Can You Claim the Student Loan Tax Credit on Your Taxes?

The student loan tax credit helps ease the financial burden of higher education expenses. For taxpayers, understanding eligibility and the process to claim this credit is key to maximizing savings.

Requirements to Claim the Credit

To qualify for the student loan tax credit, taxpayers must meet specific IRS criteria. The loan must be used solely for qualified education expenses, including tuition, fees, books, supplies, and required equipment at an eligible educational institution. Expenses like room and board do not qualify.

The loan must benefit the taxpayer, their spouse, or a dependent who was enrolled at least half-time in a program leading to a degree, certificate, or recognized credential. Half-time enrollment generally equates to at least six credit hours per semester, based on the institution’s standards.

The credit is only applicable to interest paid on a student loan during the tax year. It is non-refundable, meaning it can reduce your tax liability to zero but cannot generate a refund.

Eligible Loan Types

Only certain loans qualify for the student loan tax credit. These must be legally defined as student loans, provided by the federal government, a state or local government, or an eligible educational institution. Private loans may qualify if they meet IRS guidelines and are exclusively for educational purposes.

Federal loans like Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and Perkins Loans typically qualify. Consolidation loans are eligible if they combine only educational loans. Borrowers should ensure private loans meet IRS criteria, as mixed-purpose loans do not qualify.

Income Thresholds

Income thresholds determine a taxpayer’s eligibility for the credit. For the 2024 tax year, single filers with a modified adjusted gross income (MAGI) up to $85,000, and married couples filing jointly with a MAGI up to $170,000, are fully eligible. Beyond these levels, the credit phases out.

For single filers, the phase-out range is $85,001 to $100,000, while for joint filers, it is $170,001 to $200,000. Within these ranges, the credit decreases gradually. Taxpayers can potentially lower their MAGI by contributing to retirement accounts or health savings accounts (HSAs) to qualify.

Filing Status Factors

Filing status significantly impacts eligibility. Taxpayers filing as “single” or “married filing jointly” are more likely to qualify. Those filing as “married filing separately” are generally disqualified from the credit. Couples should evaluate whether filing jointly offers better tax benefits.

Required Documentation

Taxpayers claiming the credit must have proper documentation. Form 1098-E, the Student Loan Interest Statement, is essential and is issued by lenders when at least $600 in interest is paid during the tax year. This form details the interest paid, which is used to calculate the credit.

Additional documentation, such as loan agreements and disbursement statements, may be required to verify that the loan was used solely for qualified education expenses. Enrollment verification, like transcripts or letters from the institution, confirms the half-time enrollment requirement. Keeping tax returns, W-2s, and other income-related documents is also advisable.

Submitting the Credit on Your Return

To claim the credit, taxpayers must complete Schedule 1 (Form 1040), which reports adjustments to income, including the student loan interest deduction. The deduction is entered on line 21 under “Adjustments to Income,” based on the interest paid as shown on Form 1098-E, up to the maximum deduction of $2,500.

Using professional tax preparers or updated tax software helps ensure accuracy. Mistakes, such as incorrect Social Security Numbers or MAGI calculations, can lead to rejected returns. Double-check all entries and retain a copy of the filed return for personal records. Filing electronically is recommended for faster processing and confirmation of receipt.