# The REDUCE Act of 2021: Understanding Student Loan Interest Deductions

Right now, there's a rule that creates a catch-22 for some people paying off student loans. If your employer helps you pay down your student loan debt as an employee benefit, the current tax code says you can't also deduct the interest you paid on that loan when you file your taxes. In other words, you get help from your employer, but then you lose a tax deduction you'd otherwise be entitled to. The REDUCE Act would eliminate this restriction.

Here's how this would work in practice: Imagine you have $10,000 in student loan interest you paid during the year, and your employer paid $5,000 toward your student loans as part of your benefits package. Under current rules, because your employer helped you, you can't deduct any of that $10,000 in interest on your taxes. This bill would change that so you could deduct the full $10,000 in student loan interest, even though your employer also contributed to paying down your debt. Essentially, you'd get both benefits instead of having to choose one or the other.

The practical effect would be a modest tax break for employees whose companies offer student loan repayment assistance. This would make employer-sponsored student loan help more valuable to workers, since they wouldn't have to sacrifice their tax deduction to receive it. The bill would apply to tax years starting after December 31, 2020, meaning it could affect your taxes going forward if it becomes law.

REDUCE Act of 2021

Kinzinger, Adam

Readily Ending Debt Under Corporate Engagement Act of 2021 or the REDUCE Act of 2021 This bill modifies the tax deduction for interest paid on student loans to allow such deduction without any offset for amounts received as employer-provided educational assistance.