Student loan interest deduction: What it is and how to claim it

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What is the student loan interest deduction?

The student loan interest deduction is a tax benefit that can offset the costs of borrowing to pay for your education. If you paid interest during the year on a qualified student loan, you might qualify for the student loan interest deduction. Claimed as an adjustment to your income, you don’t need to itemize deductions to take it.

If you qualify, you can deduct up to $2,500 of student loan interest per year. When your modified adjusted gross income (MAGI) reaches the yearly limit for your tax filing status, the deduction will be gradually reduced and eventually eliminated altogether, according to the IRS.

How to qualify for the student loan interest deduction

You must meet all of the following requirements to claim the qualified student loan interest deduction.

  1. You are legally required to pay interest on a qualified student loan.
  2. You paid interest on a qualified student loan in the year you’re taking the deduction.
  3. If married, you file jointly.
  4. Your modified adjusted gross income (MAGI) — all of the income you earned in one year minus certain deductions — is less than the yearly limit set by the IRS for your tax filing status.
  5. You or your significant other, if filing jointly, can’t be claimed as a dependent on another person’s tax return.

Education expenses that qualify for the student loan interest deduction include:

  • Tuition and fees.
  • Room and board.
  • Any expense related to coursework, including books, supplies, fees, and required equipment.
  • Other necessary expenses, such as transportation.

Income limits: Phaseouts for the student loan interest deduction

Your modified adjusted gross income determines your eligibility for a student loan interest deduction. Here’s when the phaseout begins and ends depends on your filing status:

Filing status Phaseout begins with MAGI of … Phaseout ends with MAGI of …
Single $70,000 $85,000
Head of household $70,000 $85,000
Qualifying widow(er) $70,000 $85,000
Married filing jointly $140,000 $170,000
Married filing separately Ineligible Ineligible

Can I deduct student loan interest?

To deduct student loan interest, the qualified student loan you took out must be used to pay for your education costs or a spouse’s or dependent’s education costs while attending an eligible college or university. The financial institution must qualify to participate in the program as determined by the U.S. Department of Education.

Some other educational institutions may also be eligible, like technical and vocational schools, for-profit and nonprofit institutions, or other postsecondary institutions. The loan must be made by you and not from an employer benefits plan or relative, and you must pay back the loan in a realistic time frame. However, the IRS is flexible if you are making an effort to pay it back.

The Student Loan Interest Statement, IRS Form 1098-E, is the form used to report student loan interest payments to you and the IRS. Your loan servicer(s) will provide at least one 1098-E form if you paid $600 or more in interest during the tax year.

Can I deduct student loan payments?

You can’t deduct the principal payments you make on your student loans, but you can deduct the interest portion of student loan payments, up to $2,500.

In a 2020 report by the College Board, the average in-state tuition to attend a four-year public college in 2020-2021 averaged $26,820. For out-of-state students at public colleges, tuition averaged $43,280, and tuition at private colleges averaged $54,880.

With tuition rising every year, don’t leave money on the table. If you qualify, take advantage of the student loan interest deduction.