Is Student Loan Interest Tax-Deductible?

What is the student loan interest deduction?

The student loan interest deduction is a tax break that allows you to subtract the amount you spend on student loan interest from your taxable income. You can deduct up to $2,500 per year.

This is a tax deduction, not a tax credit. Commonly mistaken for the same thing, deductions and credits affect your taxes indistinct ways:

• A tax deduction reduces your taxable income
• A tax credit lowers what you owe directly

Eric Rosenberg, a finance writer and public speaker, explains the distinction this way: “It may seem like a slight difference, but it's pretty significant. For example, a $500 credit would lower your tax bill by $500. A $500 deduction reduces your taxable income by $500, saving you around 10% to 30% of the deduction amount.”  

The most popular tax credits for educational purposes are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). These tax credits are significant, but so are deductions, like for student loan interest. 

How much money do you save with the student loan tax deduction?

The actual amount you’ll save will vary with your income — it’s based on your effective tax rate, which varies based on your tax bracket. 

For example, someone who has an effective tax rate of 20% would save 20% of their deduction amount. If they paid $1,000 in student loan interest throughout the year, that’s $200 less they’re paying in taxes.

Ultimately with the student loan interest deduction, you're still paying less taxes, which is a total win. 

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Is student loan interest separate from the standard deduction?

Yes, you can claim this deduction on top of the standard deduction! That's because the student loan interest deduction is a type of tax break called an "adjustment to income," which is taken out before the standard deduction.

Who qualifies for the student loan interest deduction?

The IRS states explicitly that, to claim this deduction, , you must meet the following requirements:

• ✓ Have modified adjusted gross income (MAGI) below a specific amount that’s set annually (see below!)
• ✓ Have paid interest on a qualified loan that you’re legally required to pay back. (For 2022, you could take advantage of the pause on student loan payments and not be charged interest for the entire year — which means no interest deduction for that year)
• ✓ Not file separately if you’re married 
• ✓ Not be claimed as a dependent on someone else’s tax return (and your spouse isn’t either)

If you’re still unsure if you qualify, you can take this quiz on the IRS website to find out.

What is the maximum income to claim student loan interest?

The amount changes every year, but for 2022, it’s:

• $85,000 for single filers
• $175,000 for married taxpayers filing jointly

After a certain amount in MAGI, the amount you can deduct starts to phase out. That’s: 

• $70,000 for single filers
• $145,000 for married taxpayers filing jointly

What loans qualify for the student loan interest deduction?

All types of student loans qualify for the student loan tax deduction, including both federal student loans and private loans. 

Do other types of loans qualify for the student loan interest deduction?

Sometimes! “Any loan used exclusively for educational purposes can have interest count — including a personal loan or credit card,” states Robert Farrington, founder of the The College Investor. 

Of course, you must ensure you’re using that loan to finance your education. This means that any expense incurred must be a qualified higher education expense, which generally includes:

• 🏫 Tuition
• 💵 Fees
• 🛏️ Room and board

For example, Capital One has a specific list on its website of expenses that qualify as educational when securing a personal loan through them.

How to claim your student loan interest tax deduction

Claiming your student loan interest deduction is easy if you’re filing through Keeper. You can open our app and tell us about your student loan interest payments with one quick upload — or enter them manually if you don’t have a form.

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Step #1: Get your Form 1098-E from your student loan servicer

If you pay more than $600 in student loan interest for the year, you’ll receive a Form 1098-E, also called a student loan interest statement, from your student loan servicer. (A loan servicer is a company that the U.S. Department of Education assigns to collect student loan debt repayment.) 

These are due by January 31st. The amount you paid in student loan interest will be in box 1.

What if you don’t get a 1080-E?

What to do depends on why you didn’t get a form:

• If you didn’t get a form by mistake: If you paid at least $600 interest on your student loans, call your loan servicer to ask about your form. If it’s mid-February and you have still not received one, it’s time to reach out‍
• If you find you’ve paid less than $600 in interest: You won’t get a form, but you can still claim the interest deduction. You’ll need to call your loan servicer or check online to find out the actual amount you paid in interest.‍
• If you’re claiming a deduction for a different type of loan: If you’re claiming a deduction for interest on a personal loan or credit card used for educational purposes, you won’t get a 1098-E. You’ll have to go through your statements from your lender to add up the amount of interest you paid.

