What Is the Section 221 Student Loan Interest Deduction?

The student loan interest deduction, established under Section 221 of the Internal Revenue Code, is a tax benefit for those repaying education loans. It allows taxpayers to lower their taxable income by the amount of student loan interest paid during the year. This is an “above-the-line” deduction, meaning it directly reduces a taxpayer’s adjusted gross income (AGI). Individuals do not need to itemize deductions to claim it, making it accessible to those who take the standard deduction.

Eligibility Requirements for the Deduction

To qualify for the student loan interest deduction, a taxpayer must satisfy several specific conditions. The primary requirement is that the taxpayer must have paid interest on a qualified student loan during the tax year. The individual must also be legally obligated to make the interest payments. Your filing status cannot be married filing separately, and you cannot be claimed as a dependent on another person’s tax return.

A “qualified student loan” is a loan taken out for the sole purpose of paying for qualified education expenses. These expenses must be for an eligible student—the taxpayer, their spouse, or a dependent—who is enrolled at least half-time in a program leading to a degree or other recognized credential at an eligible educational institution. Qualified expenses include tuition, fees, books, supplies, and equipment.

Federal and private student loans qualify, but loans from family members or from employer-sponsored educational assistance programs are ineligible. An important rule applies when parents make payments on a student’s loan. If the student is the one legally obligated to pay the loan and is not claimed as a dependent by the parent, the IRS treats the payments made by the parent as a gift to the student. The student is then considered to have paid the interest and can claim the deduction.

Deduction Limits and Income Phaseouts

The amount of student loan interest that can be deducted is subject to annual and income-based limitations. You can deduct the lesser of the actual interest paid during the year or $2,500. This amount may be reduced further based on your income.

The income figure used to determine the deduction is Modified Adjusted Gross Income (MAGI). For the student loan interest deduction, MAGI is your Adjusted Gross Income (AGI) from Form 1040 with certain deductions added back. For the 2025 tax year, the deduction is gradually reduced and eventually eliminated based on MAGI thresholds.

For single filers, head of household, or qualifying widow(er)s, the phaseout begins at a MAGI of $85,000 and the deduction is completely eliminated at a MAGI of $100,000. For those who are married and filing a joint return, the phaseout range is between $170,000 and $200,000. Taxpayers with a MAGI above the upper limit cannot claim the deduction.

Information Needed to Claim the Deduction

Before claiming the deduction, you need documentation to substantiate the amount of interest paid. The primary document for this is Form 1098-E, Student Loan Interest Statement. Lenders are required to send this form to any individual who pays $600 or more in student loan interest, and you should receive it by January 31.

Box 1 on Form 1098-E reports the total amount of student loan interest the lender received from the borrower during the year. If a taxpayer has multiple student loans with different servicers, they may receive a separate Form 1098-E from each one. It is your responsibility to total the amounts from all 1098-E forms to determine the total interest paid.

If you paid less than $600 in interest to a lender, the lender is not obligated to send a Form 1098-E. However, the interest may still be deductible. If a form is not received, you should log into your loan servicer’s online portal or review monthly statements to find the total amount of interest paid for the year.

How to Claim the Deduction on Your Tax Return

The process of claiming the student loan interest deduction is integrated into the standard income tax return. A taxpayer reports the deductible amount on Schedule 1 of Form 1040. The amount entered should be the final calculated figure, which is the lesser of the total interest paid, the $2,500 maximum, or the amount allowed after any income-based phaseout.