App version: 0.1.0

How to Claim Your Student Loan Interest Deduction

How to Claim Your Student Loan Interest Deduction
Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Updated May 25, 2022
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Taxpayers who fall within a certain income range and who have paid interest on a federal or private student loan may claim the student loan interest deduction. This deduction is a tax break that can reduce your taxable income by up to $2,500.You may qualify for the deduction if you paid student loan interest during the tax-filing year in question. Taxpayers who took out a loan or line of credit solely to pay for qualified education expenses may qualify for the deduction.Qualified education expenses include tuition and fees to attend an eligible postsecondary educational institution, including accredited colleges and universities across the United States. Below we highlight how the student loan interest deduction works and how you may calculate the reduction in your taxable income.

What Is Student Loan Interest Deduction?

The student loan interest deduction is a federal tax break that can allow eligible taxpayers to reduce their taxable income by up to $2,500. As mentioned earlier, taxpayers who took out a loan or line of credit solely to pay for qualified education expenses may qualify for the deduction.This deduction, when claimed by an eligible taxpayer, adjusts the taxpayer’s income and may lower one’s federal tax liability. You may claim the student loan tax deduction if you paid interest on qualified student loans during a particular tax period and meet other qualifications.

How Does Student Loan Interest Deduction Work?

The student loan interest deduction works by allowing eligible taxpayers to deduct up to $2,500 when filing federal income tax returns. Those who paid interest on federal or private student loans during a particular tax period may claim the deduction if they meet certain income qualifications. Student loan interest could consist of stated interest, loan origination fees, and capitalized interest. An eligible taxpayer who paid $1,000 in student loan interest during a particular tax year, for example, may deduct $1,000 when filing a tax return for that period. Meanwhile, those who paid more than $2,500 in student loan interest during a particular tax year may deduct no more than $2,500.The student loan tax deduction adjusts a taxpayer’s income in a way that may reduce one’s federal income tax liability. It’s a tax break that can reduce the amount of federal income tax you may have to pay.

Eligibility for Student Loan Interest Deduction 

Only certain taxpayers may claim the student loan interest deduction. Here are some of the eligibility guidelines for you to qualify:
  • You must have paid interest on a qualified student loan during a particular tax period
  • You must have been legally responsible to pay those interest charges
  • You must not be claimed as a dependent on someone else’s tax return
  • You must file jointly if you’re married
  • Your modified adjusted gross income (MAGI) must fall below a certain threshold
The MAGI threshold can change over time. Taxpayers with a MAGI above $85,000 didn’t qualify for the student loan interest deduction when filing their 2021 tax returns. Joint filers with a MAGI above $170,000 also did not qualify.Taxpayers with student loan debt obligations may repeatedly claim a student loan tax deduction over the life of the loan. Some may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans.Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate.The difference between federal vs. private student loans is that federal student loans are provided exclusively by the U.S. Department of Education. Banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans. You can refinance federal student loans with private student loans.Another option you may consider is refinancing to replace your existing student loan debt with the terms and conditions of a new loan agreement.In terms of how refinancing your student loans works, you may submit a student loan refinancing application with a private lender and see if you qualify. Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit.One of the advantages of refinancing student loans is it may provide you with a lower interest rate. One of the big disadvantages of refinancing your student loans with a private lender, however, is you’ll be forfeiting federal benefits. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government. The federal government in March 2020 suspended student loan payments in response to the COVID-19 pandemic.After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on August 31, 2022. Borrowers at that time may consider a student loan deferment. Meanwhile, people who served in the U.S. armed forces may qualify for military student loan forgiveness.

Claiming the Student Loan Interest Deduction

Here are some guidelines for claiming the student loan interest deduction: 

Find Out How Much Interest You Paid

You may find out how much interest you paid by reviewing your student loan account statements. Student loan servicers must generally give borrowers a Form 1098-E student loan interest statement if the borrower paid at least $600 in annual interest.Any account statements you receive from a student loan servicer may specify how much you paid in principal and stated interest. In some cases, your principal payments may include payments toward loan origination fees and capitalized interest. Any payment you’ve made toward stated interest, origination fees, and capitalized interest may qualify as an interest payment for tax purposes.

