How much you can deduct
You can deduct whichever is less:
- $2,500, or
- The actual interest you paid during the year
For example, if you paid $3,000 in student loan interest throughout the year,you can only deduct $2,500, since that’s the yearly maximum.
The deduction is “above-the-line,” meaning this adjustment lowers your overall adjusted gross income (AGI), which is your total gross income minus certain adjustments. With this type of adjustment, you can still take the standard deduction instead of needing to itemize.
Who qualifies for the deduction
To claim the student loan deduction:
- The loan has to be in your name
- You have to be legally obligated to repay it
- You can’t be claimed as a dependent on someone else’s return
Your filing status matters too. Married Filing Separately filers can’t claim this deduction no matter their income.
Income limits and the phase-out range
Your modified adjusted gross income (MAGI)—your AGI, plus certain deductions and tax-exempt income added back in—determines how much of the deduction you can claim.
| Filing status | Partial phase-out | Fully phased out |
|---|---|---|
| Single / Head of Household | $85,000 MAGI | $100,000 MAGI |
| Married Filing Jointly | $175,000 MAGI | $205,000 MAGI |
Source: IRS Topic No. 456
If you’re between partial phase-out and full phase-out, you can use Worksheet 4-1 to find out how much you can claim for the credit.
Note: Every year, the IRS updates the thresholds to claim this deduction to accommodate inflation, so confirm the current MAGI thresholds before you file.
Interest accrued during deferment
Interest that gets added to your loan balance during deferment, known as capitalized interest, still counts once you actually pay it.
Employer loan payments
If your employer helps repay your loan and that assistance isn’t taxed to you, you can’t deduct the interest it covers.
What Form 1098-E tells you
Your loan servicer sends Form 1098-E if you paid $600 or more in interest during the year. If you paid less than $600 and didn’t get a form, you can still claim the deduction. Use your servicer’s online statement to confirm the amount of student loan interest paid.
How to claim the deduction
Report the deduction on Schedule 1 of Form 1040. Because it’s an adjustment to income rather than an itemized deduction, you can claim it whether you take the standard deduction or itemize.
