Is Student Loan Interest Deductible? Limits, Eligibility, and 1098-E

Yes, student loan interest is deductible on your federal return. You can deduct up to $2,500 of the interest you paid during the year as an adjustment to income, which means you get the benefit whether you itemize or take the standard deduction. The deduction phases out at higher incomes: for 2026, it starts shrinking once modified adjusted gross income passes $85,000 on a single return or $175,000 on a joint return, and it disappears at $100,000 and $205,000 respectively.¹

How Much You Can Deduct

The $2,500 cap applies per return, not per loan or per student. Pay $3,200 in interest across three loans and you still deduct $2,500.²

Your actual deduction can be smaller if your income falls inside the phase-out range. For 2026:

Single, head of household, or qualifying surviving spouse: the deduction shrinks between $85,000 and $100,000 of modified AGI.
Married filing jointly: the phase-out runs from $175,000 to $205,000.
Married filing separately: no deduction is allowed at all.

Inside the range, the deduction is reduced proportionally. A single filer at $92,500 sits halfway through the $85,000 to $100,000 window, so the ceiling drops to about $1,250. These thresholds are adjusted for inflation each year.¹

Who Can Claim It

You must be legally obligated to repay the loan. A parent who cosigned a child’s loan can deduct interest they personally pay. A friend or relative making payments on someone else’s loan cannot, because they have no legal obligation under the loan agreement.³

All of these must also be true for the year you claim the deduction:

You do not file as married filing separately.
Neither you nor your spouse is claimed as a dependent on someone else’s return.
The student was you, your spouse, or someone who was your dependent when the loan was taken out.
The student was enrolled at least half-time in a program leading to a degree or recognized credential at an eligible institution.

Half-time status is set by the school, and the enrollment requirement only has to be met for the period the borrowed money paid for, not for the year you claim the deduction.³

Which Loans Qualify

The loan must have been taken out solely to pay qualified higher education expenses at an eligible school. “Solely” is doing real work. If you took a single loan and used part for tuition and part for a home project, the whole loan fails to qualify, not just the non-education portion.⁴

Both federal and private student loans qualify. Refinanced and consolidated student loans qualify too, because the statute specifically includes debt used to refinance an existing qualified education loan.² One caution: if you rolled student loans and non-student debt into a single new loan, the combined loan may no longer qualify, because it was not taken out solely for education.

Two categories of loans are excluded no matter what the money paid for:

Loans from related persons, such as a parent or sibling.
Loans from a qualified employer plan, such as a 401(k) loan used for tuition.

Eligible expenses track the Department of Education’s “cost of attendance” concept: tuition, fees, room and board, books, supplies, equipment, and required transportation. Eligible schools are those that participate in federal student aid programs, which covers most accredited colleges, universities, trade schools, and vocational programs.⁵

What Counts as Interest Paid

Regular monthly interest is the obvious piece. Two less obvious items also count.

Capitalized interest is unpaid interest your lender adds to your principal balance, often at the end of a deferment or grace period. You can deduct that capitalized interest as you repay it, but only in years when you actually make payments on the loan. Make no payments in a given year and you get no deduction for it that year.³

Loan origination fees also count as interest, but only the portion that represents a charge for the use of money rather than a service fee. You don’t deduct the whole fee up front. It spreads across the life of the loan, so a small piece becomes deductible with each payment. For loans issued before September 1, 2004, the fee may not appear on your Form 1098-E, and you can use any reasonable method to allocate it across the loan term.³

Voluntary interest payments during grace periods, deferment, or forbearance are deductible in the year you pay them. The old rule that blocked deductions on voluntary payments during deferment applied only to interest paid before 2002.⁶

Interest Tied to Tax-Free Education Benefits

You cannot deduct interest attributable to education costs that were already covered by tax-free help. That includes tax-free scholarships, employer-provided education assistance, and qualified distributions from a 529 plan. If a scholarship covered part of your tuition, interest on borrowing for that same tuition does not qualify.

One boundary to flag for 2026: through the end of 2025, employers could pay up to $5,250 per year toward an employee’s student loans tax-free under Section 127.⁷ That provision expired on December 31, 2025, and as of this writing has not been extended. Any employer loan payments in 2026 will generally be taxable wages, and the interest tied to those payments should be deductible because the money is no longer excluded from your income.

Documentation and Form 1098-E

Servicers that received $600 or more in interest from you during the year must send Form 1098-E by the end of January. Box 1 shows the total interest received.⁸ Check the figure against your records if you have capitalized interest or origination fees, because the amount you’re entitled to claim can be higher than what the servicer reports.

Paid less than $600? Your servicer isn’t required to send a 1098-E, but you can still claim the deduction. Pull the year-end statement from the servicer’s website and use the total interest paid for the calendar year.

Where to Report It

Claim the deduction on Schedule 1 of Form 1040, in the “Adjustments to Income” section (Part II).⁹ The Schedule 1 total flows to the main 1040 and reduces your AGI before you decide between the standard deduction and itemizing.

Because a lower AGI can ripple through the rest of your return, this deduction sometimes expands other income-dependent benefits, including the earned income credit, education credits, and IRA contribution deductibility. Worth checking if your income sits near a threshold for one of those.

1
Internal Revenue Service. Revenue Procedure 2025-32
2
Office of the Law Revision Counsel. 26 USC 221 – Interest on Education Loans
3
Internal Revenue Service. Publication 970, Tax Benefits for Education
4
eCFR. 26 CFR 1.221-1 – Deduction for Interest Paid on Qualified Education Loans After December 31, 2001
5
Internal Revenue Service. Eligible Educational Institution
6
Federal Register. Deduction for Interest on Qualified Education Loans
7
Internal Revenue Service. IRS Reminds Employers Educational Assistance Programs Can Help Pay Employee Student Loans Through 2025
8
Internal Revenue Service. Instructions for Forms 1098-E and 1098-T (2025)
9
Internal Revenue Service. Tax Topic 456, Student Loan Interest Deduction