The student loan interest deduction lets borrowers deduct all or part of the interest they pay on their federal student loans and private student loans. While you’re likely frustrated with the fact that a chunk of your monthly student loan payments goes towards interest, the student loan interest deduction can reduce the cost of that interest. You can claim the student loan interest deduction even if you use the standard deduction.
What is the student loan interest deduction?
The student loan interest deduction is an above-the-line exclusion from income. An above-the-line exclusion from income reduces the adjusted gross income (AGI) on your federal income tax return, which also reduces your taxable income.
You can receive the deduction for the interest you paid on college loans during the tax year up to $2,500.
Eligible loans for the student loan interest deduction
Eligible college loans include both federal student loans and private student loans.
Examples of loans that are eligible for the student loan interest deduction include:
- Subsidized Federal Stafford Loan
- Unsubsidized Federal Stafford Loan
- Federal Perkins Loan
- Federal Grad PLUS Loan
- Federal Parent PLUS Loan
- Federal Consolidation Loan
- State Education Loans
- Private Student Loans
Direct loans and loans made through the FFEL program both count.
Loans from someone who is related to you or from a retirement plan are not eligible for the student loan interest deduction.
The loan must have been borrowed for you, your spouse or your dependent.
Qualified Educational Expenses
The loan must also have been used solely to pay for qualified education expenses, such as tuition and fees, room and board, textbooks, supplies and equipment, and transportation to/from school. Mixed-use loans, such as credit card debt, are not eligible, unless the loan is used only to pay qualified education expenses.
The amount of qualified educational expenses must be reduced by the amount of other education tax benefits. IRS rules prohibit double-dipping. The same expense cannot be used to justify two different education tax benefits.
Eligibility criteria for the student loan interest deduction
You must meet certain eligibility requirements to claim the student loan interest deduction.
- You must be legally on the hook to pay the interest on the student loan. Borrowers and cosigners are legally obligated to repay the debt. A parent who voluntarily makes payments on their child’s student loans cannot deduct the interest if they aren’t legally obligated to pay the interest.
- You must not be claimable on anyone else’s tax return. The student borrower may be able to claim the deduction based on the amounts paid by the parents, but only if the student cannot be claimed as a dependent on anyone else’s tax return. If the parents could claim the student as a dependent but choose not to, the student is not eligible to claim the student loan interest deduction.
- Your tax filing status is single, married filing jointly, head of household or qualifying widow(er). Taxpayers who file their federal income tax returns as married filing separately are not eligible.
The student must also satisfy certain eligibility requirements.
- The student must have been enrolled on at least a half-time basis. If the student is enrolled on less than a half-time basis, such as is common in continuing education programs, the student loans are not eligible for the student loan interest deduction.
- The student must be enrolled in a program leading to a degree or certificate at an eligible educational institution. Eligible educational institutions are limited to accredited postsecondary institutions that are eligible for Title IV federal student aid.
Income phase-outs for the student loan interest deduction
There is an income limit for the student loan interest deduction. So, you might be ineligible if you have too high an income.
The income phase-outs are based on the taxpayer’s filing status and modified adjusted gross income (MAGI). The amount of the student loan interest deduction is reduced proportionately within the income phase-outs and eliminated entirely when income exceeds the upper end of the income phase-outs.
Tax Filing Status
Income Phase-outs (2019)
$70,000 to $85,000
Head of Household
$70,000 to $85,000
$70,000 to $85,000
Married Filing Jointly
$140,000 to $170,000
Married Filing Separately
How much is a student loan interest deduction worth?
You find out the good news that you’re eligible. Great! But, how much will it actually save you? Well, it’s important to note this is an above-the-line deduction, not a tax credit. So, it only helps you reduce your taxable income.
For example, suppose you have $60,000 in taxable income last year and paid $2,500 in student loan interest. Since your income is below the income phase-outs, the student loan interest deduction is not reduced. Your taxable income would become $57,500. This then reduces your tax liability.
To understand how much that will ultimately save you on your tax bill, multiply the amount student loan interest you’re eligible to deduct by your tax bracket.
If your MAGI is $60,000, you are in the 22% tax bracket. If you paid $1,000 in student loan interest, which is about the average deduction, the student loan interest deduction will save you about $220. The maximum anyone might save is $550.
How do you claim a student loan interest deduction?
Luckily, claiming a student loan interest deduction is relatively easy since you don’t need to itemize your taxes to claim the deduction.
If you paid more than $600 in student loan interest to a single lender, you’ll get a 1098-E stating how much you paid in interest on qualified education loans.
Don’t worry if you didn’t receive a 1098-E form from your lender. Simply call them and ask for the amount you paid in student loan interest. You may also be able to access this information by logging into your account on the lender’s web site.
Enter that number on line 33 on Schedule 1 of IRS Form 1040 where it says,“Student loan interest deduction.”