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February 12, 2010

Deducting Student Loan Interest

Tax season is upon us. Did you know that you may be able to deduct up to $2,500 for interest paid on your federal student loans?

In order to claim most other tax deductions, you are required to itemize and complete the appropriate forms. But, the student loan interest deduction is claimed directly on your tax return as an above-the-line adjustment. This means that you can still deduct student loan interest even if you take the standard deduction.

If you are not listed as a dependent on someone else’s tax return, it is possible for you to deduct up to $2,500 of student loan interest paid a year. This deduction is available to many taxpayers, but there are some limitations.

Eligible taxpayers:

  • Had to have paid interest on a qualified student loan in tax year 2009.
  • Need to have a modified adjusted gross income (MAGI) less than $60,000 ($120,000 if filing jointly).
  • May be eligible for a smaller deduction if their MAGI is more than $60,000 ($120,000 if filing jointly) but less than $75,000 ($145,000 if filing jointly).

You cannot claim a student loan interest deduction if:

  • You make more than $75,000 ($150,000 if filing jointly).
  • You are married but filing separately.
  • You or your spouse, if filing jointly, is claimed as a dependent on someone else's return.

Additionally, this deduction’s $2,500 limit applies to both unmarried and married filers. So, even if you and your spouse both have student loans, you can still only deduct up to $2,500.

Find out more about borrower tax incentives, or if you have other tax questions, browse the Ask American Student Assistance archives.

You can also read about all the tax benefits for education in IRS publication 970.

This document was prepared for informational purposes only and cannot be considered tax advice or otherwise. Please see your tax professional for additional guidance.

1098-E Form

You may be able to deduct interest paid on your federal student loans even if you were not sent a 1098-E form.

Your loan holder is not required to send you a 1098-E tax form unless you paid at least $600 in interest in 2009. You can print your 1098-E from your loan holder’s website or call them to request it.