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Tax Guide

Qualified Education Expenses - Same, Same, But Different

Qualified Education Expenses - Same, Same, But Different
Ines Zemelman, EA
02 February 2018

Qualified Education Expenses - this term is used in taxation of education expenses interchangeably, but the definition of what is qualified is not always the same. Let’s break it down.

Student Loan Interest Deduction

The price of secondary education has been skyrocketing - see graph from the Bureau of Labor Statistics.



As the cost of college increases dramatically, so does the amount of student loans that today’s youth need to take on in order to pay for college - image below from WSJ. in 2016, the record was set at over $37k, with 70% of graduating students in debt.


Once you’ve received a student loan, unfortunately you have to pay monthly interest payments in addition to the principal balance. The interest may be deducted from your taxable income up to $2,500 per year.

For purposes of the student interest loan deduction, the qualified education expenses list is broader, including room & board and include “the total costs for attending an eligible educational institution”.

The student loan interest deduction is subject to income limits, however. It begins phasing out for single individuals with a modified adjusted gross income (MAGI) of $65,000 and married-filing-jointly couples earning $130,000. Singles with a MAGI of $80,000 or more, and married-filing-jointly couples with one of $160,000 or more, can't claim the deduction, period. Married filing separately cannot use student interest deduction at all, regardless of the income level.

Education Grants & Scholarships

The same term ‘qualified education expenses’ is used under the umbrella of grants issued to researchers by institutions, as well as scholarships.  These grants are not taxable, so long as they are used for the aforementioned expenses.  Unlike the expenses for student interest loan deduction, which reduces taxable income, the expenses for grants/scholarships do not include room & board. There are exceptions to this rule.

Ines Zemelman, EA
founder of Taxes for Expats