Do I Need to Report Student Loans on My Taxes?

When it comes to reporting student loans on taxes, the money you borrowed is not something you list on your return. Loan proceeds are not income. What can show up on your taxes is the interest you paid during the year, which may lower your taxable income by up to $2,500, and any portion of your balance that was forgiven, which for most borrowers is taxable again starting in 2026.

Loan Proceeds Are Not Income

When a federal or private lender disburses student loan funds to you or your school, the IRS does not count that money as income because you owe it back. No form is issued to report the disbursement, and no line on your return exists for borrowed money. This holds whether the funds paid for tuition, housing, books, or a laptop. The principal stays outside your tax return entirely.

Student loans enter your tax picture in only two ways: the interest you pay, and any balance that gets cancelled.

Deducting the Interest You Paid

Federal law lets you deduct up to $2,500 in qualified student loan interest each year.¹ It is an above-the-line deduction, so you can claim it whether you take the standard deduction or itemize. It reduces your adjusted gross income directly, which can also help you qualify for other tax breaks that key off AGI.

Which Loans Qualify

The loan must have been taken out solely to pay qualified higher education expenses: tuition and fees, room and board, books, supplies, equipment, and other necessary costs such as transportation.² The schooling can be for you, your spouse, or someone who was your dependent when the loan was taken out.³ Loans from a family member or from an employer’s retirement plan don’t count.

Income Limits and Who’s Excluded

For the 2025 tax year, the deduction starts to phase out at $85,000 of modified adjusted gross income for single filers and disappears at $100,000. For married couples filing jointly, the phase-out runs from $170,000 to $200,000.² These thresholds adjust for inflation, so 2026 figures will be similar or slightly higher.

Two situations disqualify you regardless of income. You cannot claim the deduction if your filing status is married filing separately. And you cannot claim it if someone else claims you as a dependent, even if you are the one actually making the payments.³ That second rule catches a lot of recent graduates whose parents still claim them.

Form 1098-E and Where the Number Goes

If you paid $600 or more in interest to a single lender, that lender must send you Form 1098-E showing the total.⁴ The $600 figure is only the lender’s reporting threshold. If you paid less, you can still deduct what you paid; you just need to pull the number from your monthly statements or your servicer’s online portal.

You do not attach Form 1098-E to your return. The interest amount goes on line 21 of Schedule 1 (Form 1040) and flows into your AGI on the main form.⁵ Tax software handles this automatically once you enter the figure.

Reporting Forgiven Student Loans

This is where the rules changed for 2026. When a lender cancels debt you owe, the IRS generally treats the cancelled amount as income.⁶ Cancellations of $600 or more are reported to the IRS on Form 1099-C, with a copy sent to you.⁷

The Federal Exemption Has Expired

From 2021 through 2025, the American Rescue Plan Act excluded virtually all forgiven student loan debt from federal income tax.⁸ That exclusion expired on January 1, 2026, and Congress did not extend it. Borrowers reaching the end of income-driven repayment plans in 2026 or later can expect a 1099-C for the forgiven balance and a federal tax bill on that amount in the year it is discharged. If forgiveness is coming, set money aside or adjust withholding ahead of time.

Forgiveness That Remains Tax-Free

Some discharges are permanently excluded from income by statute. Public Service Loan Forgiveness is the clearest example: if your loans are discharged after 120 qualifying payments while you work for a government agency or qualifying nonprofit, the forgiven amount is not taxable.⁶ Discharges due to the borrower’s death or total and permanent disability are also excluded.

The Insolvency Exception

If your total debts exceeded the fair market value of everything you owned immediately before the discharge, you were insolvent for tax purposes. You can exclude forgiven debt from income to the extent of that insolvency by filing Form 982 with your return.⁹ Working out the numbers means tallying every asset and liability, and it is one of the situations where paying a tax professional pays off.

Where Cancelled Debt Goes on Your Return

Taxable cancelled student loan debt goes on line 8c of Schedule 1 (Form 1040) as cancellation of debt income.⁵ If you are claiming the insolvency exclusion, attach Form 982. Compare the 1099-C figures against your servicer records before filing; errors on these forms happen, and you should not pay tax on a wrong number.