Who Can Deduct Student Loan Interest?

The student loan interest deduction is a tax benefit designed to alleviate the financial burden of higher education. It allows eligible taxpayers to lower their taxable income by the amount of interest paid on student loans throughout the year. The deduction is accessible even to those who do not itemize, making it a broadly available benefit for many individuals repaying education debt.

Key Eligibility Rules

To qualify for the student loan interest deduction, a taxpayer must meet several specific requirements set by the Internal Revenue Service (IRS). One of the primary rules relates to filing status. A married individual must file a joint return with their spouse, as the “Married Filing Separately” status disqualifies a person from claiming this deduction.

Another condition for eligibility is that you cannot be claimed as a dependent on someone else’s tax return. If a parent claims you as a dependent, you are not permitted to take the student loan interest deduction, even if you are the one making payments on the loan.

A requirement is that the taxpayer must be legally obligated to pay the interest on the student loan, meaning their name is on the loan documents. For example, if a student is the legal borrower on a loan, but their parents voluntarily make the payments, only the student can claim the deduction, provided they meet all other criteria.

The loan must be a “qualified student loan,” taken out for the sole purpose of paying for qualified education expenses. These loans can be from federal programs, private lenders like banks, or an educational institution. Loans from relatives or unqualified lenders do not meet this standard. The funds must have been used for an eligible student enrolled at least half-time in a program leading to a degree or certificate.

Qualified education expenses encompass a range of costs associated with postsecondary education. These include tuition and fees, room and board, books, supplies, and equipment necessary for enrollment. Transportation and other personal living expenses are not included in this category.

Deduction Limits and Income Restrictions

The amount of student loan interest you can deduct is capped each year. Taxpayers can deduct the lesser of the interest they paid during the year or $2,500. This maximum applies per tax return, not per person, meaning married couples filing jointly are also subject to the single $2,500 limit.

Your ability to claim this deduction is subject to income limitations based on your Modified Adjusted Gross Income (MAGI). MAGI is your Adjusted Gross Income (AGI) with certain deductions added back in. The deduction begins to phase out for single filers with a MAGI between $85,000 and $100,000, and for joint filers, the range is between $170,000 and $200,000.

The deduction is gradually reduced for taxpayers whose MAGI falls within these phase-out ranges. If your MAGI exceeds the upper threshold for your filing status—$100,000 for single filers or $200,000 for joint filers—you cannot claim the deduction. The IRS provides a specific worksheet to calculate the exact reduction based on how far your MAGI is into the phase-out range.

How to Claim the Deduction

To claim the student loan interest deduction, you will need Form 1098-E, the Student Loan Interest Statement. Your loan servicer is required to send you this form by January 31 if you paid $600 or more in interest during the tax year. Box 1 of Form 1098-E shows the total amount of interest you paid.

If you paid less than $600 in interest, your lender is not obligated to send you a Form 1098-E, but you are still entitled to deduct the interest you paid. You can find the total interest paid by checking your online account on your loan servicer’s website or by reviewing your monthly statements. It is important to retain records of these payments.

Once you determine the amount of interest paid, you report the deduction on Schedule 1 of Form 1040. The student loan interest deduction is an “above-the-line” deduction, which means it is an adjustment to your income. You do not need to itemize your deductions on Schedule A to benefit from it. This is advantageous because a lower AGI can help you qualify for other tax deductions and credits that have income limitations.