Deferred Student Loan Payments and Interest May Diminish Tax Deduction

Starting in March 2020, first former President Trump, then President Biden have automatically suspended accrual of Federal student loan interest, as well as deferred student loan repayment for every borrower.

According to Federal tax law, all borrowers can claim a deduction of the student loan interest paid during the previous tax year. Yet given the automatic deferment of interest for the past 12 months and continuing until at least September 2021, all borrowers will likely have a reduced tax deduction for student loan interest paid in only January and February, possibly March 2020. 

Although in the short term, for 2020, borrowers may pay higher Federal taxes, those who voluntarily continue repaying their loans during this time of automatic deferment, will primarily reduce the principal balance of their loans, reducing the overall amount repaid.  

For more information, borrowers should review the Federal Student Aid FAQ’s or consult a tax professional

Hat tip: CNBC, February 22, 2021

For more information about how to both plan for and navigate the complex college admissions process in order to minimize the risk of educational malinvestment, find us at Creative Marbles Consultancy

Tagged , , , , , , , , ,

About Jill Yoshikawa, Ed M, Partner of Creative Marbles Consultancy

Jill Yoshikawa, EdM, Harvard ’99, a seasoned, 25 year educator and consultant, is meticulous in helping clients navigate all aspects of the educational experience, no matter the level of complexity. She combines educational theory with experience to advise families, schools and educators. A UCSD and Harvard graduate, as well as a former high school teacher, Jill works tirelessly to help her clients succeed.
View all posts by Jill Yoshikawa, Ed M, Partner of Creative Marbles Consultancy →