For 2023, the deduction starts to phase out for individuals with a modified adjusted gross income of $75,000, and those with a MAGI of $90,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $155,000, and those with a MAGI of $185,000 or more are ineligible.

Borrowers’ eligibility for the student loan interest deduction may also be reduced if their employer made payments on their student loans as a work benefit, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

Betsy Mayotte, founder of the nonprofit Institute of Student Loan Advisors, has made a career of providing free student loan advice. So she gets questions about all things student debt-related — including taxes.

“I work with a lot of borrowers that are afraid of pursuing forgiveness because they have this vision of the IRS coming after them for, you know, a six-figure tax bill,” she said.

But for now, she said, that fear is unfounded. In 2021, as part of the American Rescue Plan, Congress temporarily changed the law so that student loan forgiveness is not considered taxable income.

“So if the forgiveness happens by the end of 2025, there will be no federal tax on it,” explained Mayotte.

According to the Education Department, about 40% of borrowers who owed a payment in October when payments resumed failed to make that payment by mid-November.

Borrowers won’t face late fees for a one-year grace period, but Betsy Mayotte, the president of the nonprofit The Institute of Student Loan Advisors, warned interest is still building.

“If the loan ends up defaulting, it’s going to be a big hit on your credit. Future debt that you need to take on — a mortgage, a credit card, a car loan — is likely going to have a much higher interest rate, and therefore cost you more,” she said.

Biden’s new plan for broad student loan forgiveness is now undergoing a formal rulemaking process. Public hearings to determine who, exactly, should qualify for this relief wrapped up in December, but the details haven’t been finalized.

“We’re all in a wait-and-see mode,” Mayotte says. “Waiting to see what the final rules look like sometime this summer and fall — and waiting to see if there will be court challenges and, if so, how successful they will be.”

The biggest drawback to refinancing is giving up federal student loan repayment protections, like access to payment postponements (deferment and forbearance), income-driven repayment plans and pathways toward loan forgiveness. Once you refinance a federal loan with a private lender, there’s no going back.

Mayotte said she’s seen many borrowers regret refinancing their government-held education debt because they missed out on a forgiveness program or the interest-free repayment pause due to COVID-19.

“The safety nets are so robust … and they’re so unique to the federal loan program,” she said.