What if you don’t know who your loan servicer is?

It’s common to transfer your loan from one servicer to the next, so many borrowers don't know who their current servicer is.

If that’s you, you can find out who they are by creating an account on Studentaid.gov (if you already don’t have one). Here, you’ll see your loan servicer and their contact information, as well as the amount you still owe. 

Step #2: Report your interest on your Schedule 1

Under Part II of your Schedule 1, titled “Adjustments to Income,” you’ll enter the amount of student loan interest you’ve paid in Line 21. 

This form, part of Form 1040, is titled “Additional Income and Adjustments to Income. It includes a list of "above-the-line" tax breaks you’re able to claim — meaning, the ones you take out before the standard deduction or your itemized deductions.

(If you’re self-employed or working a side gig, your business write-offs are also taken out before the standard deduction. But they go on a different form — Schedule C. The Keeper app can help you track these with ease.)

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Step #3: Complete the rest of your tax return

After you’ve reported all of your adjustments to income, you’ll then fill out the rest of your 1040 tax return. Your 1040 will explain how to apply all deductions to your income to find out how much you owe or will receive as a refund. 

Rosenberg, the finance writer and speaker, advises to always double-check your work. “When claiming this deduction for the first time, it's a good idea to review your numbers multiple times to ensure they're accurate,” he said.

Always look carefully at forms provided to you by your loan servicer and ask questions if any information looks wrong. 

Is student loan interest deductible for a parent?

Yes, but only if the loan is in the parent’s name and they’re legally obligated to pay it.

“Since you are considered the holder of the student loan, you can keep this deduction if you paid for their qualifying educational expenses,” said Farrington, from The College Investor. “So if you have a Parent PLUS Loan, that loan is in the parent’s name, and they would claim the deduction.”

However, he notes that it can be tricky if your child is paying back a loan under your name — not you. “The deduction would still belong to the parent as it’s their loan, and any ‘deal’ that was arranged to [have the child] pay the loan doesn’t change that.”

What is the status of student loan forgiveness?

On June 30, 2023, the Supreme Court struck down part of the Biden-Harris administration’s Student Debt Relief Plan. Unfortunately, that means regular student loan payments will resume on September 1st, 2023.

For a while, it looked like the student loan interest deduction would no longer be urgently needed, but now, it’s highly relevant once again.

What’s happening with student loan relief now?

From October 1st, 2023 to September 1st, 2024, it won’t be held against you if you can’t afford to pay back your loans. While interest will begin collecting, missed payments won’t send you into delinquency status or show up on your credit report. 

This is an “on-ramp” to repayment, announced while President Biden continues to fight for student loan forgiveness under the Higher Education Act.

How to prepare for paying back your student loans 

In the meantime, there are still ways to lessen the impact of student loan repayment on your finances.

Tip #1: Look into debt forgiveness

First, check to see if you’re eligible for debt forgiveness under a different plan, such as the Public Service Loan Forgiveness (PSLF) program. For a complete list of current forgiveness options, go to Studentaid.gov and click the “Loan Forgiveness” tab. 

Tip #2: Consider a repayment plan

If you’re not eligible for loan forgiveness, you may still be eligible for an income-based repayment plan. Income-based repayment plans can help your debt feel more manageable if you’re currently not making enough to afford the full monthly payment.

Typically no more than 10% of your discretionary income, these plans make it easier to budget for repayment and also offer debt forgiveness after 20-25 years of consecutive payments on the loan.

Different income-based repayment plans have different terms and conditions, so it’s important to do your due diligence to find the right one for you. 

What did the student loan forgiveness plan originally look like?

The Biden-Harris Administration originally promised one-time student loan forgiveness for those who made no more than $80,000 before taxes. It would have erased up to $20,000 for those who received student loans and a Pell Grant and for higher education. Those without Pell Grants were still eligible for up to $10,000. 

Student loan repayment may seem impossible, but you can overcome this challenge with the right knowledge, support, and a payment plan that suits your needs. Don’t forget the student loan interest deduction, a powerful tool you can use over the course of this journey.