Education

How Student Loans Are Considered for Taxes

Going to university can be an important step in helping you get prepared for your future career. While you might need to take out a student loan to help cover the cost now, the investment you make in your education is sure to pay off in the long run. Luckily, student loans are considered for taxes, and you can claim any interest you pay for eligible loans on your tax return as a nonrefundable credit!

Who is Eligible for a Student Loan?

Both the federal and most provincial governments cooperate to offer student grants and loans to students in financial need. Canadian student loans are available to citizens, permanent residents and protected persons who meet course load requirements. There are different requirements and thresholds for full-time students, part-time students, and students with permanent disabilities.

What Kinds of Loans Qualify for the Credit?

Interest on student loans can only be claimed if you received the loan under:

  • the Canada Student Loans Act;
  • the Canada Student Financial Assistance Act;
  • the Apprentice Loans Act; or
  • similar provincial or territorial government laws

Loans from other institutions can’t be claimed, and you can’t claim interest you paid if you consolidated your student loan with other debts.

How Do I Claim My Student Loan Interest?

While the student loans eligible for the tax credit are administered by the federal and provincial governments, they’re issued through regular banks and other lending sources. Your lender will send you an annual statement reporting the interest amount on your loan. You enter this amount on your tax return.

And, unlike some other education credits and deductions, you can’t transfer this credit to a spouse or family member. So, even if mom and dad are helping you cover the interest, only you can claim it on your return.

What If My Tax Payable is Zero?

Student loan interest is a nonrefundable credit; you can’t use it to get a refund. Instead, you can only use it to reduce any tax you owe to zero.

If you’re a typical student and don’t have much taxable income (hopefully because you’re too busy studying to work!), you’re likely able to reduce your federal tax to zero through basic exemptions, tax deducted from your paychecks and the other credits and deductions you might be eligible for.

In that case, you can carry forward the interest to a future year, where it might be more beneficial because you’re making more money. You can carry forward any unclaimed student loan interest to any of the next five years, so be sure to keep those documents in order.