If you borrowed money for college for yourself or your child, you may be eligible for the student loan interest deduction, which can reduce your taxable income by up to $2,500.
You’re only eligible for the tax deduction if you paid student loan interest during the tax year. Because federal student loan repayments resumed in October 2023, after a three-and-a-half-year pause due to COVID-19, this tax season may be the first time you can deduct a full year’s worth of interest payments since the beginning of the pandemic.
To take advantage of the student loan interest deduction, it’s important to understand the rules. Let’s discuss eligibility requirements, income limits, and what loans qualify, as well as how the reinstatement of federal student loan payments will affect your 2024 tax return.
The maximum student loan interest deduction is $2,500 or the total amount you paid in student loan interest during the 2024 tax year — whichever is less. The deduction is what’s known as an above-the-line deduction, which means you can claim it whether you take the standard deduction or itemize deductions on your return.
You can deduct some or all of your student loan interest payments on your federal tax return that’s due on April 15, 2025, if you meet the following criteria for the 2024 tax year:
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You paid interest on a qualified student loan and were legally obligated to do so.
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Your tax filing status isn’t married filing separately.
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Your modified adjusted gross income (MAGI) is less than the thresholds listed below.
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Neither you nor your spouse (if you’re married filing jointly) are being claimed as a tax dependent on someone else’s return.
Note that the maximum student loan interest deduction is $2,500 per tax return. If you’re married filing jointly and you and your spouse each paid more than $2,500 in student loan interest, your maximum deduction is still $2,500, not $5,000.
Read more: Here are the 2024-2025 tax brackets and rates
You can deduct the interest on any qualified student loan, which the Internal Revenue Service (IRS) defines as a loan taken out exclusively for higher education expenses for yourself, your spouse, or someone who was your dependent at the time you took out the loan. Both federal student loans and private student loans qualify for the deduction.
The IRS only allows you to deduct student loan interest if you took on the debt for the following purposes, known as qualified education expenses:
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Tuition and fees
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Room and board, but only if the cost isn’t more than the amount included in the institution’s cost of attendance
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Books, supplies, and equipment
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Other necessary expenses, like transportation
You can’t deduct the interest on money you borrowed from a relative or from a qualified employer plan, like a 401(k), even if you used it for educational purposes. If your employer offers student loan repayment assistance, you can’t use the interest they paid to incur tax benefits, including the interest deduction.
You can’t take the student loan interest tax deduction if someone else is responsible for repaying the loan. Let’s say your child got an education loan in their name, but you’re making the payments. You can’t use those payments to lower your federal income tax because your child is legally responsible for the payments. (But if you’d taken out a Parent PLUS loan, you could qualify for this tax benefit because you’d be on the hook for those payments.)
Likewise, if you cosigned a private student loan for someone, you wouldn’t be able to deduct loan interest unless you took over the monthly payment. That’s because the primary loan borrower is responsible for repaying the debt. The cosigner only becomes legally obligated for the debt if the original borrower defaults.
The interest deduction is only permitted if no one else is claiming you as a dependent on their tax return. For example, if you’re making your student debt payments but your parents include you as their dependent when they file their tax return, neither of you qualifies for the deduction.
Suppose you have $50,000 of federal student loans with an interest rate of 6%. Your monthly payment is $555.
You made your first payment in January 2024 and made 12 payments during the year. Your payments for the tax year amounted to $6,660 total, including $2,841 of interest. But you can only deduct $2,500, because that’s the maximum amount of interest the deduction allows.
Keep in mind that the student loan interest deduction is a tax deduction, not a tax credit. That means it can reduce your taxable income by up to $2,500. But it doesn’t reduce your tax bill dollar for dollar by $2,500, like a tax credit would.
However, if you’re still a student or you’re paying for a tax dependent’s ongoing education expenses, you may be eligible for education tax credits, like the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC).
