Student loans are a common way for US students to pay their way through college. However, as with any loan they need to be paid back. So, since there is a good chunk of money coming out of your paycheck every month going to Heartland, Navient and the likes it is absolutely normal and obvious to wonder if those expenses could not be used as a tax deduction – after all they occurred to get you in the workforce in the first place.
As is the case with pretty much any US-German tax aspect the answer is “it depends”.
First, the student loan needs to be for a second degree / professional training. So, if somebody has already a German “Ausbildung”, other qualifying vocational training, an associate’s degree or undergraduate degree the expenses qualify. However, only the portion attributable to your second degree can be considered. This means that documentation is required which ties the loan and the degree together. If the loans are mixed one can still use the expense, it’s just a guessing game as to how much a tax office will consider given reasonable judgement.
Second, once the expense itself is qualified only the interest paid on your student loan is subject to a deduction. For this, please provide you form 1098-E.
Third, we strongly advise looking into how your (second) college degree and other education history was aimed at and has prepared you for employment or any other gainful enterprise in Germany. This is because if we can reasonably establish that this was the case and you have not filed previously in Germany (or at least after obtaining your second degree), there is a chance that all unreimbursed most common college expenses such as
- tuition
- books and other supplies
- interest paid on student loans
- potentially even rent for (second/student) housing
can be made a loss carryforward and considered on your first German tax return. Obviously, this could be a huge windfall profit.
When wondering how to document any future employment plans for Germany the following examples might be useful:
- You have applied for an internship / immediate employment in Germany
- You have worked / studied in Germany before
- You have or built strong family ties to Germany either before or during professional training
- Your curriculum is geared towards German speaking countries or at least central Europe
- Your curriculum demanded study abroad, preferably Germany or at least Europe.
We would also like to point out that while this might sound a great way to save taxes, the process of getting US college expenses recognized is detail-oriented and requires a fair amount of professional input. For this reason, we always recommend weighing the potential tax savings against the expense to obtain them.
Since we have now laid out the basics on the subject and if you think your US college expenses could qualify for a German tax deduction please let us know if. The taxperts are happy to help.
