Student loans can be a financial burden, but they also come with some tax benefits that can help ease the pain. If you’ve made payments on your student loans, you may be eligible for deductions that lower your taxable income. One of the key documents you need for this is Form 1098-E, which reports the amount of student loan interest you’ve paid during the tax year. In this comprehensive guide, we’ll explore how student loans impact your taxes, what deductions you may qualify for, and when you can expect to receive your 1098-E form.
How Student Loan Payments Affect Your Taxes
The Student Loan Interest Deduction
The student loan interest deduction is one of the primary ways student loans impact your taxes. If you paid interest on a qualified student loan during the year, you might be able to deduct up to $2,500 from your taxable income. This deduction is considered an above-the-line deduction, meaning you don’t need to itemize your deductions to claim it.
Eligibility Requirements for the Deduction
To claim the student loan interest deduction, you must meet these criteria:
- The loan was taken out solely for educational purposes for yourself, your spouse, or your dependent.
- The student must have been enrolled at least half-time in a degree program.
- The loan must be from an eligible lender (not from family or an employer).
- You must be legally obligated to pay interest on the loan.
- Your modified adjusted gross income (MAGI) must be below the phase-out limits set by the IRS.
Income Limits for the Deduction
The IRS sets income limits on who can claim the student loan interest deduction. The deduction begins to phase out at higher income levels. For the 2024 tax year, the phase-out ranges are:
- Single filers: The deduction begins to phase out at $75,000 MAGI and is completely phased out at $90,000.
- Married filing jointly: The phase-out starts at $155,000 MAGI and is eliminated at $185,000.
- Married filing separately: You cannot claim the deduction.
Other Tax Credits and Deductions Related to Student Loans
Aside from the student loan interest deduction, here are some other tax breaks that may be available:
American Opportunity Tax Credit (AOTC)
- Provides a credit of up to $2,500 per student per year.
- Available for the first four years of higher education.
- Requires the student to be enrolled at least half-time.
- 40% of the credit is refundable, meaning you could get up to $1,000 back even if you owe no taxes.
Lifetime Learning Credit (LLC)
- Provides a credit of up to $2,000 per tax return.
- Available for an unlimited number of years.
- Covers tuition, fees, and educational expenses for undergraduate, graduate, and professional degree courses.
- Not refundable (only reduces your tax bill, not your refund).
Employer Student Loan Repayment Assistanc
- If your employer helps pay off your student loans, they can contribute up to $5,250 tax-free per year under the CARES Act extension (valid through 2025).
- This amount is excluded from your taxable income.
What Is a 1098-E Form?
The 1098-E, Student Loan Interest Statement, is a tax document issued by lenders to borrowers who paid at least $600 in student loan interest during the year. It reports the total amount of interest paid, which you can use to claim the student loan interest deduction. If you paid less than $600 in interest, your loan servicer is not required to send you a 1098-E form. However, you can still log in to your lender’s website and check your loan interest statement for the exact amount paid.
Who Sends the 1098-E Form?
The following institutions typically issue Form 1098-E:
- Federal loan servicers (e.g., Nelnet, Great Lakes, Aidvantage, MOHELA, Edfinancial, and others).
- Private lenders (such as Sallie Mae or SoFi) if they meet the reporting requirements.
- Refinancing lenders if you refinanced your student loans.
How Much of a Tax Benefit Can You Get?
Let’s say you paid $1,500 in student loan interest. If you’re in the 22% tax bracket, the deduction could reduce your taxable income by $1,500, leading to a tax savings of $330 (22% of $1,500). However, if your MAGI is too high, the deduction may be reduced or eliminated.
When Will You Receive Your 1098-E Form?
Lenders are required to provide 1098-E forms to borrowers by January 31 each year. You should receive the form:
- By mail (if you haven’t opted for electronic delivery).
- Electronically (via your loan servicer’s online portal if you’ve selected paperless statements).
How to Access Your 1098-E Form
If you haven’t received your 1098-E form by early February, follow these steps:
- Log in to your loan servicer’s website – Most services provide downloadable tax forms online.
- Check your email and spam folder – Some lenders send an electronic notification instead of mailing a physical form.
- Contact your loan servicer – If you can’t find the form, call customer support to request a copy.
Where to Enter the Information on Your Tax Return
When filing your taxes, you will enter your student loan interest deduction on:
- Form 1040, Schedule 1, under “Adjustments to Income”.
- If you use our online tax software, enter your 1098-E details when prompted.
TALK WITH A TAX EXPERT
Do you have unique questions about your student loans and tax situation? Our local tax experts are ready to help provide answers today.