Forty-two million student loan borrowers have had a break from making their monthly student loan payments (plus interest) amid the pandemic since the CARES Act passed in March 2020.
And with Biden's latest executive order extending this relief through at least Sept. 30, 2021, borrowers can continue to focus on making sure their basic needs are met and/or paying higher-priority bills on time.
As we approach tax season, however, it's important to know what you can expect as a student loan borrower amid the pandemic's ongoing relief.
Unless you made payments toward your student loans in 2020, the payment freeze and the move to extend it won't have implications on how you file your taxes in the coming months. "The loan is not cancelled, it is just delayed, and the borrower still has to pay it back," says Steven Rossman, CPA and shareholder at Drucker & Scaccetti, a Philadelphia-based accounting firm focusing on taxation.
For those who did make any sort of repayment on their federal and/or private student loans in 2020, however, you may be eligible for a student loan interest deduction.
Below, CNBC Select breaks down what borrowers need to know.
If you repaid your student loans in 2020
"If the taxpayer paid student loan interest in 2020, it would be deductible," Rossman tells CNBC Select.
Like any other year when you file your taxes, you can deduct the interest you paid on your qualified student loans in 2020 up to a certain amount, according to the IRS website.
Many borrowers didn't pay this much in interest given the forbearance period kicked in on March 13 of last year and the majority of federal student loan borrowers took advantage of the payment and interest freeze. Higher education expert Mark Kantrowitz, according to data he analyzed, told CNBC that less than 11% of federal student loan borrowers (about 4.6 million people) made payments on them during the pandemic.
If this is you, make sure you are still taking into account interest you may have paid in January and February of last year before the suspension, as well as any interest paid on private student loans that were not part of the suspension.
In order to be eligible for a deduction, borrowers' income has to also be below certain thresholds, Rossman says. Using the latest 2019 tax figures (2020 amounts have not yet been set), income limits for eligibility depending on your filing status are as follows:
- Taxpayers filing as single are eligible for a full deduction ($2,500) if their modified adjusted gross income (MAGI) is $70,000 or less.
- Taxpayers filing as single are eligible for a partial deduction if their MAGI is over $70,000 but less than $85,000.
- Married taxpayers filing jointly are eligible for a full deduction if their MAGI is less than $140,000.
- Married taxpayers filing jointly are eligible for a partial deduction if their MAGI is between $140,000 and $170,000.
- Single filers with a MAGI of $85,000 or above and couples with a MAGI of $170,000 or above are ineligible for the deduction.
You can also check if you are eligible to deduct your student loan interest with this tool from the IRS.
The student loan interest deduction form you'll need if you qualify
If you paid $600 or more in interest on your student loans in 2020, you should automatically receive a Form 1098-E in the mail or via email from your student loan servicer. For those who paid less, or if you never received yours, you can either ask your lender or download it directly from the IRS website.
Bottom line
Before sitting down to file your taxes, take a look at your account on your student loan servicer's website to double check whether or not you paid any interest on your qualified federal or private student loans in 2020. If you did, you can qualify to deduct a certain amount from your taxable income, following the eligibility requirements outlined above.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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