Possible tax deductions available to college students and graduates

When students are getting ready to file their taxes this season, there are a number of potential deductions available to them that could be a big boon to their finances once tax refunds are delivered. One of the most common deductions available to students and graduates relates to the interest paid on their student loans.

Many students will take part in a loan program that requires they begin paying a small portion of their interest while they are still in school – the Smart Option loan package offered by government-secured backer Sallie Mae, for example, generally gives borrowers a fixed monthly rate, often as low as $25. After graduation, the monthly interest payments tend to increase significantly, in most cases outpacing the portion of the monthly payment that goes to the principal loan payment for the first few years after leaving college.

The Internal Revenue Service (IRS) offers borrowers who have an individual income of less than $75,000 annually or a joint-income of $155,000 up to $2,500 dollars in tax deductions after filing. For many students in college, or those who have recently graduated, this could result in a profitable refund.

There are other tax deductions that students in specific situations can look into. The American Opportunity Tax Credit, which is an expanded version of the Hope Tax Credit, was first introduced as part of the 2009 federal stimulus package. Eligible borrowers could potentially offset up to $2,500 in tuition, fees and course materials for a given tax year if they have modified adjusted gross incomes below $90,000 for single filers and below $180,000 for joint filers.

Numerous other deductions may also be available to borrowers who have been responsible in addressing student loan repayment.