When You Can And Can't Deduct Student Loan Interest on Your Taxes

Julissa Treviño Updated on May 19, 2019
Haven't done your taxes yet? As tax season quickly comes to an end,  it's time to get moving. The good news is there's one little advantage to having diligently paid your student loans all year.
It's called the student loan interest deduction, and it's a tax benefit that you can claim without itemizing. Let's talk about how it works.  

The student loan interest deduction allows you to deduct the costs of repaying your loan from your annual taxes. You can claim this deduction in addition to the standard deduction rather if you prefer not to itemize. 

While it's a great benefit to keep in mind as you head into the task of doing your taxes, not everyone will get the full value of the deduction. Let's go over when you can and can't claim the student loan interest deduction. 

When you can claim the deduction

Before we go over who is eligible for the deduction, you should know that the benefit helps reduce the amount of income you have to pay taxes on by up to $2,500; you won't get a $2,500 refund from the government.

It simply means that, the amount of taxable income is reduced and can lower your final tax bill by as much as $625. By utilizing this deduction, you could pay less in taxes or get a bigger refund than you would otherwise.

Now, onto who is eligible for the deduction. You can claim your student loan interest deduction if:

  • You paid student loan interest during the tax year 
  • Your name is on the loan
  • You were enrolled at least part-time in a degree program when you got the loan
  • You are filing as a single taxpayer or jointly with your spouse
  • Your modified adjusted gross income (MAGI) is no more than $80,000 as a single taxpayer or $160,000 if filing with your spouse
  • Nobody else is claiming you as a dependent 

How to get the deduction

If you paid $600 or more in interest, you should have received a Form 1098-E from your lender. Using this form, you'll see exactly how much you paid in interest in the last year. From there, follow the instructions on where to use this information when filling out your taxes, or let your tax preparer know you'd like to claim this deduction. 

Whether or not you received this form, however, you can still claim this deduction. You'll need to calculate the amount you paid in interest yourself by looking back at your account statements from your service provider. 

If you have already refinanced your loans, don't worry. A refinanced loan is treated the same as your original loan for the student interest loan deduction.

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When you can't claim the deduction

As you can see, there are certain limitations to the student loan interest deduction. 

Since you must file either as single or jointly with your spouse, couples who file a separate married return are not eligible.

And, be aware that when you file jointly with your spouse, your deduction is still capped at $2,500; you can’t both claim a deduction of $5,000 in total. 

There are also income restrictions. While you're technically eligible if you make less than $80,000 as an individual or $160,000 filing jointly, there's a phaseout of the deduction. Basically, that means you may not get the full deduction.

For those who earned between $65,000 and $80,000 as an individual or between $130,000 to $160,000 filing jointly, the maximum deduction will be reduced accordingly. For example, the maximum deduction for a couple filing jointly with an income of $145,000 is $1,250.

Another important requirement is that you must have paid the interest and your name must on the loan. So if your parents took out the loan for you, or if they are the ones repaying the loan, you can't claim the deduction.

Finally, you must have paid the interest on a qualifying loan. Loans from an employer plan or family or friends don't count.

Still looking for more information on this benefit? Read our guide to the student loan interest deduction.  

Published in: Paying Off

About the Author
Julissa Treviño

Julissa Treviño is a writer and journalist based in Texas. Her work has appeared in BBC Future, CityLab, Columbia Journalism Review, The Dallas Morning News, Racked, Teen Vogue and other publications. She enjoys traveling, playing with makeup, biking and trying new food. Follow her @JulissaTrevino. Read more by Julissa Treviño

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