What is the student loan interest deduction?
The student loan interest deduction is a tax benefit that can offset the cost of borrowing to pay for your education. If you paid interest during the year on an eligible student loan, you may be eligible for the student loan interest deduction. Claimed as an adjustment to your income, you do not need to itemize deductions to take it.
If you qualify, you can deduct up to $2,500 in student loan interest per year. When your modified adjusted gross income (MAGI) reaches the annual 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 conditions to claim the interest deduction on qualifying student loans.
- You are legally required to pay interest on a qualified student loan.
- You paid interest on an eligible student loan in the year you claim the deduction.
- If you are married, you are filing jointly.
- Your MAGI — all of the income you’ve earned in a year minus certain deductions — is below the annual limit set by the IRS for your tax-filing status.
- You or your loved one, if you are filing jointly, cannot be claimed as a dependent on another person’s tax return.
Educational expenses that qualify for the student loan interest deduction include:
- Tuition and Fees.
- Room and board.
- Any course-related expenses, including books, supplies, fees, and required equipment.
- Other necessary expenses, such as transportation.
Income limits: phasing out student loan interest deduction
Your adjusted adjusted gross income determines your eligibility for a student loan interest deduction. Here’s when the phasing out starts and ends based on your filing status:
| Filing status | Elimination begins with MAGI from… | Phasing ends with MAGI from… |
|---|---|---|
| Only | $70,000 | $85,000 |
| head of household | $70,000 | $85,000 |
| Eligible widow(ers) | $70,000 | $85,000 |
| Married filing jointly | $140,000 | $170,000 |
| Groom filing separately | Ineligible | Ineligible |
Can I deduct student loan interest?
To deduct student loan interest, the qualifying student loan you have had must be used to pay education costs for you, your spouse, or your dependent while you study at a qualifying institution. Additionally, the lender must qualify to participate in the program as determined by the US Department of Education.
Students at educational institutions that are not public universities and colleges may qualify for the federal student loan program. These institutions include technical and vocational schools, for-profit and non-profit colleges, and other post-secondary institutions. The student loan must be taken out by you and not by an employer or parent benefits package, and as a borrower, you must repay the loan within a realistic time frame. However, the IRS is flexible if you make an effort to repay it and communicates about your financial situation.
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 officer(s) will provide at least a Form 1098-E if you paid $600 or more in interest during the tax year.
Can I deduct student loan repayments?
You cannot deduct principal repayments you make on your student loans, but you can deduct the interest portion of student loan repayments, up to $2,500.
In a 2020 College Board report, the average sticker price in the state for attending a four-year public college in 2020-21 averaged $10,560. Factoring in other costs like room and board, classroom materials and fees raised the average to $26,820. For international students at public colleges, tuition fees averaged $27,020 and students at private colleges paid an average of $37,650. With other expenses, these averages were increased to $43,280 and $54,880, respectively.
With tuition fees increasing every year, don’t leave money on the table. If you qualify, take advantage of the student loan interest deduction.
