Introduction
If you’re making student loan payments, you may be eligible for a tax deduction that reduces your taxable income. The student loan interest deduction, outlined in IRC § 221, allows you to deduct up to $2,500 in interest paid on qualified education loans.
This guide explains who qualifies, how to claim the deduction, and important IRS rules for 2025.
Who Qualifies for the Student Loan Interest Deduction?
You can deduct up to $2,500 in student loan interest if:
- The loan was taken for yourself, your spouse, or a dependent.
- You paid interest on a qualified education loan in 2025.
- You are not claimed as a dependent on someone else’s tax return.
- Your Modified Adjusted Gross Income (MAGI) is below the phase-out limits.
2025 Income Limits for the Deduction
The deduction phases out at:
- Single, Head of Household, or Qualifying Widow(er):
- Full deduction: MAGI below $75,000
- No deduction: MAGI above $90,000
Married Filing Jointly:
- Full deduction: MAGI below $150,000
- No deduction: MAGI above $180,000
Important: Married Filing Separately taxpayers cannot claim this deduction.
Which Student Loans Qualify?
- Federal student loans (Direct, PLUS, Perkins)
- Private student loans
- Loans from banks, credit unions, or other lenders
Non-Qualifying Loans
- Employer-provided loans
- Family or personal loans
- Refinanced loans that are not used for education
How to Calculate the Student Loan Interest Deduction
Step 1: Check Your Interest Paid
- You will receive Form 1098-E from your loan servicer if you paid at least $600 in interest.
Step 2: Determine Your Deduction Amount
- If your MAGI is below the phase-out limit, you can deduct 100% of student loan interest paid, up to $2,500.
- If your MAGI is within the phase-out range, use the IRS phase-out formula to calculate your deduction.
Example Calculation
| Income & Loan Info | Amount ($) |
|---|---|
| MAGI | $80,000 |
| Student Loan Interest Paid | $3,000 |
| Maximum Deductible Interest | $2,500 |
| Deduction Allowed (after phase-out) | $1,500 |
Step 3: Claim the Deduction on Form 1040
- Report your deduction on Schedule 1 (Form 1040), Line 21.
How to Claim the Deduction on Your Tax Return
1. Gather Required Documents
- Form 1098-E (Student Loan Interest Statement)
- Loan payment records
2. Complete IRS Forms
- Schedule 1 (Form 1040), Line 21 – Enter your deduction amount.
- Form 1040 – Report your total AGI after the deduction.
3. File Your Taxes
- Use tax software or consult a CPA to ensure accuracy.
Common Mistakes That Can Disqualify Your Deduction
- Claiming the deduction while being a dependent
- Filing as Married Filing Separately
- Not having a qualified student loan
- Exceeding the income limit
IRS Forms & Compliance Checklist
- Form 1040 – Main tax return
- Schedule 1 (Form 1040), Line 21 – Student loan interest deduction
- Form 1098-E – Provided by your loan servicer
Conclusion
The student loan interest deduction can help lower your taxable income and reduce your tax liability. If you paid student loan interest in 2025, ensure you meet the IRS requirements and file the correct forms.
For expert tax advice, schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed tax professional and IRS representative.
Frequently Asked Questions (FAQs)
1. Can I deduct student loan payments if I’m still in school?
No, only interest payments made on qualified loans after you start repayment are deductible.
2. Can I deduct student loan principal payments?
No, only the interest portion of your payments is deductible.
3. What if I refinanced my student loans?
You can still deduct interest if the refinanced loan was used only for education expenses.
4. Can parents deduct student loan interest for their child?
Only if the parent is legally responsible for the loan.
5. Do I need to itemize deductions to claim this deduction?
No, the student loan interest deduction is an above-the-line deduction available even if you take the standard deduction.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in education tax deductions, IRS compliance, and tax planning for students and parents.
Schedule a consultation today with Anshul Goyal, CPA, to maximize your student loan tax benefits!