The Federal Student Loan Interest Deduction

Interest Paid on Student Loans Is Still Tax Deductible

Illustration shows a college graduate in cap and gown with dollar bills fluttering around her. Text says: are you eligible for the federal student loan tax deduction? eligible filing statuses: single, head of household, qualifying widow, married filing jointly, ineligible filing statuses: if you are a dependent, separate married return. you must be legally obligated to repay the loan. the loan proceeds must be fully used for qualified education expenses: tuition, room and board, book, supplies, and equipment, fees.

The student loan interest deduction can be claimed "above the line" as an adjustment to income. You can take it without itemizing, or take the standard deduction as well. It's subtracted on line 21 of the "Adjustments to Income" section of Schedule 1 of the 2021 Form 1040.

The end result is that it reduces your adjusted gross income (AGI) so you pay taxes on less, and a lower AGI can directly affect your eligibility for numerous other deductions and tax credits as well.

Are You Eligible? 

You can deduct interest on student loans paid by you if you use the single, head of household, or qualifying widow(er) filing status, or on loans paid by you or your spouse if you file a joint return. You can't claim the student loan interest deduction if you file a separate married return or if you can be claimed as a dependent on someone else's tax return.

You must also be legally obligated to repay the loan. You—or your spouse if you file a joint return—must be the signatory on the loan. You can't claim the deduction if your child takes out the loan in their own name and is the obligor, even if you make the payments for them. Only they can do so—provided, of course, that you're not claiming them as a dependent.

The IRS provides an interactive tool to help taxpayers determine whether they're eligible for the student loan interest deduction. It takes about 10 minutes to complete, and you'll need your income information, including your AGI, your filing status, and a list of the expenses that the loan or loans paid for.

Student Loans That Qualify

The loan must be a qualified student loan for the benefit of you, your spouse, or your dependent. Loans from a qualified employer plan don't count, nor do private loans from family or friends.

The loan proceeds must be entirely dedicated to qualified education expenses. You'll lose the deduction if you borrow $10,000 but use only $9,000 of it toward qualified expenses and "cash-out" the remaining $1,000.

Qualified education expenses include:

  • Tuition
  • Room and board
  • Books, supplies, and equipment
  • Transportation
  • Fees

These expenses apply specifically to the student loan interest deduction. They aren't necessarily the same as those that will qualify you for other education tax breaks, such as the American Opportunity tax credit or the Lifetime Learning credit.

How Much Is the Deduction? 

The maximum student loan interest deduction you can claim is $2,500 as of the 2021 tax year, and it might be less. It can be limited by your income. The deduction is reduced for taxpayers with modified adjusted gross incomes (MAGIs) in a certain phaseout range and is eventually eliminated entirely if your MAGI is too high.

The Student Loan Interest Deduction Act of 2019 aimed to increase the deduction to $5,000, or $10,000 for married taxpayers filing joint returns, when it was introduced in Congress in June 2019. However, that bill stalled in the House Committee on Ways and Means.

Any student loan debt that is forgiven between January 1, 2021, and December 31, 2025, is not taxable, per the provisions of the American Rescue Plan Act of 2021.

Student Loan Interest Deduction Phaseouts 

The phaseout ranges for this tax credit depend on your filing status. As of tax year 2020, the return you would have filed in 2021, they were:

Filing Status Phaseout Begins Phaseout Ends
Married Filing Jointly $140,000 $170,000
Qualifying Widow(er) $70,000 $85,000
Head of Household $70,000 $85,000
Single $70,000 $85,000

These figures are adjusted for inflation, so they can change slightly year to year. The IRS typically announces inflation adjustments at the end of the tax year. These thresholds were current as of mid-December 2021.

You can deduct up to $2,500 in student loan interest or the actual amount of interest you paid, whichever is less, if your MAGI is under the threshold where the phaseout begins. Your limit is prorated if your MAGI falls within the phaseout range—for example, $70,000 to $85,000 if you're single.

Unfortunately, your student loan interest isn't deductible at all if your income is more than the ceiling where the phaseout ends.

How to Calculate Your Deduction

Calculating your deduction begins with your MAGI. This is your all-important adjusted gross income (AGI) before you take other tax deductions into account, including the student loan interest deduction you're hoping to qualify for. You can't deduct this first before calculating your MAGI. That would be like claiming a tax break twice for the same expense.

You must also add back the following exclusions and deductions if you took any of them, but these are somewhat uncommon:

  • The foreign earned income exclusion
  • The foreign housing exclusion
  • The foreign housing deduction
  • The income exclusions for residents of American Samoa or Puerto Rico

Most taxpayers will find that their MAGIs are very close to—if not identical to—their AGIs. In the case of the student loan interest deduction, you might find that you only have to add back the deduction itself.

Divide your MAGI by $15,000 ($30,000 if married, filing jointly) after you've calculated it. Convert the answer to a decimal with three decimal places. Use 1.000 for the calculation if it's more than 1.000. If it's less than 1.000, use it as is. Next, multiply your student loan interest paid up to $2,500 by the decimal. The answer will be $2,500 or less.

You won't have to dig through all of your student loan statements for the year, trying to track down how much interest you paid. Your lender should send you a Form 1098-E sometime after the first of the year. The amount of interest you paid is reported in Box 1 of the 2021 version of the form.

Frequently Asked Questions (FAQs)

What is the maximum student loan interest deduction?

The maximum amount you can deduct for a year would be $2,500 even if you paid more interest toward student loans.

Can parents deduct student loan interest if they help make payments?

Parents cannot claim a deduction on their taxes if they help their child pay off their student loans. The student is the borrower, and their information is on the loan paperwork, effectively making them the debt owner.

Article Sources

  1. Internal Revenue Service. "1040 and 1040-SR Instructions (2021)," Pages 93-94.

  2. Internal Revenue Service. "Publication 970, Tax Benefits for Education (2020)," Pages 32-33.

  3. Internal Revenue Service. "Publication 970, Tax Benefits for Education (2020)," Pages 12-18, 24-25.

  4. Internal Revenue Service. "Topic No. 456 Student Loan Interest Deduction," Page 31.

  5. "H.R.3098 - Student Loan Interest Deduction Act of 2019."

  6. "The American Rescue Plan Act of 2021," Page 182.

  7. Internal Revenue Service. "Publication 970, Tax Benefits for Education (2020)," Table 4.2, Page 35.

  8. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2020."

  9. Internal Revenue Service. "Modified Adjusted Gross Income (MAGI)."

  10. Internal Revenue Service. "Publication 970 Tax Benefits for Education," Page 35.

  11. IRS. "Topic No. 456 Student Loan Interest Deduction."