The Student Loan Interest Tax Deduction

Deduct student loan interest as one of your tax deductibles - it could save you upwards of two thousand dollars on taxes, provided that you fulfill the IRS's requirements.


This page:

  • Describes how to deduct student loan interest

  • Explains how this deduction is different from all others

  • Suggests another way you could possibly save on student loan payments

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A big chunk of your student loan interest could be deductible.

You can claim the student loan interest deduction if you are currently paying interest on student loans. The maximum amount included in your tax deductibles for student loan interest is $2500, but this varies according to income.

Here's the good part: Although to claim any other tax deduction you are required to itemize and complete the appropriate forms, the student loan interest deduction is claimed directly on your tax return as an adjustment.

This means that even if you take the standard deduction, you can still deduct student loan interest.

Your eligibility, however, is dependent upon whether you start repaying your loans in the next five years and whether the student loans were used for a degree program.

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The easiest way to establish eligibility, and calculate your 2006 student loan interest deduction and all other tax credits and tax deductions, is to e-file your return.
You can e-file with TurboTax , where you can get help if you need it. Plus you can work on your return for free, until you are ready to file.

First, make sure that you qualify

There are limitations as to who can deduct student loan interest, and, as with most tax deductions, your income can determine whether you'll qualify for the student loan interest deduction.

Take a look at the basic requirements for the 2006 student loan interest tax deduction:

  • You cannot be married and filing separately
  • No one can claim an exemption for you on their tax return
  • The loan must have been only for tuition and other qualified expenses
  • price: you, your spouse, or someone who was your dependant at the time the loan was originated are eligible for this deduction
  • You paid interest on qualified education loans after December 31, 2004.

Ok, that's actually quite a few requirements. Now let's see what you can get:

The amount of interest included in your tax deductibles is based on your modified adjusted gross income, your qualifying student loan expenses, and your filing status. The maximum amount you can claim as tax deductibles in student loan interest per year is $2,500. This amount is reduced according to your annual income.

Yes, more restrictions for the student loan interest deduction:

  • If you are single, your income cannot exceed $65,000 (phase-out begins at $50,000)
  • If you are married, your income cannot exceed $130,000 (phase-out begins at $100,000)

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How to claim the student loan interest deduction

First, locate the student loans used to pay for all your higher education expenses, which can include tuition, fees, cost of books, room and board, and transportation fees.

Add up the total interest you are paying on these loans for the year. If you are having difficulties, your student loan lending institution should send you From 1098-E by the end of January. If you have not received this, contact your lending institution and request that one be sent to you.

After calculating the total interest you have paid during the year, your modified adjusted gross income is taken into account. If your income does not exceed the levels indicated above, you can claim the entire interest bill as your 2006 student loan interest deduction. Good for you. Enter this number on the appropriate line located on your tax return.

If your income exceeds the phase-out amount, but is less than the cut-off amount, your student loan interest deduction is reduced, and you'll need to figure out the total you can claim as part of your tax deductibles.

If you file a paper return, the instructions on how to do this come with the rest of the paperwork. If you do your taxes online, and e-file, the calculations for tax deductibles are done for you automatically.

Related IRS publications

You can get more information about the 2006 student loan interest deduction directly from the IRS, in the form of IRS Publication 970.

Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)