In a Nutshell
Multiple tax breaks can help offset the costs of a college education. While some apply only while you’re in school, the student loan interest deduction might help you even after graduation. But you’ll have to meet income limits and other requirements to be eligible to take the deduction.This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma. It has been updated for the 2020 tax year.
Paying off college debt can take decades — 20 years on average, according to a 2019 report by education and technology company Cengage.
The student loan interest deduction could help you reduce your federal tax liability for every one of those years — provided you meet income limits and other qualifications for claiming the federal income tax deduction.
Let’s take a look at how the student loan interest deduction works, how to qualify for it and how much you could save if you’re eligible to take the deduction.
What is the student loan interest deduction?
Who can take the student loan interest deduction?
How much might the student loan interest deduction save me?
How can I claim the student loan interest deduction?
What’s next? Check out other education-related tax breaks.
What is the student loan interest deduction?
The student loan interest deduction is a tax break you may be able to claim on your federal income tax return. It allows eligible filers who paid interest on a qualified student loan during a tax year to deduct up to $2,500 from their taxable income.
The student loan interest deduction is available for both private and government student loans. But loans from relatives or an employer-sponsored retirement plan don’t count as qualified student loans and aren’t eligible for the deduction.
A qualified student loan can be used for your own education, your spouse’s or your dependent’s — though there are income and filing status limits on eligibility.
Who can take the student loan interest deduction?
You may be able to take the deduction if you meet all of these qualifications.
- You paid interest on a qualified student loan. You must have been legally obligated to pay for the loan, too.
- You’re not using the married filing separately status. But single and married couples filing a joint return can qualify.
- Your modified adjusted gross income is low enough. If your MAGI exceeds the maximum threshold, you won’t be able to take the deduction.
- You’re not someone else’s dependent. You (or your spouse if you file jointly) can’t be claimed as a dependent on someone else’s return.
If you meet all the qualifications to take the deduction, there’s more good news — you can take it even if you don’t itemize deductions on your federal return. The student loan interest deduction is an above-the-line deduction that can be taken alongside the standard deduction.
Learn about Form 1098-E: Student Loan Interest StatementWhat is a qualified student loan?
Your loan must also meet certain requirements to be eligible for the deduction.
You must have used the loan funds for qualified higher education expenses that you paid or incurred while you, your spouse or your dependent were a student. Costs that can count as qualified education expenses include …
- Tuition and fees
- Room and board (limits apply)
- Books, supplies and equipment
- Other necessary expenses (such as transportation)
And you can’t take the deduction for any other type of credit you may have used to pay college costs. That means if you take out a personal loan or home equity loan to cover tuition, room and board, or any other qualified education expense, you can’t take this deduction for the interest on that loan.
How much might the student loan interest deduction save me?
Several factors determine how much the deduction might save you, including …
- How much interest you paid on a qualified student loan — If you meet the income requirements to claim the full deduction, the maximum you can take is $2,500 or the actual amount of interest you paid, whichever is less.
- Your MAGI — Depending on your filing status and MAGI, you may only qualify for a reduced deduction amount — or no deduction at all if your MAGI is too much.
- Your filing status — The MAGI limits differ based on filing status.
What are the MAGI limits for the student loan interest deduction?
Every year, the IRS announces the MAGI limits at which the deduction begins to be reduced and at which it phases out entirely. Here are the limits for the 2020 tax year.
|
Filing status |
MAGI | Student loan interest deduction amount |
|---|---|---|
|
Single, head of household or qualifying widow(er) |
$70,000 or less |
$2,500 or actual interest paid (whichever is less) |
|
More than $70,000 but less than $85,000 |
Reduced deduction amount (calculated on Student Loan Interest Deduction Worksheet in Form 1040 instructions) |
|
|
$85,000 or more |
No deduction |
|
|
Married filing jointly |
$140,000 or less |
$2,500 or actual interest paid (whichever is less) |
|
More than $140,000 but less than $170,000 |
Reduced deduction amount (calculated on Student Loan Interest Deduction Worksheet in Form 1040 instructions) |
|
|
$170,000 or more |
No deduction |
|
|
Married filing separately |
No deduction for this filing status |
|
How to calculate your student loan interest deduction
If your MAGI falls within the limits for a reduced deduction, you’ll have to do some math to arrive at your deductible amount. The IRS generally includes a worksheet in the instructions for the 1040 tax return to help you make the calculations. Or, if you use tax preparation software, the product may do the calculations for you.
How can I claim the student loan interest deduction?
If you qualify for a student loan interest deduction, you must file a federal income tax return for the tax year to get the deduction (even if you wouldn’t otherwise be required to file).
While you don’t have to itemize your deductions to deduct student loan interest, you will need to file Schedule 1 with your 1040. That’s where above-the-line deductions like student loan interest, self-employment taxes and educator expenses are reported.
What’s next? Check out other education-related tax breaks.
In addition to the student loan interest deduction, Uncle Sam offers some other tax breaks for education.
The American opportunity tax credit
The AOTC, or AOC, can pay up to $2,500 for qualified education expenses, and you can get up to $1,000 of the credit as a refund. Income limits apply, and a student must be pursuing a degree or other recognized credential and be enrolled at least half-time for at least one academic period in the tax year.
The AOTC is only available for the first four years of college, and you can’t take the credit if you’re taking the lifetime learning credit for the same person for the same year.
Learn more about the American opportunity tax credit.
The lifetime learning credit
The lifetime learning credit can help defray the costs of an undergraduate, graduate or professional degree. It’s worth up to $2,000 per tax year, and there’s no limit on the number of years you can claim it.
You may be able to claim the credit for yourself, your dependent or another person whose educational costs you pay, if you meet income limits and other qualifications.
Learn more about the lifetime learning credit.
Tuition and fees deduction
You may also be able to deduct the cost of tuition and other education-related fees on your federal tax return. The tuition and fees deduction could allow you to shave up to $4,000 off your taxable income, provided you meet qualifications, including income limits.
You can’t take this deduction for a student’s education expenses if you’re already claiming either the American opportunity tax credit or the lifetime learning credit for that student. You don’t have to itemize deductions to take this one. The tuition and fees deduction is available for the 2020 tax year, but it won’t be available in the future unless Congress renews the deduction.
Relevant sources: 2019 Cengage Student Opportunity Index | IRS Tax Topic No. 456: Student Loan Interest Deduction | Sallie Mae: Student loan tax deductions and credits | IRS Publication 970: Tax Benefits for Education (2019) | IRS Tax Benefits for Education: Information Center | IRS Rev. Proc. 2019-44 | IRS 1040 and 1040-SR Instructions (2019) | IRS: Lifetime Learning Credit | IRS Form 8917, Tuition and Fees Deduction | Cornell Law School, Legal Information Institute U.S. Tax Code | The Joint Committee on Taxation List of Expiring Federal Tax Provisions 2020-2029
Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is an Enrolled Agent, the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.