Student loan interest deduction

With the high cost of college, many students look to private and federal loans to finance their college experience.

If you’re facing student debt after college, the student loan interest tax deduction can help with your bottom line as you’re repaying your loans. So, if you’re currently making or will be making student loan interest payments to pay back what you took to finance your higher education, the student loan interest deduction is for you. Read on as we answer, “Are student loans tax deductible?” so you have a clear picture of what to expect.

Go deeper on related topics:  Check out our student tax filing guide. And learn more about different loan types including student loans and personal loans.

What is student loan interest?

So, how does student loan interest work? And how does it relate to taxes? Essentially, student loan interest is the cost of borrowing money to pay for your education. When you take out a student loan, you agree to repay the loan amount (the principal) plus interest, which is calculated as a percentage of the unpaid principal balance.

When it comes to taxes, you’ll want to figure out the amount of student loan interest paid during the specific tax year on a qualified student loan (sometimes called a qualified education loan).

Is student loan interest deductible?

Many students wonder if student loan interest is tax deductible. The answer is yes. In fact, federal student loan borrowers could qualify to deduct up to $2,500 of student loan interest per tax return per tax year.

As long as your student loan qualifies, you can claim the student loan interest tax deduction as an adjustment to income. You don’t need to itemize deductions to claim it.

What type of student loan interest qualifies?

A qualified student loan is a loan you took out only for qualified education expenses that were:

• For you, your spouse, or a person who was your dependent when you took out the loan
• Paid or incurred within a reasonable period of time before or after you took out the loan
• For education provided during an academic period for an eligible student

Loans from these sources aren’t considered qualified student loans:

• Related person
• Qualified employer plan

Qualified education expenses are the total costs to attend an eligible school. This includes graduate school. The costs include:

• Tuition and fees
• Room and board
• Books, supplies, and equipment
• Other necessary related expenses, like transportation

Who can claim the student loan interest tax deduction?

You can usually claim the student loan tax deduction if you meet all these requirements:

• Your filing status is any status except Married Filing Separately.
• No one else is claiming you as a dependent.
• You’re legally obligated to pay interest on a qualified student loan.
• You paid interest on a qualified student loan within a specific tax year you are claiming the deduction.

Student loan interest tax deduction income limits?

The maximum deduction you can take is based on an income limit for each filing status. If you’re a higher-income taxpayer, the student loan interest tax deduction is reduced or eliminated. In other words, you can’t claim the deduction at all if your modified adjusted gross income (MAGI) is above the income limit.

Additionally, you can’t take the deduction if your loan qualifies for student loan forgiveness.

If you’re Married Filing Jointly (for tax year 2024):

• You can deduct up to $2,500  of paid student loan interest if your modified adjusted gross income (AGI) is $165,000 or less.
• Your student loan deduction is gradually reduced if your modified AGI is more than $165,000 but less than $195,000.
• You can’t claim a deduction if your modified AGI is $195,000 or more.

If you’re filing as Single, Head of Household, or Qualified Surviving Spouse (for tax year 2024):

• You can deduct up to $2,500 of paid student loan interest if your modified AGI is $80,000 or less.
• Your deduction is gradually reduced if your modified AGI is $80,000 but less than $95,000.
• You can’t claim a deduction if your modified AGI is $95,000 or more.

How the student loan interest deduction works

You probably want to know how the student loan interest tax deduction works, especially if you think you qualify. Like any other tax deduction, it lowers your taxable income, and in some instances, could lower your tax bracket.

This deduction is above the line, meaning it’s an adjustment to your taxable income, and you don’t have to itemize your deductions to claim it. You can subtract up to $2,500 of interest paid from your gross income when calculating Adjusted Gross Income. (Related: What is Adjusted Gross Income (AGI)?)

Student loan interest tax forms

If you paid more than $600 in interest for the year your lender will send  Form 1098-E, Student Loan Interest Statement. The IRS will also receive a copy of this tax form from the student loan servicer.

You’ll use:

• Form 1098-E to calculate your student loan interest deduction.
• Schedule 1 Form 1040 to report the amount on your federal tax return.

Student tax breaks for those in college

If you’re still attending college, be sure to check out these education tax credits.  You can claim the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit.

You can claim these tax benefits even if you paid for education expenses with student loans.

Get help claiming the student loan tax deduction

Now that we’ve answered, “Is student loan interest tax deductible?”, are you ready to tackle your taxes? At H&R Block, you can find the expertise you need. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.

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