Itemizing your tax deductions this year? If you're one of the many, many Americans paying off student loans, there's a deduction directly tied to those payments you need to know about.
Like a lot of folks, I'm still plugging away at student loan payments and will continue doing so for several years. As annoying as that can be -- and boy, can it -- once tax season rolls around, I get a small measure of relief from that grind thanks to something everyone should be aware of: the student loan interest deduction.
TAX SOFTWARE DEALS OF THE WEEK
- $0 (save $0)
- $56 (save $24)
- $83 (save $32)
- $28 (save $10)
Statistically, you're likely to be struggling through student loan payments as well: The Education Data Initiative reports that nearly 43 million people in the US have some amount of federal student loan debt, with the overall debt balance totaling nearly $1.7 trillion. This debt is so widespread that it's seen in Washington and elsewhere as a "crisis," and student loan forgiveness has been a hot-button political issue.
If you want to know more about this deduction, read on for all the details. For more tax help, find out how the IRS might be ripping you off and learn how to file taxes for dead loved ones.
What is the student loan interest deduction?
As you make payments on your student loan debt throughout the year, a portion of each one goes toward the interest building up on your loan. How much interest you build up depends on your interest rate, which varies according to what sort of loan you got and when.
When filing your annual tax return, the student loan interest deduction allows you to claim a deduction on your tax return based on the total interest you paid during the tax year. This deduction can also be claimed for a spouse or a dependent as long as they paid off some student loan interest during the year and meet the income requirements. As opposed to credits, which alter the amount you owe or are owed after reporting your income, a deduction works by lowering your total amount of taxable income.
Keep in mind: You can only claim this deduction if you opt to itemize instead of going with the standard deduction. You can't have both.
Does the student loan interest deduction have an income limit?
Yes, you won't be able to claim this deduction if your modified adjusted gross income is more than a certain amount during the tax year. As of 2024, this limit was $95,000 for single filers or $195,000 for joint filers. The amount you can deduct also decreases, starting at $80,000 for single filers and $165,000 for joint filers.
Given that census data from 2023 found the real median household income in the US was around $80,000, many people should be able to use the deduction.
How much can I get from the student loan interest deduction?
If you're beneath these income limits, the amount you can deduct is equal to the amount of interest you paid off during the tax year, up to a maximum deduction of $2,500.
What form do I need to claim this deduction?
Your student loan provider must send you a Form 1098-E, which will include the total amount of interest you paid so that you can claim the deduction. If you don't get this form in the mail, you can also look for it on your provider's official website.
For more, find out how Direct File has been upgraded this year.