How Student Loans Affect Your Taxes
Student loans can place a financial strain on borrowers. However, they also offer tax benefits that can help reduce your tax burden. If you made student loan payments during the year, you may qualify for deductions that lower your taxable income. One of the most important documents you need is Form 1098-E, which shows how much student loan interest you paid during the tax year.
In this guide, we explain how student loans affect your taxes, the deductions and credits you may qualify for, and when you should expect your 1098-E form.
The Student Loan Interest Deduction
The student loan interest deduction represents one of the most valuable tax benefits available to borrowers. If you paid interest on a qualified student loan, you can deduct up to $2,500 from your taxable income.
This deduction counts as an above-the-line deduction, which means you can claim it even if you do not itemize deductions. As a result, many taxpayers benefit regardless of how they file.
Eligibility Requirements for the Deduction
To claim the student loan interest deduction, you must meet all of the following requirements:
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You took the loan strictly for qualified educational expenses for yourself, your spouse, or your dependent.
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The student attended school at least half-time in a degree or certificate program.
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The loan came from an eligible lender, not from a family member or employer.
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You are legally responsible for paying the loan interest.
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Your modified adjusted gross income (MAGI) falls below IRS phase-out limits.
If you fail to meet any of these requirements, the IRS will deny the deduction.
Income Limits for the Student Loan Interest Deduction
The IRS limits this deduction based on income. As your income increases, the deduction gradually decreases and eventually disappears.
For the 2024 tax year, the income limits are:
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Single filers: Phase-out begins at $75,000 MAGI and ends at $90,000
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Married filing jointly: Phase-out starts at $155,000 MAGI and ends at $185,000
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Married filing separately: You cannot claim this deduction
Because of these limits, high-income earners often receive reduced or no benefit.
Other Tax Credits and Benefits Related to Education
In addition to the student loan interest deduction, several other education-related tax benefits may apply.
American Opportunity Tax Credit (AOTC)
The AOTC provides significant support for students and families:
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Offers up to $2,500 per student per year
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Applies to the first four years of higher education
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Requires at least half-time enrollment
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Allows up to 40% of the credit to be refundable, which means you could receive up to $1,000 even if you owe no tax
Lifetime Learning Credit (LLC)
The Lifetime Learning Credit offers flexibility for continued education:
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Provides up to $2,000 per tax return
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Has no limit on the number of years you can claim it
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Covers undergraduate, graduate, and professional courses
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Reduces tax liability but does not generate a refund
Employer Student Loan Repayment Assistance
If your employer helps repay your student loans, you may benefit from tax-free assistance. Under current law, employers can contribute up to $5,250 per year, and you do not need to include that amount in taxable income. This provision remains available through 2025.
What Is Form 1098-E?
Form 1098-E, also called the Student Loan Interest Statement, reports the total amount of interest you paid during the year. Lenders issue this form if you paid at least $600 in student loan interest.
If you paid less than $600, your lender may not send the form. However, you can still log into your loan account to view the exact interest amount and claim the deduction if you qualify.
Who Sends the 1098-E Form?
The following organizations typically issue Form 1098-E:
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Federal student loan servicers (such as Nelnet, MOHELA, Aidvantage, or Edfinancial)
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Private lenders like Sallie Mae or SoFi
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Refinancing lenders if you refinanced your student loans
Each lender reports only the interest you paid to them.
How Much Can the Deduction Save You?
The deduction lowers taxable income rather than directly reducing tax owed. For example, if you paid $1,500 in interest and fall within the 22% tax bracket, you could save $330 in taxes.
However, if your income exceeds IRS limits, the deduction may shrink or disappear entirely.
When Will You Receive Your 1098-E Form?
Lenders must issue Form 1098-E by January 31 each year. You may receive the form:
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By mail, if you opted for paper delivery
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Electronically, if you chose paperless statements through your loan servicer
How to Access Your 1098-E Form
If you do not receive your form by early February, take these steps:
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Log in to your loan servicer’s website and download your tax documents.
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Check your email and spam folder for electronic notifications.
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Contact your loan servicer directly to request a copy if necessary.
Where to Report Student Loan Interest on Your Tax Return
When filing your tax return, report student loan interest on:
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Form 1040, Schedule 1, under “Adjustments to Income”
If you use online tax software, the system will prompt you to enter details from your 1098-E form.
Talk With a Tax Expert
Do you have specific questions about student loans and taxes? A qualified tax professional can help you understand your options, avoid mistakes, and maximize available benefits. Reach out to a tax expert today for personalized guidance.