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Saving With The Student Loan Interest Deduction

In this day and age, education comes with a cost. A steep cost at that. Whether you attend a community college, state school, private university or military college, the tuition bill is an unavoidable reality. Most students need to take out loans to fulfill their tuition requirements. And, like with any loan, interest accumulates over time. If you have student loan debt, chances are you're asking questions like, "Is student loan interest deductible?” or “Are student loan payments tax deductible?” The good news for you is that there are two options available to help with reducing the total amount paid in tax on student loans. One option comes in the form of interest deductions on loans and the other as tax credits deducted from the total tax you owe. Interest deductions are typically calculated based on percentages. Both options come with similar eligibility requirements as well as income caps and phase-out brackets. Rest assured, we’ve outlined everything you need to know about the interest tax deductibility requirements so you can make the best decision for your situation and confidently save as much as possible!

Table of contents

Key takeaways...Read more

What is student loan interest?...Read more

Is student loan interest deductible?...Read more

Who qualifies for the student loan interest tax deduction...Read more

What types of loans qualify for the student loan tax deduction?...Read more

Are other college-related costs tax deductible?...Read more

Are student loans tax deductible for parents?...Read more

Tax credits you can claim along with the student loan interest deduction...Read more

No Double-Dipping...Read more

What about student loan forgiveness and the payment pause?...Read more

Key takeaways

Student loan interest is tax deductible for qualifying students or parents who have taken out education loans.
All types of loans qualify for the student loan interest deductible.
President Biden’s new SAVE plan can help lower monthly loan payments.

What is student loan interest?

Think of interest as a small annual fee you pay on your total loan amount. When it comes to student loans, this interest is the extra sum you owe in addition to your initial loan. Essentially, you're getting financial assistance from the bank or another lender to cover your loan costs. But, in return, they tack on interest for the favor. It may not seem like much, but over the years, it can seriously pile up, especially with most loans spanning five, ten or fifteen years. That's a substantial chunk of change flying out the window as interest! Thankfully, there are some ways you can write off the interest to maximize the student loan interest deduction and benefit from student loan tax deductions so you can save some money when paying self-employment taxes.

Infographic entitled Average Federal Student Loan Interest Rates listing current interest rates for student loan taxes.

Is student loan interest deductible?

Short answer: Yes! As long as you meet certain criteria outlined by the IRS, you’re eligible for up to $2,500 in deductions based on the total interest you paid during the previous year. To make sure you’re eligible, calculate your MAGI (modified adjusted gross income), as the IRS limits deductions for those with higher incomes. For 2023, if you’re single or the breadwinner of your household, that range is from $70,000-$90,000 and $155,000-$180,000 for joint filers. If you know your MAGI, you can use FlyFin’s easy tools to see how much you’ll need to pay in federal income tax. Other IRS requirements for the student loan interest deduction include:

You took out the loan for tuition payments at the school you studied at.
You studied at the school where you took out the loan.
You didn’t spend the loan on non-education expenses.

Keep in mind that the IRS doesn’t classify the student loan tax deduction as an itemized deduction, but rather as income adjustment. So it’s already included in your 1040 (individual income tax form), and you don’t have to fill out a Schedule A to claim it with your other tax write-offs. You can use a 1099 calculator to find other deductions you can write off.

Infographic entitled Steps To Claim The Student Interest Deduction showing how to report your interest payments to the IRS for the interest tax deduction.

Who qualifies for the student loan interest tax deduction

Wondering if you’re eligible? The IRS has certain requirements in place for taking the deduction:

File a joint tax return if married
Can’t be claimed as a dependent on a tax return
Paid interest on a qualifying loan
Have a MAGI below the set amount for the year

It’s always best to consult a tax advisor so they can help give you expert guidance on whether you're eligible for the deduction.

What types of loans qualify for the student loan tax deduction?

Every type of loan qualifies, including federal and private loans. So, loans from a bank and subsidized loans both qualify for the deduction.

Infographic entitled Top Private Providers For Student Loans listing private loan options for student loan payments.

You’ll also need to provide information about your lender when it’s time to claim the deduction. Your lender should send you Form 1098-E, which details the amount of interest you’ve paid towards your loans. This form helps you accurately report the deduction on your tax return.

Are student loans tax deductible for parents?

It’s fairly common to have your parents co-sign on a college loan. Parents are fully responsible for the loan once they legally sign a loan agreement in their name. Let’s say your mom takes out a Parent PLUS loan to cover the tuition for your first year at the local university. Your mom can write off the interest for her Parent PLUS loan under the student interest tax deduction since the loan is in her name.

Tax credits you can claim along with the student loan interest deduction

Student loan interest deductions are not the only way to save on your student loan taxes. Education tax credits are available regardless of the deductions you take. Instead of lowering your taxable income, they directly lower the amount of tax you owe. The Lifetime Learning Credit, for example, lets you subtract up to $2,000 worth of school-related expenses from your income tax at the end of the year. The same goes for college savings plans. If you’ve got kids in K-12, up to $10,000 of your contributions to their college savings plans can be taken off your income tax, and a further lifetime maximum of up to $10,000 in credits on tax return loans for qualified student loan debts. There’s also the American Opportunity Tax Credit, which gives a tax credit of up to $2,500 on expenses paid during the first four years of education after high school. There are also tax credits unrelated to education that you might be eligible for. If you have kids or other dependents, you can offset care costs through Child Tax credits and Dependent Care credits. If your little one lives with you more than half the year and is under 18, you’re eligible to claim the Child Tax credit. The Dependent Care credit can be claimed for both specific childcare costs and costs for the care of an adult dependent or a temporarily incapacitated or disabled spouse.

No Double-Dipping

You can't double-dip with this deduction. In other words, if you're claiming the American Opportunity Credit or the Lifetime Learning Credit for educational expenses, you generally can't also claim the student loan interest deduction for the same expenses.

What about student loan forgiveness and the payment pause?

There was a long pause on student loan payments thanks to the pandemic. It was a whopping three years without federal loan payments. Finally, the payments have resumed as of October 2023, and borrowers are required to start making their loan payments. Even though payments paused, your loans still accrued interest, meaning you can deduct that from your taxable income. President Biden’s student loan forgiveness program was shot down. But he announced a new way to make payments with an income-driven repayment plan –Saving on Valuable Education (SAVE). Your payments are linked to your income and family size with this new plan. If a single borrower earns $32,800 or less or a borrower with a family of four earns $67,500 or less and is enrolled in the SAVE program, their payments will be set at $0. In the SAVE program, borrowers are obligated to contribute a portion of their income, which is calculated as the difference between the borrower's adjusted gross income and 225% of the poverty level. This is different from existing income-driven plans, which calculate discretionary income as the difference between income and 150% of the poverty level, resulting in higher monthly payments. Additionally, under the SAVE program, unpaid interest won't accumulate if the borrower makes a full monthly payment. Navigating the world of taxes is no easy feat. FlyFin has just what you need to make student loan taxes a breeze. A.I. finds every possible tax deduction, so you never miss one, even down to the smallest deductions. CPAs review and file your tax returns, guaranteeing an accurate return. With unlimited CPA support and full audit insurance, you’re sure to save the most possible on taxes.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.