Student Loan Tax Deductions
If you are repaying student loans, you may be able to deduct student loan interest on your federal tax return.
If you borrowed money to pay for college, you may be able to deduct the interest from your federal taxes when you start repaying your student loans. Read on to learn more about how the student loan interest deduction works, who is entitled to take this deduction, and how much you can deduct each year.
Taking a Student Loan Interest Tax Deduction
In most cases, when you pay interest on a loan (other than certain mortgage loans), you cannot write it off on your tax return. However, if you are paying interest on a student loan, you are allowed to take a deduction so long as the taxpayer, the loan, the student, and the educational institution meet certain eligibility criteria.
Basic Eligibility Criteria for the Student Loan Interest Deduction
Generally, you can claim the student loan interest deduction if all of the following apply:
- You paid interest on a qualified student loan during the tax year. (Learn what a qualified student loan is below.)
- You are legally obligated to pay interest on the qualified student loan.
- Your filing status is not married filing separately. (Any filing status except married filing separately qualifies.)
- No one else claims an exemption for you on his or her tax return.
- You don’t exceed certain income limits (see below).
Loan Eligibility Criteria
To be eligible, the student loan must have been taken out solely to pay for qualified education expenses. A “qualified education expense” includes amounts paid for:
- tuition and fees to enroll in the school
- room and board (subject to some limits)
- books, supplies, and necessary equipment, and
- other essential expenses (including transportation).
In addition, the source of the loan cannot be:
- a relative (such as your spouse, sibling, or grandparent, among others)
- certain corporations, partnerships, trusts, and exempt organizations, or
- a qualified employer plan.
Student Eligibility Criteria
In order to qualify for the deduction, the student must be:
- you, your spouse, or your dependent (that is, a qualifying child or relative), and
- enrolled at least half-time in a degree program.
Eligible Post-Secondary Educational Institutions
Qualified educational institutions include any college, university, vocational school, or other post-secondary educational institution that is eligible to participate in a U.S. Department of Education student aid program. This includes virtually all accredited post-secondary institutions. (Go to The Database of Accredited Postsecondary Institutions and Programs to find out if your school is accredited.)
How the Tax Deduction Works
The deduction is claimed as an adjustment to income. This means that the deduction decreases your taxable income, thus decreasing the amount of tax you owe.
You can claim this deduction even if you do not itemize deductions.
How Much You Can Deduct
You can write off up to $2,500 annually. (The amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.) However, this is subject to income limitations.
The deduction is phased out (gradually reduced) and eventually eliminated as your income rises.
- You get the full deduction if you’re single and make less than $60,000 or, for married couples, less than $125,000.
- For individuals with an income between $60,000 and $75,000, or a married couple filing jointly with an income between $125,000 and $155,000, the deduction is reduced.
- You do not qualify for a student loan interest deduction at all if your modified adjusted gross income is equal to or greater than $75,000 if single, or $155,000 for a married couple filing a joint return.
These amounts are adjusted periodically to account for inflation.
What Part of the Student Loan Payment Can You Include as Interest?
If all other requirements are met, the items discussed below are considered student loan interest and can be deducted in addition to simple interest on the loan.
- Loan origination fees. Loan origination fees are a one-time fee charged by the lender when a loan is taken out. To be deductible as interest, the loan origination fee cannot be related to commitment fees or processing costs.
- Capitalized interest. Capitalized interest (unpaid interest that the lender adds to the outstanding principal balance of the loan) is deductible. However, you cannot deduct capitalized interest for a year in which you didn't make any loan payments.
- Interest on credit cards or other revolving lines of credit. Credit card interest and other revolving lines of credit are considered student loan interest if the borrower uses the credit card or line of credit only to pay qualified education expenses.
- Interest on refinanced student loans. Interest on refinanced loans is treated as student loan interest. (However, if you refinance a qualified student loan and take cash out for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan.)
- Voluntary interest payments. Payments made on a qualified student loan during a period when the lender doesn’t require you to make interest payments (for example, during a student loan deferment) also qualifies as student loan interest for purposes of the deduction.
How to Find Out the Amount of Interest You Paid on Your Student Loans
If you made at least $600 in student loan interest payments to a lender during the year, the lender must send you a Form 1098-E (Student Loan Interest Statement). For most people, this form will indicate the amount of student loan interest you paid to that lender.
However, if you took out your loan prior to September 1, 2004, the lender is only required to include payments of stated interest, not other types of interest payments (for example, capitalized interest and loan origination fees) on the Form 1098-E. Keep in mind that you can still deduct other types of payments as student loan interest payments (if they qualify), even if they aren’t included on the Form 1098-E.
Learn More About Student Loans
To learn out more about the student loan interest deduction, go to the Internal Revenue Service’s website. To find general information about student loans, including options for how to get out of student loan debt, visit Nolo’s Student Loan Debt area.