Year After Opening a Credit Card

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


When I moved to the U.S. from my hometown of Hangzhou, in China, to pursue my undergraduate degree, the thought of establishing a credit history wasn’t even on my radar. I was, after all, an international student from China, where day-to-day credit card use had only recently caught on.

It wasn’t until I returned to the U.S. a few years later to pursue my master’s degree in Chicago that I realized I’d need to establish credit if I planned to launch my career in the States.

Just one year after I opened the card, I already had a solid FICO score – 720, to be exact. This score landed me safely in the “good” credit range, meaning I probably would not have trouble getting approved for new credit. I still had work to do if I wanted to get into the “very good” credit category, which starts at 740. But as a credit card newbie, I was not disappointed in my progress. 

Here’s how I did it.

I selected the right card for my needs

I wish I could say I diligently researched credit cards to choose the best offer and best terms, but honestly, I just got lucky.

Shortly before graduate school started, I visited friends in Iowa. When we were about to split the bill after dinner at a Japanese restaurant, I noticed that all my friends had a Discover card with a shimmering pink or blue cover. The Discover it® Student Cash Back was known for its high approval rate for student applicants, and had been popular among international students.

I thought, “Oh, maybe I should get this one, too.”

One of the friends sent me a referral link that very night. I applied and got approved quickly. We both received a $50 cash-back bonus after I made my first purchase — an iPhone — using the card through Discover’s special rewards program. I even received 5% cash back from the purchase.

Besides imposing no annual fee, the card had other perks, such as rewarding me with a $20 statement credit when I reported a good GPA (up to five consecutive years), letting me earn 5% cash back on purchases in rotating categories and matching the cashback bonus I earned over the first 12 months with my account. For me, it was a great starter card, but there are plenty of other options out there.

Check out our guide on the best credit cards for students.

I also could have explored other options of establishing credit, like opening a secured card, for example, which would have been a smart option if I hadn’t been able to qualify for the Discover it student card.

I never missed a payment

Despite my very limited financial literacy at the time, I attribute my strong credit score to the old, deeply ingrained Chinese mentality about saving and not owing.

I never missed payments, and I always paid off my balance in full each month, instead of just making the minimum payment. I didn’t want to pay a penny of interest.

Credit cards carry high interest rates across the board, but student credit cards generally have some of the highest APRs. This is because lenders see students like me — consumers without much credit history — to be risky borrowers, and they charge a higher interest rate to offset that risk.

Best Student Credit Cards June 2019

It wasn’t until much later that I learned payment history is critical to good credit. In fact, it is the biggest factor there is, accounting for 35% of my FICO score.

A Guide to Getting Your Free Credit Score

I was careful not to use too much of my available credit

My friends with more experience advised me to use as little of my available credit as possible. They warned me that overuse had hurt their credit scores in the past. This didn’t much sense to me, but I followed their advice, for the most part diligently.

I later learned this is almost as important as paying bills on time each month. Your utilization rate is another major factor in your FICO score. Credit experts urge cardholders to keep their credit utilization ratio below 30%. The lower, the better.

That means if you have three credit cards with a total available limit of $10,000, you should try to never carry a total balance exceeding $3,000, and you really should aim for much lower than that.

A Guide to Build and Maintain Healthy Credit

I beefed up my score with on-time rent payments

Keeping in mind the importance of not maxing out my credit card, I never considered paying my rent with the card. In fact, some landlords charge credit card fees for tenants who try to pay with plastic.

But I did find a way to establish credit by paying rent using my checking account.

I paid rent to my Chicago landlord through RentPayment, an online service. RentPayment gave me the option of having my payments reported to TransUnion, one of the three major credit-reporting agencies (the other two are Experian and Equifax). Because I knew I’d always pay bills on time, I signed up for the program.

This likely helped me improve my credit mix, another key factor influencing a credit score. The more types of accounts you show on your report, the better your score can be — if you make all your payments on time.

Yes, I made mistakes. This was my biggest one

My first foray into the world of credit wasn’t completely blip-free.

The only thing that hurt my credit, besides my short credit history, was that I had tried signing up for a Chase credit card, along with other ways to finance my iPhone, just a few days before I applied for my Discover card.

None of the other banks approved my applications, and my score went down at the very beginning, due to the number of “hard inquiries” against my credit report. Hard inquiries occur when lenders check your credit report before they make decisions regarding your application. Having too many inquiries in a short period of time can result in a ding to your credit score.

I’ve learned my lesson, though, and I’ll be cautious in the future when it comes to applying for a lot of credit in a short time period. Overall, it should be noted that you should not be afraid to apply for new credit — even when hard inquiries do hurt your score in the short term, it typically isn’t disastrous, and your score should recover fairly quickly as long as you are a responsible user of credit. Having more available credit can also help your utilization rate — as long as you don’t increase your charges, of course.

You can also check to see if you have prequalifed for any credit cards without triggering a hard inquiry.

If you’re new to the world of credit cards, consider taking the steps I outlined above, and you, too, may have a healthy credit score before you know it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at [email protected]


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