Is Private Student Loan Interest Tax Deductible?

It’s fairly common for college students to borrow to pay for college. When you get federal student loans, you might know the interest you pay is tax deductible. But what about the interest you pay on private student loans?

The good news is that the interest portion of your student loan payments on private loans is also eligible for tax benefits. Here’s what you need to know about claiming the student loan interest deduction on your tax return.

How does the student loan interest deduction work?

If you have student loans, you might be eligible to claim a tax deduction for the amount of interest you pay on them. A tax deduction reduces your taxable income. It’s not the same as a tax credit, which directly reduces the amount of tax you owe.

Think of a deduction as reducing your income so that the amount of money you’re taxed on is less. On the other hand, a credit is more like a gift card that you can apply to your final tax bill to reduce what you owe dollar for dollar.

The IRS allows you to deduct up to $2,500 of interest paid on student loans from your taxable income. When you file your tax return, you include this information from a qualified student loan. You can get more information from your loan servicer or lender.

The good news is that interest payments on private loans also qualify for this tax deduction. So if you have qualifying private student loans, you should be able to deduct the interest as long as you meet the eligibility requirements.

You can learn more about this tax deduction and other tax benefits for education in IRS Publication 970.

Do you need to itemize to deduct student loan interest?

There are a couple of different types of tax deductions. Itemized tax deductions require you to list your deductible expenses on a special part of your tax return. You add up the deductions and determine whether they amount to more than the standard deduction. If the total of your itemized deductions is more than the standard deduction, you choose that option.

However, interest on student loan debt doesn’t have to be itemized to be deductible. Instead, any deduction you’re eligible for is taken “above the line” or seen as an “adjustment to income.”

This is one of those tax breaks that can benefit you with minimal work. Student loan borrowers don’t need to itemize to take advantage of the student loan interest tax deduction. However, you are limited to deducting $2,500. The excess won't reduce your income if you paid more than $2,500 in interest on education loans during the tax year.

What are the eligibility requirements?

First, the loan must be for qualified education expenses to be eligible. It must be a student loan. A private student loan qualifies, along with federal student loans. You can't deduct the interest if you used a credit card to pay for higher education expenses. However, you might qualify for an education tax credit, such as the American opportunity tax credit or the lifetime learning credit. Check with a tax professional to confirm that you’re an eligible student.

Next, the IRS lists its requirements:

• You must have paid interest on a qualified loan during the tax year
• You must be legally responsible for the student loan and the interest accrued
• If you’re married, you must file jointly, not separately
• You (or your spouse) can’t be claimed as a dependent on someone else’s return
• You must meet the income requirements

Are there income limits to the student loan tax deduction?

It’s important to note that there are income limits for claiming the student loan interest tax deduction on your federal income tax return. The deduction is subject to a phaseout based on your filing status and income. Additionally, the calculation is based on your modified adjusted gross income (MAGI).

For tax year 2022, single filers see a phaseout starting at $70,000 in MAGI. Once a single filer reaches $85,000, they can no longer claim the deduction.

Those with a married filing jointly status see the phaseout begin at $145,000 and are ineligible to claim the deduction if they make $175,000 or more.

You can fill out the worksheet with your tax form or consult with a tax professional for more information about determining your tax deduction if you fall in the phaseout range or need more information about how to claim your deduction.

How much can the student loan interest tax deduction save you?

How much the student loan interest tax deduction saves you depends on your income and your tax bracket.

A quick way to estimate how much you can save on your tax bill is to multiply your deduction amount by your marginal tax bracket. For example, if your student loan interest paid was $1,500 and you fall in the 12% bracket, you can expect to save $180 on your taxes. On the other hand, that same deduction nets higher savings if you’re in the 22% bracket: $330.

When do you find out how much interest you paid?

Your student loan servicer or lender should send you a student loan interest statement at the end of each year. If you paid $600 or more in interest, you’ll receive a Form 1098-E to include with your tax filing. Each lender will issue its own form, so you’ll receive a 1098-E from your servicer if you have federal loans. If you have private loans, you’ll receive a separate 1098-E. You could receive multiple forms, but the total of your deduction can’t exceed $2,500.

If you don’t receive a form, check your monthly payment information. It should have the amount of interest you paid and can help determine whether you should claim a deduction.

Bottom line

Many student aid options are available to help you cover your college costs. Some of the money is tax-free and doesn’t need to be repaid. Student loans do need to be repaid. However, the government offers you a chance to reduce your tax bill by allowing you to deduct some of the student loan interest you pay as long as you meet certain requirements. As you review your personal finances, don’t forget about your ability as a taxpayer to reduce your liability based on the education loan interest you pay.