BRITHNEY JOSEPH

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What Does the COVID Student Loan Freeze Mean for 2020 Tax Filing?

I, along with, millions of student loan borrowers got a well deserved break from federal lenders and providers in 2020 as a result of the the CARES Act passed in March 2020.

Biden recently extended this COVID relief until September 30, 2021 so that borrowers could prioritize things like food and shelter without an ever-growing cloud of debt hovering over people’s heads.

Although great news, it does beg the question: “Will student loans take my 2020 tax refund?”

Short answer - if you made student loan payments during 2020, you may qualify for a student loan deduction.

Let’s me break it down:

The IRS website details that interest paid on qualified student loans in 2020 can be deducted up to a certain amount. The interest freeze for federal student loan borrowers went into effect on March 13, in which case, not as much interest would have been paid in the two months before the suspension took place. But you can also account for any interest you paid for private student loans before and during the interest freeze (since CARES Act did not include private loans).

To qualify for student loan interest deduction:

  • Taxpayers filing as single are eligible for a full deduction ($2,500) if their modified adjusted gross income (MAGI) is $70,000 or less.

Have you already filed your taxes? It may not be too late to claim the student loan deduction in 2021, if you

  • paid interest before administrative forbearance went into effect on March 13, 2021

  • opted out of the CARES Act payment suspension

  • paid interest on private student loans before or during the suspension

Learn more about the next steps to take with this Bankrate article, here.