It's possible to receive a tax refund if you have student loans. Simply owing money on loans does not prevent you from getting a refund — defaulting on those loans does.
If you owe money to a federal or state agency, the federal government may use part or all of your federal tax refund to repay the debt. This is called a tax refund offset. If your tax refund is lower than you calculated, it may be due to a tax refund offset for an unpaid debt such as child support.
Keep in mind that the loan payments themselves aren't deductible, just the interest you paid. Federal student loans offered interest rates between 6.53% and 9.08% for loans disbursed starting July 1, 2024. Before you take a student loan interest deduction, check whether you paid interest and if so, the amount you paid.
Tuition and Fees Deduction – This is also a federal tax deduction. It allows qualified students to deduct various educational expenses from their income, potentially reducing the amount of taxable income by as much as $4,000.
More In Credits & Deductions
You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
College students who are funding more than half of their living expenses could see a financial benefit from filing independently. To file as an independent, however, a college student must provide for more than half of their financial needs. This includes housing, tuition, food, clothing, transportation, and more.
Yes, student loans will take your taxes in 2025, but only under specific circumstances: Your federal student loans must be in default. This means you've missed payments for at least 270 days (about nine months). Only federal student loans are eligible.
Reporting the amount of student loan interest you paid in 2023 on your federal tax return may count as a deduction. A deduction reduces the amount of your income that is subject to tax, which may benefit you by reducing the amount of tax you may have to pay.
Typically, these refunds are intended to cover school-related expenses such as off-campus housing, supplies or transportation. However, there are also cases in which students have borrowed more than they actually needed, resulting in a refund check. It's important to know that refund checks are not “free” money.
If a taxpayer refund isn't what is expected, it may be due to changes made by the IRS. These changes could include corrections to the Child Tax Credit or EITC amounts or an offset from all or part of the refund amount to pay past-due tax or debts. More information about reduced refunds is available on IRS.gov.
The check was held or returned due to a problem with the name or address. You elected to apply the refund toward your estimated tax liability for next year. The IRS is reviewing your tax return. Your refund was applied to a debt you owe to the IRS or another federal or state agency.
A Treasury offset is when a payment from the U.S. Department of Treasury (such as an income tax refund) is reduced or stopped to pay off a delinquent debt like an outstanding federal student loan. If your refund is offset, you'll be sent an explanatory letter from the Bureau of the Fiscal Service.
For 2024, there's an offset of $700 for taxpayers with a taxable income under $37,500, with a pro-rata payment up to $66,667.
Prevent an offset
Use the payment coupon included in the letter when you send your check or money order. To make a payment online, visit Payment options .
How taxes are handled depends on when you qualify for discharge. If you received discharge before January 1, 2018, the discharged loan amount is subject to federal income taxes. Loans discharged between January 1, 2028, and December 31, 2025, are exempt from federal income taxes.
Student loans can factor into your taxes as the interest is often tax deductible. So, you can reduce your tax bill if you include the amount of interest you've paid during the tax year.
To claim the American opportunity credit complete Form 8863 and submit it with your Form 1040 or 1040-SR. Enter the nonrefundable part of the credit on Schedule 3 (Form 1040 or 1040-SR), line 3. Enter the refundable part of the credit on Form 1040 or 1040-SR, line 29.
Student loan interest is a deduction that reduces your taxable income. Therefore, you will not see your refund increase by the amount shown on your Form 1098-E. This means that with a lower taxable income you will pay less taxes.
Usually only the state and federal governments are able to take your tax refund, therefore you'll probably get your refund if your student loan debt isn't: With the state or federal government. Part of a federally insured student loan program.
Collection activities are currently paused for all federal student loans through September 2024, which should protect your 2022 and 2023 federal and state tax refunds.
Can the IRS take my refund for student loans if I'm approved for a deferment? Share: If your student loan is in deferment, the IRS won't take your refund. The IRS will only take your refund if you're delinquent with your student loans to offset debt.
Tax Credits for Higher Education Expenses
The American Opportunity Credit allows you to claim up to $2,500 per student per year for the first four years of school as the student works toward a degree or similar credential.
However, to claim a college student as a dependent on your taxes, the Internal Revenue Service has determined that the qualifying child or qualifying relative must: Be younger than the taxpayer (or spouse if MFJ) and: Be under age 19, Under age 24 and a full-time student for at least five months of the year.
The AOTC is a tax credit worth up to $2,500 per year for an eligible college student. It is refundable up to $1,000. To qualify for the AOTC, students must be enrolled at least half-time in an eligible degree or certificate program at a qualified institution.