How Much of Your Student Loan Interest Can You Deduct Yearly?

Student loan interest can be a significant expense, but the IRS allows eligible borrowers to deduct some of it from their taxable income. This deduction can lower your tax bill and make repayment more manageable. However, not everyone qualifies, and there are limits on how much you can deduct each year. Understanding the eligibility criteria, income restrictions, and necessary documentation ensures you claim this deduction correctly.

Yearly Deduction Cap

The maximum student loan interest deduction per tax year is $2,500. This applies per tax return, not per loan. Even if you paid more than $2,500 in interest, you cannot deduct beyond this cap. The deduction is considered an “above-the-line” adjustment, meaning you can claim it without itemizing deductions.

Since this deduction reduces taxable income, it can lower your tax bill. For example, if you are in the 22% federal tax bracket and claim the full $2,500 deduction, your tax liability decreases by $550. The benefit varies based on your tax bracket—higher earners see greater dollar savings, while those in lower brackets experience a smaller reduction.

Only interest payments made during the tax year qualify. If you deferred payments or were in forbearance and did not pay interest, you cannot claim the deduction for that period. Additionally, extra payments toward the loan principal do not count, as only the interest portion is deductible.

Income Phase-Out Limits

The deduction phases out for higher-income earners. The IRS sets income limits based on modified adjusted gross income (MAGI), which includes taxable income plus certain adjustments, such as excluded foreign income and student loan interest itself.

For the 2024 tax year, the phase-out begins at $75,000 for single filers and $155,000 for married couples filing jointly. The deduction is eliminated once MAGI exceeds $90,000 for single filers and $185,000 for joint filers. Within this range, the deduction is gradually reduced.

For example, a single filer with a MAGI of $82,500 exceeds the $75,000 threshold by $7,500. Since the phase-out range is $15,000, this filer has reached 50% of the phase-out. As a result, they can only deduct half of the maximum amount, or $1,250 instead of $2,500.

Loans That Qualify

Not all student loans qualify. The loan must have been taken out solely to pay for qualified education expenses, including tuition, fees, books, supplies, and necessary equipment. Room and board may also qualify if the student was enrolled at least half-time and the costs did not exceed the school’s official cost of attendance. Personal loans, credit card debt, or loans from family members do not qualify, even if used for education.

The loan must be for a student attending an accredited institution that participates in the U.S. Department of Education’s federal student aid programs. Loans for unaccredited institutions, non-recognized vocational programs, or certain international schools do not qualify.

The borrower must be legally responsible for the debt. If a parent makes payments on a child’s student loan that is solely in the child’s name, the parent cannot claim the deduction unless they are a co-signer.

Timing matters. The loan must have been used for education expenses paid within a reasonable period before or after the funds were disbursed. Loans taken out years later to refinance or consolidate unrelated debt do not qualify. However, refinancing an existing student loan with another qualified loan does not disqualify the interest deduction, as long as the new loan was used exclusively to pay off the original education debt.

Filing Status Considerations

Your tax filing status affects eligibility. Married couples filing jointly can claim the deduction, but those filing separately cannot.

Dependents also cannot claim the deduction. If someone else, such as a parent, claims you as a dependent, you cannot deduct student loan interest on your own return, even if you made the payments. The deduction is only available to the person legally responsible for the loan who is not claimed as a dependent.

Parents who take out loans in their own names, such as federal Parent PLUS Loans, may claim the deduction if they meet all other eligibility requirements.

Required Documentation

To claim the deduction, you need proper documentation. The most important form is Form 1098-E, which student loan servicers issue to borrowers who paid at least $600 in interest during the tax year. This form details the total interest paid and is typically available by January 31. If you paid less than $600, you may not receive a 1098-E automatically, but you can request one from your loan servicer or check your online account for interest payment records.

Keeping personal records is also important. Bank statements, loan agreements, and payment histories help verify that the interest was paid on a qualified loan. If you refinanced or consolidated loans, keep documentation of the original loan and the new loan terms to confirm eligibility. If you make payments on behalf of a dependent or spouse, retain proof of legal responsibility for the loan, as only the person obligated to repay the debt can claim the deduction.

Adjusting Your Tax Return Accurately

Once you have the necessary documentation, report the deduction correctly on your tax return. The deduction is claimed on Schedule 1 of Form 1040, under “Adjustments to Income.” Since it is an above-the-line deduction, you do not need to itemize to claim it.

Accuracy is essential to avoid processing delays or IRS inquiries. Double-check that the interest amount matches what is reported on Form 1098-E and that your MAGI falls within the eligibility limits. If your deduction is subject to a phase-out, calculate the reduced amount carefully. Tax software typically automates this process, but those filing manually should refer to IRS Publication 970 for guidance.

If you missed claiming the deduction in a prior year, you can file an amended return using Form 1040-X to adjust your tax filing.