The Federal Student Loan Interest Deduction

Interest Paid on Student Loans Is Still Tax Deductible

Image shows a woman in a cap and gown with dollar bills, a canvas and palette, a book, and a beaker and textbook floating around her. Text reads: "Are you eligible for the federal student loan tax deduction? Eligible filing statuses single, head of household, qualifying widow. 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. Max deduction amount: $2,500 for the 2019 tax year."

Image by Miguel Co © The Balance 2020

The student loan interest deduction is an advantageous "above the line" deduction that you can claim without itemizing. You can claim it and itemize or take the standard deduction, too. It's tucked into the "Adjustments to Income" section of Schedule 1 of the 2019 Form 1040.

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 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, and you can't be claimed as a dependent on anyone else's tax return. 

You must also be legally obligated to repay the loan. This means that you—or your spouse if you file a joint return—are the signatories 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, you're not claiming them as a dependent.

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

The student must have been enrolled at least half-time in a degree program when they paid higher education expenses.

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 toward qualified expenses and "cash-out" the remaining $1,000.

Qualified expenses include:

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

These expenses pertain specifically to the student loan interest deduction. They aren't necessarily the same as those that qualify for other education tax breaks.

How Much Is the Deduction? 

The most student loan interest you can claim as a tax deduction is $2,500 as of the 2019 tax year, and your deduction might be less. It can be limited by your income. It's reduced for taxpayers with modified adjusted gross incomes (MAGIs) in a certain phase-out range and is eventually eliminated entirely if your MAGI is too high.

Student Loan Interest Deduction Phase-Outs 

The phase-out ranges for the 2019 tax year depending on your filing status: 

Filing Status Phase-out Begins Phase-out 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

If your MAGI is under the threshold where the phase-out begins, you can deduct up to $2,500 in student loan interest or the actual amount of interest you paid, whichever is less. Your limit is prorated if your MAGI falls within the phase-out 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 phase-out ends.

How to Calculate Your Deduction

You can use the worksheet on page 90 of the 2019 Instructions for Form 1040 to figure out both your MAGI and deduction.

Simply divide that number by $15,000 after you calculate your MAGI. Convert the answer to a decimal with three decimal places. If it's more than 1.000, you'll use 1.000 for the calculation. If it's less than 1.000, you'll use it as is.

Now 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 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.

Why Is Modified Adjusted Gross Income Important? 

Your MAGI is your all-important adjusted gross income (AGI) before you take other deductions into account. These include 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.

Rumors of the Deduction's Demise 

It was initially believed that this lucrative tax break for students would disappear in 2018 with the passage of the Tax Cuts and Jobs Act (TCJA). An early version of the tax bill did indeed do away with the student loan interest deduction. Fortunately, many congressmen listened when students, colleges, and universities protested in significant numbers.

The final version of the TCJA pulled the deduction back into the fold. It's still alive, well, and available.

The IRS has issued a new 1040 tax form for the 2019 tax year to help accommodate other changes made by the TCJA. It comes with numerous additional schedules, but rest assured that you still can claim the student loan interest deduction. You just might need the help of a tax professional to take the headache out of it or purchase reputable tax preparation software.

Article Sources

  1. Internal Revenue Service. "Topic No. 456 Student Loan Interest Deduction." Accessed Jan. 9, 2020.

  2. Internal Revenue Service. "1040 and 1040-SR Instructions," Pages 89-90. Accessed Jan. 9, 2020.

  3. FinAid. "Student Loan Interest Deduction." Accessed Jan. 11, 2020.

  4. Internal Revenue Service. "1040 and 1040-SR Instructions," Page 90. Accessed Jan 9, 2020.

  5. Internal Revenue Service. "Modified Adjusted Gross Income (MAGI)." Accessed Jan 9, 2020.

  6. Internal Revenue Service. "Publication 970 Tax Benefits for Education," Page 35. Accessed Jan. 9, 2020.

  7. Association of American Universities. "Student Loan Interest Deduction (SLID)," Page 2. Accessed Jan. 9, 2020.