- If you qualify, you can deduct the interest you paid on your student loan, but only up to $2,500 per year.
- Your filing status on your taxes, your income and if your student loan is considered a qualifying loan all help determine if you’re eligible.
- Interest paid on both federal student loans and private student loans is deductible.
- The form you need is the 1098-E, which you can get from your student loan servicer.
Paying student loans and filing federal taxes—probably not two of your all-time favorite things to do. But it’s inevitable for a lot of people. After all, there are 43.4 million federal student loan borrowers alone.
But there is some good news: You just might be able to deduct that interest you paid on your student loans from your federal taxes in what’s known as the Student Loan Interest Deduction. Just how can you take advantage of this, and what do you do to file for the deduction? Read on to find out.
How much can you deduct?
First, a tax deduction is different from a tax credit in that it allows you to reduce the total amount of your income before you calculate the tax you owe, thereby reducing your tax bill. (With a tax credit, you subtract the amount from the taxes you owe.)
Currently, the maximum tax deduction for student loan interest is $2,500. And it isn’t just for your federal student loans. Interest paid on most private student loans qualifies, too. It’s an “above-the-line exclusion” from your income, so you can claim it even if you don’t itemize deductions. However, there is specific criteria you’ll need to meet for claiming this, and not everyone is eligible.
Not everyone who pays student loan interest can deduct it from their taxes. Here are the four requirements you have to meet:
You paid interest on a qualified student loan in 2021. This includes any interest payments you made on a student loan—both required payments and if you made any voluntary prepaid interest payments.
What exactly is a qualified student loan? The IRS says it must be a loan that was borrowed solely to pay for qualified higher education expenses, such as tuition and fees. The loan you borrowed could have been to fund your own education or it could be a loan you borrowed for your spouse or to help your children pay for college (if they were considered dependents at the time you took out the loan).
To qualify, the loan also must have been used for education during an academic period for an eligible student and paid out within 90 days before or after the academic period for which the loan was borrowed.
You’re legally required to pay interest on that loan. “The taxpayer must be obligated to make the interest payments and actually make them,” says Kristin A. Siolka, Enrolled Agent (EA) and Tax Content Specialist with the National Association of Tax Professionals. So if you’re trying to help out your child or another family member by making payments on their student loan (in their name, not yours), it unfortunately doesn’t count for this deduction on your taxes (but the borrower can claim the deduction on their taxes). If you are a cosigner on your student’s loan, however, you can make payments and qualify for a student loan interest tax deduction.
Your filing status is correct. The Student Loan Interest Deduction is an option if you are filing under one of the following statuses: single, married filing jointly, head of household or qualifying widow(er). If you opt to file your return as married filing separately, you can’t qualify.
You meet the income requirements. You’ll need to earn under a certain amount to reap the benefits of the deduction. The income threshold changes every year, so be sure to check the IRS website to see what it is for the tax return year you’re filing.
For 2022, your modified adjusted gross income (AGI) must be less than $85,000 if you’re filing as single, head of household or qualifying widow(er). If you’re married filing jointly, you both must have earned less than $175,000.
Besides these four factors, there are a few other things to keep in mind. “Neither the taxpayer or spouse can be claimed as a dependent on someone else’s return,” points out Siolka.
And do you qualify if you’re the parent, who borrowed money for your child or spouse? “Yes, if the loan is in the parent’s name and they paid the interest on the loan. No, if the loan is in the dependent’s name, even if the parent pays the interest on the loan,” Siolka explains. “The loan in the spouse’s name can be paid with joint money and qualify for the student loan interest deduction on their married filing jointly return.”
How do I file for the deduction?
If you paid $600 or more in interest during the year, your student loan servicer will automatically send you a Student Loan Interest Statement (Form 1098-E) either in the mail or electronically. If you have multiple loans, you’ll get this form from each servicer.
If you paid less than $600, you may be able to find this form online once you log in to your account, or contact the servicer to request the form or find out the exact amount you paid.