Now let’s say you enrolled in a Saving on a Valuable Education (SAVE) plan, a new type of income-driven repayment plan introduced by the Biden administration mid-2023. For simplicity’s sake, we’ll again assume your payment is $555 and your interest rate is 6%, though most borrowers who enrolled saw their monthly payments drop.
Borrowers enrolled in SAVE plans had their loans placed in interest-free forbearance in August 2024 due to lawsuits filed by a group of Republican-led states. In this scenario, you would have only made payments for seven months before your loan went into forbearance, which amounts to $1,717 in interest. So on your tax return, your deduction amount would be $1,717, rather than the $2,500 maximum.
Deducting the interest you paid on your student loans is a simple process. Your student loan servicer will typically send you Form 1098-E if you paid more than $600 in interest for the tax year. Even if you didn’t receive the income tax form, you can contact your servicer or private lender to request the document. You may receive multiple copies if you had more than one servicer in 2024.
Once you know how much interest you paid, deducting it is pretty easy. You’ll enter the number on Line 21 of your Schedule 1 on IRS Form 1040. Most tax filing software, including free tax filing services, will make this process a breeze for borrowers.
The U.S. Treasury Department can seize your tax refund, an action known as a tax refund offset, to cover what you owe if you default on federal student loan payments. However, this is the first tax season since the beginning of the pandemic in which many taxpayers in default could have their tax refunds seized.
The Department of Education paused collection efforts, including refund offsets for delinquent student loans, during the 37-month payment hiatus that ended in October 2023. The Fresh Start Program continued the temporary halt on collections and allowed borrowers to bring their loans out of default. However, the program ended in September 2024, which means you may not receive your tax refund if you’re delinquent on federal student loan payments.
The Treasury Department is required to send a letter to your last known address notifying you that it intends to begin offsetting future tax refunds within 65 days. You may be able to stop a refund offset by entering into a rehabilitation agreement with your loan servicer within 65 days. After the 65-day window has passed, you may need to make the first five of nine required payments to avoid the offset.
Another option is to submit a Direct Consolidation Loan application, which will consolidate multiple federal loans into one loan with a single monthly payment, within 65 days. However, due to a court injunction that blocks implementation of the SAVE plan, online Direct Consolidation Loan applications are closed. You’ll need to submit a paper application instead.
Read more: Can I pay my taxes with a credit card?
Who can’t claim the student loan interest deduction?
You can’t claim the student loan interest deduction if your income exceeds the IRS thresholds for the 2024 tax year or if your filing status is married filing separately. You also won’t qualify if someone else can claim you or your spouse as a dependent on their tax return.
Are Parent PLUS loans tax deductible?
Yes. You can deduct the interest you pay on Parent PLUS loans if you don’t earn more than the modified AGI limits for the tax year and you meet the other eligibility requirements for the tax break.
Are student loan interest payments tax deductible if you don’t itemize?
Yes. The student loan interest deduction is an above-the-line deduction, which means you can use it to reduce your taxable income even if you opt for the standard deduction instead of itemizing.
Will I be taxed on student loan forgiveness?
The IRS considers canceled debt, including most forms of student loan debt forgiveness or student loan discharge, taxable income.
However, borrowers working toward loan forgiveness have been exempt from taxes thanks to the American Rescue Plan Act of 2021. This measure made forgiven student loans exempt from federal income taxes, but it only applies to loans that are discharged between Jan. 1, 2021, and Dec. 31, 2025. It’s possible that you could owe taxes if your student loans are forgiven after 2025.
The American Rescue Plan applies to all student loan forgiveness programs but only affects federal income taxes. Although some states adopted similar measures for state income taxes, not all followed suit.
Loans forgiven through the Public Service Loan Forgiveness Program (PSLF) aren’t subject to federal taxes, but some states may tax the amount forgiven.
Can you deduct the interest on private student loans?
Yes, you can deduct up to $2,500 of interest you paid on student loans during the tax year, regardless of whether your loans are private or federal.
