8048 / Is student loan interest deductible?
An above-the-line deduction (see Q 715) is available to lower and middle income taxpayers for interest paid on a qualified education loan (i.e., college loans – see below) subject to certain limitations.1 The 2017 tax reform legislation did not change the rules governing the deductibility of student loan interest. However, the Act does provide that income resulting from the discharge of student loan debt because of the death or permanent and total disability of the borrower is not included in taxable income.2 This provision is effective for loans that are discharged after December 31, 2017.
The amount of the deduction is limited to a maximum of $2,500.3 The deduction is phased out ratably for taxpayers with modified adjusted gross income (MAGI–see below) between $100,000 and $130,000 (married filing jointly) or $50,000 and $65,000 (single).4 The $50,000 and the $100,000 amounts are adjusted for inflation (as rounded to the next lowest multiple of $5,000).5 In 2025-2026 projected, the indexed levels are $170,000-$200,000 (married filing jointly) and $85,000-$100,000 (single filers) and in 2024, the indexed levels are $165,000-$195,000 (married filing jointly) and $80,000-$95,000 (single filers).6 The phaseout is accomplished by reducing the otherwise deductible amount by the ratio that the taxpayer's MAGI over the applicable limit bears to $15,000 ($30,000 for a couple filing jointly) (the deduction cannot be reduced below zero).
Example: In 2025, Mr. and Mrs. Green paid $900 The phaseout is accomplished by reducing the otherwise deductible amount by the ratio that the taxpayer's MAGI over the applicable limit bears to $15,000 ($30,000 for a couple filing jointly) (the deduction cannot be reduced below zero).
Modified adjusted gross income is the taxpayer's adjusted gross income as determined before the deduction for qualified tuition and related expenses7 (see Q 8054) and the exclusions for income derived from certain foreign sources or sources within United States possessions,8 and after the inclusion of any taxable Social Security benefits,9 any deductible IRA contributions,10 adjustments for passive activity losses or credits11 (see Q 8010), the exclusion for savings bond interest used for education expenses12 (see Q 7686), and the exclusion for certain adoption expenses.13
Eligibility. The individual claiming the deduction must be legally obligated to make the interest payments under the terms of the loan.14 Despite this, if a third party who is not legally obligated to make a payment of interest on a qualified education loan makes an interest payment on behalf of a taxpayer who is legally obligated to make the payment, that taxpayer is treated as receiving the payment from the third party and, in turn, paying the interest.15 Note, however, that the CARES Act provides that student loan interest paid by an employer after March 27, 2020 and before January 1, 2021 is excluded from income. Interest paid by an employer is not deductible.16
The deduction may not be taken: (1) by an individual who may be claimed as a dependent on another's tax return; (2) if the expense can be claimed as a deduction elsewhere on the return; or (3) by married taxpayers filing separate returns.17 No deduction is allowed for which an exclusion is allowed under IRC Section 127 to the taxpayer because of a qualified payment made by the taxpayer's employer under the 2020 CARES Act.
A qualified education loan is any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses (see below) that are: (1) incurred on behalf of the taxpayer, a spouse, or a dependent at the time the indebtedness was incurred; (2) paid or incurred within a reasonable period of time (see below) before or after the indebtedness was incurred, and (3) attributable to education furnished in an academic period during which the recipient was an eligible student (see below).18
The determination of whether qualified higher education expenses are paid or incurred within a "reasonable period of time" generally is made based on all the relevant facts and circumstances. However, qualified higher education expenses are treated as paid or incurred within a reasonable period of time before or after the taxpayer incurs the indebtedness if: (1) the expenses are paid with the proceeds of education loans that are part of a federal postsecondary education loan program; or (2) the expenses relate to a particular academic period and the loan proceeds used to pay the expenses are disbursed within a period that begins 90 days prior to the start of the academic period and ends 90 days after the end of that academic period.19
The term qualified education loan does not include indebtedness owed to certain related persons. In addition, a loan from a qualified plan – including an IRC Section 403(b) plan or from a life insurance or annuity contract held by such a plan – is not a qualified education loan.20
A loan does not have to be issued or guaranteed under a federal postsecondary education loan program to be a qualified education loan.21
