How Student Loan Interest Affects Your Taxes
If you are repaying student loans, there is a silver lining come tax time: the student loan interest deduction. This above-the-line deduction can reduce your taxable income by up to $2,500, even if you do not itemize.
How the Deduction Works
You can deduct the lesser of $2,500 or the actual amount of student loan interest you paid during the year. Because it is an above-the-line deduction, it reduces your adjusted gross income (AGI) directly, which can also help you qualify for other tax benefits that depend on AGI.
Who Qualifies?
- You paid interest on a qualified student loan during the tax year
- You are legally obligated to pay interest on the loan
- Your filing status is not married filing separately
- Your modified AGI is below the phase-out limits
- You (or your spouse) cannot be claimed as a dependent on someone else's return
2025 Income Phase-Outs
- Single filers: Deduction begins phasing out at $80,000 MAGI; fully eliminated at $95,000
- Married filing jointly: Phase-out begins at $165,000; fully eliminated at $195,000
What Counts as a Qualified Student Loan?
The loan must have been taken out solely to pay qualified higher education expenses. This includes federal student loans, private student loans, and refinanced student loans. Parent PLUS loans also qualify if the parent claims the deduction.
Your lender will send you Form 1098-E showing how much interest you paid during the year. Report this on Schedule 1 of your Form 1040.
