If you took out student loans and paid interest on these loans, up to $2,500 of the interest paid may be used as a tax deduction. This deduction will reduce your total income amount that is subject to taxation by the federal government.

Even if you don't itemize deductions when you file a tax return – that is, you opt to take the standard deduction – you can still use this interest deduction to reduce your taxes.

Student loan interest is interest you paid during the year on a loan you took out to pay qualified higher education expenses such as tuition and fees; room and board; books, supplies and equipment; or other necessary expenses such as transportation, that were:

1. for you, your spouse or a person who was your dependent when you took out the loan
2. paid within a reasonable period of time before or after you took out the loan
3. for an eligible student

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• Interest paid while a loan is not in repayment (such as forbearance or deferment) is also deductible
• You cannot claim the deduction if your parents claim you as a dependent on their taxes
• Eligibility is phased out for unmarried taxpayers with modified annual gross income of $55,000 to $70,000 (and $110,000 to $140,000 for joint filers); those with modified annual gross incomes of $70,000 and higher are not eligible
• You cannot use this deduction if you or anyone else claims a Hope or Lifetime Learning Credit for the same student in the same year

Learn more about the other types of tax benefits available:

• Reduce taxes with the Hope Credit
• Reduce taxes with the Lifetime Learning Credit
• Receive tax-free treatment of canceled student loans
• Deduct tuition and fees for higher education
• Make early withdrawals from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax
• Cash in savings bonds for education costs without paying tax on the interest
• Receive tax-free educational benefits from your employer

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself.

The information contained in this section is from IRS Publication 970: Tax Credits for Education. PNC does not provide tax advice and makes no representation or warranty as to the accuracy of the information. Please consult your tax advisor for tax advice matters contained in this section.

For more information, visit www.irs.gov or call 800-829-1040.