How to Calculate the Student Loan Interest Deduction

The student loan interest deduction allows taxpayers to lower their taxable income. This tax benefit lessens the financial burden of educational debt by allowing a reduction in income based on the interest paid on a qualified student loan during the year.

Determining Your Eligibility

To qualify for the student loan interest deduction, you must meet several IRS requirements. You must have paid interest during the tax year on a qualified loan, which includes mandatory payments and voluntary prepayments. If a parent makes payments on a student’s loan, the student can still claim the deduction if they are legally responsible for the debt and not claimed as a dependent.

Other eligibility rules include:

• You must be legally obligated to repay the loan, meaning it is in your name.
• Your tax filing status cannot be “Married Filing Separately.”
• You cannot be claimed as a dependent on another person’s tax return.
• The loan must have been taken out solely to pay for qualified education expenses.

Qualified expenses include tuition, fees, room and board, books, and supplies for a student enrolled at least half-time. The student must be in a program leading to a degree or certificate at an eligible educational institution. Loans from relatives or employer-sponsored programs do not qualify.

Information Needed for the Calculation

To calculate your deduction, you will need your total student loan interest paid and your Modified Adjusted Gross Income (MAGI). Your lender must send you Form 1098-E, Student Loan Interest Statement, by January 31 if you paid $600 or more in interest. The amount paid is in Box 1.

If you paid less than $600 in interest, you will not receive a Form 1098-E, but the interest is still deductible. You should contact your loan servicer to confirm the amount you paid. If you have multiple student loans, you will need to add the interest amounts from all sources.

For this deduction, your MAGI is your Adjusted Gross Income (AGI) from Form 1040 with certain deductions added back. These add-backs include the student loan interest deduction itself, any foreign earned income exclusion, and deductions for tuition and fees.

Step-by-Step Calculation Guide

The first step is to determine your potential deduction. This is the lesser of the total interest you paid or the annual maximum of $2,500. If you paid $1,800 in interest, your potential deduction is $1,800; if you paid $3,000, your potential deduction is limited to $2,500.

Next, check if your income reduces your deduction. For tax year 2025, the deduction is gradually reduced for taxpayers with a MAGI between $85,000 and $100,000 for single filers, or between $170,000 and $200,000 for joint filers. If your MAGI is below these ranges, you can take your full potential deduction. If it is above these ranges, your deduction is zero.

If your MAGI is within the phase-out range, you must calculate the reduction amount. Multiply your potential deduction by a fraction. The numerator is your MAGI minus the lower threshold of the phase-out range ($85,000 for single, $170,000 for joint). The denominator is the size of the range ($15,000 for single, $30,000 for joint).

To find your final deduction, subtract the reduction amount from your potential deduction. For example, a single filer with a $92,500 MAGI who paid $2,500 in interest would calculate their reduction as $2,500 x [($92,500 – $85,000) / $15,000], which is $1,250. Their final deduction would be $2,500 – $1,250, or $1,250.

Reporting the Deduction on Your Tax Return

The student loan interest deduction is reported on Schedule 1 of Form 1040, “Additional Income and Adjustments to Income.” You do not need to itemize to claim this benefit, as it is an “above-the-line” deduction.

You will enter your final calculated amount on the designated line. This amount reduces your gross income to arrive at your adjusted gross income (AGI). A lower AGI is beneficial because it may help you qualify for other tax deductions and credits that have their own income limitations.