Writing off student loans on your taxes usually means one specific thing: deducting up to $2,500 of the interest you paid during the year on qualifying education loans. That deduction lowers your taxable income. The loan principal itself is not deductible, but separate federal programs can forgive or discharge the balance if you qualify, and the tax treatment of that forgiveness changed starting in 2026.
The Student Loan Interest Deduction
Federal tax law lets you subtract the interest paid on qualifying education loans from your taxable income, up to $2,500 per year.1Office of the Law Revision Counsel. 26 USC 221 – Interest on Education Loans It is an above-the-line deduction, so you claim it whether or not you itemize. Both federal and private loans qualify, provided the money went to eligible education costs.
Qualifying expenses include tuition and fees, room and board up to the school’s cost of attendance, books, supplies, equipment, and other necessary costs such as transportation.2Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education The loan must have been taken out solely to pay for education, and it cannot come from a relative or a qualified employer plan. You also cannot be claimed as a dependent on someone else’s return.
Income Limits for 2026
Eligibility phases out at higher Modified Adjusted Gross Income (MAGI) levels. For the 2026 tax year:3Internal Revenue Service. Revenue Procedure 2025-32
- Single, head of household, or qualifying surviving spouse: the deduction phases out between $85,000 and $100,000 in MAGI, and disappears at $100,000 or above.
- Married filing jointly: the phase-out runs from $175,000 to $205,000, and the deduction is gone at $205,000 or above.
- Married filing separately: you cannot claim the deduction at any income level.1Office of the Law Revision Counsel. 26 USC 221 – Interest on Education Loans
How to Document the Interest You Paid
If you paid $600 or more in student loan interest during the year, your loan servicer will send you a Form 1098-E showing the total.4Internal Revenue Service. Instructions for Forms 1098-E and 1098-T (2025) If you paid less than $600, you can still claim what you paid. Contact your servicer or check your online account for the figure.
What the Interest Deduction Does Not Cover
The $2,500 cap applies to interest only. Payments toward loan principal are not deductible, and there is no federal tax credit that lets you write off a student loan balance directly. If you want the balance itself reduced or eliminated, you are looking at forgiveness or discharge, which is a different track with its own rules and its own tax consequences.
Programs That Cancel the Loan Balance
Several federal programs can wipe out part or all of what you owe. Whether they help depends on your job, your loan type, your income, and how long you have been paying.
Income-Driven Repayment Forgiveness
Federal income-driven repayment (IDR) plans cap your monthly payment at a percentage of discretionary income. After 20 or 25 years of qualifying payments, depending on the plan and whether the loans were for undergraduate or graduate study, any remaining balance is forgiven.5Consumer Financial Protection Bureau. Student Loan Forgiveness The main plans are Income-Based Repayment (IBR), Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), and the Saving on a Valuable Education (SAVE) plan.
SAVE faced legal challenges beginning in 2024, and a settlement between the Department of Education and several states is expected to end the program. Borrowers enrolled in SAVE have been placed in administrative forbearance while the Department moves them into other plans. If you are affected, contact your servicer about switching to IBR, PAYE, or ICR.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) cancels the remaining Direct Loan balance after 120 qualifying monthly payments made while working full-time for an eligible employer. That is roughly 10 years of service. Qualifying employers include federal, state, local, and tribal government agencies, 501(c)(3) nonprofits, certain other nonprofits that provide public services such as emergency management, public health, or law enforcement, and AmeriCorps or Peace Corps service.6Federal Student Aid. What Is Qualifying Employment for Public Service Loan Forgiveness (PSLF)
Full-time generally means at least 30 hours per week or whatever your employer defines as full-time. The 120 payments need not be consecutive, but each must be made under a qualifying repayment plan while you work for an eligible employer. Only Direct Loans qualify. Older FFEL or Perkins Loans must be consolidated into a Direct Consolidation Loan first, and consolidation resets the payment count to zero.
