The Student Loan Interest Tax Deduction and Other Tax Benefits for Borrowers - Earnest | Earnest

The Student Loan Interest Tax Deduction and Other Tax Benefits for Borrowers

By Kassondra Cloos | Published on February 24, 2026

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Filing your taxes is never fun. There are so many deductions, forms, and rules, it’s hard to feel confident by the time you click “file.”

But if you have federal or private student loans, you’ll want to pay extra attention to a few things that could make a big difference on your final tax bill.

Here’s what you need to know about the student loan interest tax deduction, student loan repayment programs, and how your filing status can affect your taxes.

What is the student loan interest deduction?

One of the primary ways the government tries to help ease the mounting burden of student loans is to offer a student loan interest deduction. This deduction reduces your taxable income by the amount of student loan interest that you pay during the year, up to $2,500.

It’s a deduction only for the paid interest — not the total student loan payments you made for your higher education debt.

Because the deduction is a reduction in taxable income, you can claim it without needing to itemize deductions on your tax return.

Do I qualify for the student loan interest deduction?

Not all student loan interest payments will qualify for the deduction. The interest you pay on your student loan needs to be for a qualified student loan.

This is a loan that you took out for yourself, your spouse, or your dependent to cover qualified education expenses. These qualified education expenses include necessary expenses like tuition, books, room, and board during the academic period.

In addition to this, the IRS has a few more criteria that you need to meet in order to take the deduction:

You can see all current IRS qualifications and limits around who can claim an educational credit online.

How do I claim the student loan interest deduction?

You claim this deduction when filing your taxes for the year. If you paid more than $600 in student loan interest during the year, your loan servicer is required to send you tax form 1098-E, which shows you exactly how much you paid in student loan interest during the year.

If you paid less than $600, you may still be able to claim the deduction. Ask your loan servicer for a 1098-E or log into your loan account to get the total amount of interest paid.

Once you know how much you paid in interest, you can use the student loan deduction worksheet included in the instructions for the IRS Tax Form 1040. The worksheet will walk you through calculating your deduction amount.

If you use a tax preparation service, their questionnaire should ask you if you’ve paid student loan interest during the year. Be sure to answer yes and provide the amount of interest paid — they’ll take care of calculating the rest.

How does student loan forgiveness impact my taxes?

Generally, the Internal Revenue Service considers forgiven debt to be taxable, including forgiven federal loan amounts. Federal student loan borrowers are in luck for the next few years, however, thanks to the American Rescue Plan Act of 2021. Under that act, federal student loan forgiveness for loans discharged between 2021 and 2025 will not count as taxable income.

Certain student loan debt cancellation programs are never taxable, including the Public Service Loan Forgiveness program (also called PSLF). Borrowers eligible for PSLF will not have to pay federal income tax on the portion of their debt that is forgiven, regardless of their tax bracket, monthly payments, or total loan balance. However, some states may still consider forgiven loan amounts taxable income.

How does employer student loan repayment assistance impact my taxes?

As with student debt cancellation, the IRS typically treats student loan payments made by an employer as part of your income. However, through the end of the 2025 tax year, such payments toward education loans will not be seen as taxable. This was a provision in the 2021 American Rescue Plan Act, and was designed to ease financial stress on recent graduates.

It doesn’t matter if your employer pays back money you borrowed from the federal government or a private lender, as long as the debt was incurred for higher education expenses.

How does filing status affect student loans?

Even your filing status can affect your eligibility for certain programs and tax breaks. Here’s how:

Filing alone

If you’re single and file your taxes alone, only your income will impact your eligibility for tax breaks and income-based repayment plans, which can reduce your monthly payments for federal student loans.

If you’re unmarried but you have dependents, or if you support a parent who lives with you, you may be able to significantly reduce your taxable income by filing as head of household.

Filing jointly

If you’re married and filing jointly, the most important thing to know is that your partner’s income may impact the amount you’re required to pay on your student loans.

For example, your eligibility for an IDR payment could be affected if your partner makes significantly more or less money than you. When you apply for an IDR plan, you’ll have to share information about not just your own personal finance situation, but your spouse’s income, as well, and your new payments will be calculated based on your joint AGI.

So, if your personal income level is too high to qualify for an IDR payment but your partner’s income is much lower, you may be able to reduce your monthly payments. The reverse is also true — if your partner is a high earner and you’re married, you may not be eligible for the same IDR plans or tax credits you would have had access to on your own.

Other tax breaks for borrowers

Here are some other tax breaks you may be able to take advantage of as a borrower:

American Opportunity Tax Credit

The American Opportunity Tax Credit allows taxpayers to reduce their tax bill by up to $2,500 per year per eligible student. The AOTC can be claimed by a student paying their own educational expenses, or by a parent or guardian who has an eligible student as a dependent.

The credit offers 100% of the first $2,000 paid in educational expenses, and 25% of the second $2,000. You can claim this credit for up to four years for each eligible student. If your tax bill is reduced to zero due to the credit, you can receive 40% of the remainder as a cash refund, up to $1,000.

Eligible students must be enrolled at least half-time for at least one academic period that began within the tax year.

Lifetime Learning tax credit

The Lifetime Learning Credit, or LLC, offers taxpayers a credit of up to $2,000 per tax return for 20% of the first $10,000 spent on educational expenses in a tax year. Unlike the AOTC, you can only claim this credit once per tax return, even if you have multiple eligible students in your household. However, you can claim this tax benefit as many times as you want throughout your life.

Tax breaks for scholarships

Scholarships are free money you can use to fund your education, so you may wonder whether they count as taxable income. The short answer is that it depends on what you use the money for.

If you receive a scholarship, fellowship, or grant while pursuing a degree at an accredited institution, that money will generally be tax-free as long as you use it for education expenses.

On the other hand, if your scholarship money exceeds the cost of your tuition, or if you use the money for living expenses such as room and board or travel, you’ll have to claim the excess as taxable income².

The SECURE Act 2.0

The SECURE Act 2.0 is an overhaul of rules regarding retirement savings in the U.S. The biggest benefit for recent graduates is that employers are now allowed to count student loan payments for the purposes of matching programs.

As in, if you pay your student loan debt and your employer has a retirement matching program, they may be able to submit a percentage of what you paid to an eligible retirement account on your behalf.

This is in recognition of the fact that many people paying off student loans are unable to save for retirement at the same time, so they miss out on free money because there’s nothing for their employer to match.

The new rules of the SECURE Act 2.0 allow employers to contribute savings matching what their employees spend on student loan payments, up to the limits imposed on pre-tax contributions.

These contributions won’t be taxable until you withdraw from the account later in life — unless you’re enrolled in a Roth IRA, in which contributions are considered part of your taxable income, and therefore made post-tax.

Learn more about Earnest student loan refinancing

If you refinance your student loans ¹ for a lower interest rate, you may be able to save money over time or pay off your debt faster². Don’t worry — you won’t miss out on tax deductions if you refinance federal loans. Private student loan interest is a deduction, too.

Earnest offers some of the lowest rates around, and evaluates applicants holistically instead of just checking their credit scores. Try our student loan calculator today to see how much you could save. It only takes a few minutes and it won’t impact your credit score.

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About the Author

Kassondra Cloos

Kassondra Cloos is a writer, editor, and former Earnest client. She refinanced her own student loans with Earnest after graduating and has first-hand experience with the refinancing process. She has been writing about personal finance and student loans since 2017. She also writes about sustainable travel and adventure for The Guardian, Outside, Backpacker, and many other publications. You can find more of her work via her travel newsletter, Out of Office.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

2 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for the total cost of your refinanced loan.