Whether you’re in college currently, or have entered repayment of your student loans, every penny can matter. Maximize your tax refund by taking all the deductions you qualify for, including student loan interest. You may be eligible to deduct up to $2,500 from your taxable income if you’ve paid interest on your student loans. For example, those in the 15% tax bracket may receive a maximum of $375 as a deduction for student loan interest when you file your tax return.

Additional Education Costs

Paying back your student loans generally means you’ll pay more than your original principle, as you’re required to pay interest on the amount borrowed. The deduction is available to student loan payers who make less than $80,000 a year, and is relative to the amount of interest you paid. Graduates who earn between $65,000 and $80,000 annually can deduct a reduced interest amount.

Parents can deduct interest on student loans taken for their children’s education. However, if you are claimed as a dependent on your parents’ tax return and the student loan is in your name, the deduction is then forfeited.

The deduction isn’t limited just to graduates, either. If you’re making payments on your loan while you’re still in school, you are eligible to claim it as long as you are paying interest.

Students still in school may be able to claim additional education deductions, one being a deduction of up to $4,000 in tuition and fees. Or, you can opt to claim one of two straight tax credits: the American Opportunity Tax Credit for up to $2,500 or the Lifetime Learning Credit up to $2,000.

Depending on your income and additional qualifications, you can determine which of these credits will save you the most. In most situations, credits offer more savings than deductions, which lower your taxable income. Credits, however lower the amount you actually pay in taxes.