Student loans carry a number of tax implications for borrowers that can greatly affect their filing strategies. For example, married borrowers must decide whether to file jointly or separately in light of student loan debt. What about the deductibility of interest payments? Can retirement contributions help to offset any tax consequences of student loan debt?

Interest may be tax-deductible

Borrowers may be able to write off up to $2,500 of interest paid on student loans for tax year 2019. Whether you itemize deductions or take the standard deduction, the student loan interest deduction is an above-the-line tax break that can be claimed on Form 1040 or Form 1040A.

A couple’s filing status will affect their ability to take a tax deduction for student loan interest payments. While spouses may find it advantageous to file their taxes separately in certain cases, they are entitled to a tax write-off for student loan interest payments only if they file jointly.

Filing jointly or separately

The decision to file jointly or separately is the most difficult issue to settle if you’re married and have a student loan. Filing separately means that your taxes will be based solely on your income, but it also means that your total tax bill will generally be larger than if you filed jointly. However, many other factors come into play in determining whether you’ll save money on your student loan by filing separately.

The complexity of this issue means that you should calculate your taxes for both joint and separate filings. The potentially large difference in taxes means that performing both sets of calculations may well be worthwhile, despite the inconvenience of doing so. This two-pronged strategy becomes considerably easier if you already use an accountant or tax preparation service. The Department of Education also provides a Student Loan Repayment Estimator that calculates monthly payments for student loans, which is an essential step for assessing the benefits of filing separately.

Are monthly payments a concern?

Be aware that your tax-filing status can raise your monthly loan payments if you have certain repayment plans. Revised Pay As You Earn (REPAYE) is a popular new income-based repayment plan for those with federal student loans, but it does have potential pitfalls at tax-filing time. For couples with REPAYE plans, the size of their monthly loan payment will depend on the incomes of both spouses combined, whether they file taxes jointly or separately. These rules could raise monthly payments if you’re on a REPAYE plan, which has an attractive feature that limits monthly payments to 10% of a borrower’s income.

With this in mind, borrowers who want to lower their monthly loan payments might be better advised to look at income-based repayment plans that look at income separately for spouses who file separately. The original PAYE is one such payment plan.

Retirement Contributions

If your student loan does qualify for an income-based repayment plan, keeping your taxable income to a minimum will keep your monthly payments more manageable. Strategies using tax deductions that reduce your Adjusted Gross Income (AGI) will be beneficial in this regard.

Contributing to a retirement account such as an IRA or a 401(k) is one such strategy. These contributions are above-the-line deductions that reduce AGI, which is the basis for income-based payment plans such as the previously mentioned PAYE and REPAYE, as well as IBR and income-contingent repayment (ICR). You can use contributions to other types of accounts in the same way to produce tax deductions that will reduce your loan payments. These include Health Savings Plans (HSPs) and 457 plans, which are retirement plans for government employees.

An additional advantage of using retirement contributions to lower your student loan payments is that you have some control over the year for which those contributions will apply. For example, you can apply the IRA contributions that you make from January 1 through April 15 to either the previous tax year or the current tax year. However, you can’t apply those contributions toward both tax years.

These strategies for reducing taxable income for the purpose of lowering student loan payments are particularly useful if you’re in a forgiveness program for a federal student loan. In addition to lowering taxes and loan payments for the following year, they increase the amount of debt that will be forgiven.

Student loan review

The end of the tax year is a great time to consider refinancing your student loan since you’re already reviewing your finances. Economic conditions continually fluctuate, so you should look at the following areas to see if you can improve on your current student loan:

  • Interest rate
  • Balance
  • Fees
  • Automatic payments

Interest rate

A lower interest rate is the most common reason for refinancing a student loan. Figure offers a student loan refinance product with a variable APR that starts at 4.25%5 for applicants who take the 0.25% autopay discount. This rate is for the most qualified applicants, which requires a credit score of at least 800 and monthly discretionary income of at least $5,500. It also assumes a five-year term; a longer term will have a higher APR.


Your outstanding balance is an area where you may be able to benefit from refinancing. Review your recent payments to determine the percentage that’s currently being applied toward principal. If the majority of your payments are going toward interest, you may want to consider making extra payments or refinance at a lower rate to pay off your loan more quickly.

Refinancing fees

If you are refinancing your student loan, compare lenders’ itemized payments to see what fees or charges will increase the total cost of your loan. Contact the lenders to determine if there’s a way to avoid paying these fees. If not, ensure you take them into account when shopping for a refinance.

Automatic Payments

Lenders like automatic payments and may offer discounts to customers who use this payment option. For example, Figure reduces its customers’ APR by 0.25 percentage points when they set up autopay. Automatic payments help reduce the hassle of a student loan, but you need to ensure that the payment will come from the correct bank account when you set up the payments.


Filing your taxes is an unpleasant task as it is, so it’s unlikely you’ll feel like doing them more than once. However, a careful examination of strategies that maximize the tax benefits of student loans while minimizing the tax downside will brighten your outlook. Likewise, a small reduction in interest rate when you refinance can result in large savings over the term of the loan.