Teacher Loan Forgiveness
Teachers who work full-time for five consecutive academic years at a qualifying low-income school can receive up to $17,500 in forgiveness for teaching secondary math or science or special education, and up to $5,000 for other subjects.7Federal Student Aid. 4 Loan Forgiveness Programs for Teachers The school must appear in the Department of Education’s Annual Directory of Designated Low-Income Schools, and at least one year of service must have occurred after the 1997–98 academic year. You cannot count the same years of service toward both Teacher Loan Forgiveness and PSLF, so borrowers with large balances often skip this program in favor of PSLF, which has no cap.
Employer Repayment Assistance
Some employers help pay down your loans. Under Section 127 of the Internal Revenue Code, employers could make up to $5,250 per year in tax-free student loan payments on behalf of employees. That provision, added by the CARES Act and extended by the American Rescue Plan, expired on January 1, 2026.8Internal Revenue Service. Frequently Asked Questions About Educational Assistance Programs Unless Congress reinstates it, employer loan payments made in 2026 or later are taxable income to the employee.
A separate benefit remains in effect. The SECURE 2.0 Act lets employers make matching retirement contributions to a 401(k), 403(b), or similar plan based on the student loan payments an employee makes, even if the employee is not contributing directly to the plan.9Internal Revenue Service. Guidance Under Section 110 of the SECURE 2.0 Act With Respect to Matching Contributions Made on Account of Qualified Student Loan Payments The match rate must equal what the employer offers on regular retirement contributions. You certify your loan payments to your employer annually. Check with HR to see whether your plan has adopted the feature.
Administrative Discharges
The Department of Education can cancel federal loans in specific situations. A Total and Permanent Disability discharge is available if you are unable to work due to a condition expected to result in death or that has lasted, or is expected to last, at least 60 continuous months; eligibility can be established through the Department of Veterans Affairs, a Social Security Administration determination, or a licensed physician’s certification.10eCFR. 34 CFR 685.213 – Total and Permanent Disability Discharge A closed school discharge applies if your school closed while you were enrolled or within 180 days after you withdrew, and you did not complete the program elsewhere.11eCFR. 34 CFR 685.214 – Closed School Discharge A Borrower Defense to Repayment claim may cancel loans tied to a school that misled you about matters such as job placement rates, credit transferability, or the nature of the program.
Bankruptcy
Student loans are not automatically discharged in bankruptcy. Federal law exempts them unless you prove that repayment would cause “undue hardship,” which requires filing a separate adversary proceeding within your bankruptcy case.12Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge Most federal courts apply the three-part Brunner test, while some, including the Eighth Circuit, use a broader “totality of the circumstances” approach.13U.S. Department of Justice. Student Loan Discharge Guidance In November 2022, the Department of Justice issued guidance to standardize how government attorneys evaluate these cases, updated in 2024 with a standardized attestation form.14U.S. Department of Justice. Student Loan Guidance Discharge remains difficult and typically requires an attorney.
When Forgiven Loans Become Taxable Income
Cancellation is not always tax-free, and this is the piece that most often surprises borrowers. PSLF forgiveness is permanently excluded from federal taxable income because the discharge is tied to working in public service.15Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Teacher Loan Forgiveness and other discharges conditioned on working in specific professions for qualifying employers fall under the same permanent exclusion.
IDR forgiveness is different. From 2021 through 2025, the American Rescue Plan Act shielded all forgiven student debt from federal income tax, but that provision expired on December 31, 2025.16Federal Student Aid. How Will a Student Loan Payment Count Adjustment Affect My Taxes Starting in 2026, a balance forgiven at the end of a 20- or 25-year IDR term counts as taxable income. A borrower with $50,000 forgiven would owe federal tax on that amount as though it were earnings, and the spike could push you into a higher bracket for the year.
Administrative discharges for disability, school closure, or borrower defense also fall outside the permanent public-service exclusion. Whether they trigger a federal tax bill in 2026 and beyond turns on whether Congress reinstates the expired exemption. Some states impose their own income tax on forgiven student debt, so check your state’s treatment even when the federal side is clear.
If you expect a large forgiven balance, plan for the tax hit. Setting money aside in advance or adjusting your withholding can help. If you cannot pay the full amount owed when the return comes due, the IRS allows you to request an installment agreement to spread the liability over time.