A qualified education loan includes indebtedness incurred solely to refinance a qualified education loan. A qualified education loan includes a single, consolidated indebtedness incurred solely to refinance two or more qualified education loans of a borrower.22
Qualified higher education expenses means the cost of attendance at an eligible education institution (see below) reduced by the sum of: (1) the amounts excluded from gross income under IRC Section 127 (employer educational assistance programs), IRC Section 135 (income from U.S. Savings bonds used to pay for higher education expenses – see Q 7686), IRC Section 529 (distributions from qualified tuition programs – see Q 689), or IRC Section 530 (distributions from a Coverdell Education Savings Account, formerly known as an Education IRA – see Q 681) by reason of such expenses; (2) the amount of any excludable scholarship, allowance or payments (other than a gift, bequest, devise or inheritance) received by an individual for expenses attributable to enrollment; and (3) certain educational assistance allowances provided to veterans or members of the armed forces.23
An eligible education institution generally includes any accredited postsecondary institution (i.e., college, university, or vocational school) offering an educational program for which it awards a bachelor's degree or a two-year degree, as well as those that conduct an internship or residency program leading to a degree or certificate awarded by an institute of higher learning, a hospital, or a health care facility that offers postgraduate training. The term also includes those institutions offering at least a one-year program that trains students for gainful employment in a recognized profession.24
An eligible student means any student who is enrolled in a degree, certificate, or other program leading to a recognized credential at an eligible education institution, and who is carrying at least half of a normal full-time work load in the course of study.25
Interest. Amounts paid on a qualified education loan are deductible if the amounts are interest for federal income tax purposes. Interest includes qualified stated interest and original issue discount, which generally includes capitalized interest (i.e., any accrued and unpaid interest on a qualified education loan that, in accordance with the terms of the loan, is added by the lender to the outstanding principal balance of the loan).26
The Preamble to the final regulations states: "generally, fees such as loan origination fees or late fees are interest if the fees represent a charge for the use or forbearance of money. Therefore, if the fees represent compensation to the lender for the cost of specific services performed in connection with the borrower's account, the fees are not interest for federal income tax purposes.27 The Tax Court found that certain fees, including insurance fees, were similar to payments for services rendered and not deductible as interest."28
In general, a payment is treated first as a payment of interest to the extent of the interest that has accrued and remains unpaid as of the date the payment is due, and second as a payment of principal.29
The 60-month limit on the student loan interest deduction was permanently repealed under PPA 2006.
Reporting requirements. Certain reporting requirements must be met by a payee who receives interest totaling $600 or more with respect to a single payor on one or more covered student loans. Generally, the payee must file Form 1098-E (Student Loan Interest Statement) with respect to that interest, and provide the payor with the same information. For the final regulations relating to the information reporting requirements for payments of interest on qualified education loans (including the filing of information returns in an electronic format in lieu of a paper format), see Treasury Regulation Sections 1.6050S-3, 1.6050S-4.30
1. IRC § 221(a).
2. IRC § 108(f)(5).
3. IRC § 221(b)(1); Treas. Reg. § 1.221-1(c).
4. IRC § 221(b)(2); Treas. Reg. § 1.221-1(d)(1).
5. IRC § 221(f); Treas. Reg. § 1.221-1(d)(3).
6. Rev. Proc. 2023-34, Rev. Proc. 2024-40.
7. IRC § 222.
8. IRC §§ 911, 931, 933.
9. IRC § 86.
10. IRC § 219.
11. IRC § 469.
12. IRC § 135.
13. IRC §§ 137; Treas. Reg. § 1.221-1(d)(2).
14. Treas. Reg. § 1.221-1(b)(1).
15. Treas. Reg. § 1.221-1(b)(4)(i). See, e.g., Treas. Reg. § 1.221-1(b)(4)(ii), Example 1 (payment by employer) and Example 2 (payment by parent).
16. CARES Act § 2206.
17. IRC §§ 221(e), 221(c); Treas. Reg. §§1.221-1(b)(2), 1.221-1(b)(3); 1.221-1(g)(2).
18. IRC § 221(d)(1); Treas. Reg. § 1.221-1(e)(3)(i).
19. Treas. Reg. § 1.221-1(e)(3)(ii).
20. IRC § 221(d)(1); Treas. Reg. § 1.221-1(e)(3)(iii).
21. Treas. Reg. § 1.221-1(e)(3)(iv).
22. Treas. Reg. § 1.221-1(e)(3)(v).
23. IRC § 221(d)(2); Treas. Reg. § 1.221-1(e)(2).
24. IRC §§ 221(d)(2), 25A(f)(2); Treas. Reg. § 1.221-1(e)(1).
25. IRC §§ 221(d)(3), 25A(b)(3).
26. Treas. Reg. § 1.221-1(f)(1).
27. See Rev. Rul. 69-188, 1969-1 CB 54, amplified by Rev. Rul. 69-582, 1969-2 CB 29; see also, e.g., Trivett v. Comm., TC Memo 1977-161, aff'd on other grounds, 611 F.2d 655 (6th Cir. 1979).
28. Preamble, TD 9125, 68 Fed. Reg. 25489, 25490 (May 7, 2004).
29. Treas. Reg. § 1.221-1(f)(3).
30. See Treas. Reg. §§ 1.6050S-3, 1.6050S-4.