Calculate the Reduction in Your Taxable Income

You can calculate the reduction in your taxable income by reviewing the total interest you paid on qualified student loans during a particular tax period. You may reduce your taxable income by the exact amount you paid in student loan interest or by $2,500, whichever is smaller.Whether you can claim the student loan interest deduction depends on whether your modified adjusted gross income falls within the MAGI limit. Some taxpayers close to the MAGI limit may receive a reduced student loan interest deduction.You may complete a student loan interest deduction worksheet when filing a federal tax return to calculate your student loan interest deduction. This deduction, when claimed by a qualified taxpayer, reduces the taxpayer’s taxable income by up to $2,500.

What Qualifies for the Deduction?

Any interest you’ve paid on a federal or private student loan may qualify for the student loan interest deduction. Any interest you’ve paid on a line of credit solely to pay for qualified education expenses may also qualify for the student loan tax deduction.Any revolving credit account used exclusively to pay for qualified education expenses may qualify for the student loan interest deduction. This includes any interest paid on credit card accounts used exclusively for financing the cost of attending an eligible postsecondary institution.Any interest you’ve paid on a refinanced student loan or consolidated student loan may further qualify for the deduction.

Documents You Need to File Your Tax Return

Here are some documents you may need to file your federal tax return:

W-2

A W-2 is an annual tax form that employers must generally provide to employees who have earned at least $600 during a tax period. This form may highlight how much you’ve earned in wages, tips, and other compensation.

1098-E

A 1098-E is an annual tax form you may receive if you’ve paid $600 or more toward student loan interest during a tax period. Some student loan servicers may provide you with this form even if you’ve paid less than $600 in student loan interest. This form highlights how much in interest payments a lender received from you during a particular tax period. This form may help you determine your student loan interest deduction.

1098-T

A 1098-T is an annual tax form you may receive if you’ve paid tuition as a student enrolled at a postsecondary institution. This form may also highlight the total amount of any scholarships or grants a college may have administered and processed regarding your education. You may need this form to claim the American opportunity tax credit or lifetime learning credit.

How Much You May Be Able to Save

The student loan interest deduction can lower your total taxable income, which may result in tax savings. The student loan tax deduction adjusts a taxpayer’s income accordingly and may reduce one’s federal income tax liability by hundreds of dollars in some cases.Eligible taxpayers may claim this deduction whether they itemize deductions or take the standard deduction when filing their federal tax return. This deduction, when claimed by an eligible taxpayer, reduces the taxpayer’s taxable income by up to $2,500.The standard deduction for taxable years beginning in 2022 is $12,950 for single filers and $25,900 for married individuals filing jointly, according to the IRS.Claiming any deduction on your federal tax return reduces your taxable income. Some taxpayers who file their 2022 tax returns may qualify for a student loan interest deduction up to $2,500 in addition to taking the $12,950 standard deduction.An individual who earns $55,000 in 2022 wages and takes the standard deduction would have a federal taxable income of $42,050. The federal taxable income would be $41,050 if this individual also qualified for a $1,000 student loan interest deduction.The difference between having $42,050 vs. $41,050 in taxable income is not insignificant when evaluating the potential tax savings for individuals filing 2022 tax returns. Claiming the student loan interest deduction to reduce your taxable income can reduce what you pay in federal taxes or increase the size of your federal tax refund.Individuals with 2022 taxable income between $10,275 and $41,775 would owe $1,027.50 plus 12% of the excess over $10,275 in federal income tax, while individuals with taxable income between $41,775 and $89,075 would owe $4,807.50 plus 22% of the excess over $41,775.

Compare Student Loan Refinancing Rates With Lantern

Lantern by SoFi can help you compare student loan refinance options. Refinancing might be right for you if you can lock in a lower interest rate. Explore your options today and consider applying with a lender of your choice.
Photo credit: iStock/Deagreez
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOLC0222037

Frequently Asked Questions

Can I claim the student loan deduction for parent PLUS loans I took out for my children?
Are there other education tax breaks?
Can I claim the deduction for interest paid on private student loans?
Can I still claim the deduction if I refinance my student loans?

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
Share this article: