1098-E Tax Deduction: Who Qualifies, Income Limits, and Filing

The 1098-E tax deduction lets you subtract up to $2,500 of the student loan interest shown in Box 1 of Form 1098-E from your taxable income, provided you’re legally obligated on the loan, aren’t claimed as someone’s dependent, don’t file as married filing separately, and your income falls under the phase-out thresholds.¹ For 2026, the deduction starts phasing out at $85,000 of modified adjusted gross income for single filers and $175,000 for joint filers.² You claim it as an adjustment to income on Schedule 1, so you get the benefit whether or not you itemize.

What Your 1098-E Actually Reports

Any lender or servicer that collected $600 or more in student loan interest from you during the year has to send you Form 1098-E. Box 1 shows the total interest you paid.³ If your loans are split across multiple servicers, expect a form from each and add the Box 1 amounts together.

Paid less than $600? Your servicer isn’t required to send the form, but the interest is still deductible. Ask for an annual interest statement showing what you paid.³

Who Qualifies

Getting a 1098-E doesn’t automatically mean you can claim the deduction. Every one of these has to be true:¹

You’re the person legally obligated to repay the loan. A legally obligated co-signer counts.
Nobody claims you (or your spouse, on a joint return) as a dependent. This is the rule that catches many recent graduates whose parents still list them.
You don’t file as married filing separately.
You actually paid the interest during the tax year. Accrued but unpaid interest doesn’t count.

The dependent rule creates a gap worth knowing about. If a parent claims a student as a dependent and also pays that student’s loan interest, nobody gets the deduction: the parent can’t claim it because the loan isn’t in the parent’s name, and the student can’t claim it because they’re a dependent.

Which Loans the Interest Has to Come From

A qualified education loan is debt taken out solely to pay higher education expenses — tuition, fees, room and board, books, supplies — for you, your spouse, or someone who was your dependent when you borrowed.⁴ The school has to be eligible to participate in federal student aid programs, which covers most accredited colleges. Both federal and private loans qualify, provided the proceeds went entirely toward education costs.

Two categories are excluded outright: loans from a related person (a family member, for example) and loans from a qualified employer retirement plan.⁴ A tuition loan from a relative, even one that charges interest, won’t produce a deductible payment.

Refinanced and Consolidated Loans

Interest on a refinanced student loan still qualifies as long as the original was a qualified education loan and you didn’t refinance for more than the outstanding balance. Consolidating two or more qualifying loans works the same way.⁵ If you refinance for a larger amount and use the extra cash for anything other than education expenses, none of the interest on the new loan is deductible.

How Income Shrinks the Deduction

The maximum is the lesser of $2,500 or the total qualifying interest you actually paid, and it applies across all your loans combined, not per loan.⁴ The deduction then shrinks as your modified adjusted gross income (MAGI) rises. For 2026:²

Single, head of household, or qualifying surviving spouse: reduction starts at $85,000 MAGI, gone at $100,000.
Married filing jointly: reduction starts at $175,000 combined MAGI, gone at $205,000.

Below the lower number, you get the full deduction up to $2,500. Above the upper number, you get nothing. In between, the reduction is proportional.

The math: take the amount your MAGI exceeds the lower threshold, divide by the width of the phase-out range ($15,000 for single filers, $30,000 for joint filers), and multiply by the interest you paid (up to $2,500). That product is what you lose.⁴ Say you’re single with $91,000 in MAGI and paid $2,000 in qualifying interest. You’re $6,000 over the floor. $6,000 divided by $15,000 is 0.40. $2,000 times 0.40 is $800 disallowed, leaving $1,200 deductible. The Schedule 1 instructions include a worksheet that walks through it.

For this deduction, MAGI is your adjusted gross income calculated without the student loan interest deduction itself. For most people, it lands very close to the AGI on their return.

Where It Goes on Your Return

Report it on Schedule 1 (Form 1040), Part II, under “Adjustments to Income.” The Schedule 1 total flows to Line 10 of Form 1040, reducing your gross income before you reach AGI.⁶ Because it’s above the line, it works whether you take the standard deduction or itemize.¹

A lower AGI can help elsewhere on the return. Education credits, the earned income credit, and IRA contribution deductibility all use AGI as a threshold, so shaving a few hundred dollars off can sometimes push you under a cutoff that unlocks another benefit.

Don’t file the 1098-E itself. Keep it with your tax records; the IRS can verify what you claimed against what your servicer reported.³

When a Parent or Someone Else Makes the Payment

If you’re the borrower and someone else — often a parent — makes a payment on your loan, the IRS treats it as if that person gave you the money and you paid the interest yourself. You, the borrower, get to deduct it, assuming you meet the other rules.⁵ The catch, again, is the dependent rule: if the parent claims you as a dependent, no one gets to deduct that interest.

Capitalized Interest and Deferment

Interest that goes unpaid during deferment or forbearance often gets added to your principal. That’s capitalized interest. Once you start making payments again, the portion that goes toward the capitalized interest is deductible in the year you pay it.⁵ In any year you make no payments, there’s nothing to deduct; capitalization itself isn’t a deductible event.

1
Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
2
Internal Revenue Service. Rev. Proc. 2025-32
3
Internal Revenue Service. About Form 1098-E
4
Office of the Law Revision Counsel. 26 U.S. Code 221 – Interest on Education Loans
5
Internal Revenue Service. Publication 970, Tax Benefits for Education
6
Internal Revenue Service. 2025 Form 1040