How to Calculate Your Student Loan Interest Tax Deduction

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student loan interest deduction

The student loan interest deduction is a student loan tax benefit that can help offset the costs of borrowing and repaying this debt.

It also made it into the final version of the new GOP tax bill, even though there was talk of getting rid of it in earlier versions of the bill. Borrowers can deduct the interest they paid on student loans throughout the tax year, saving up to $625 on their taxes.

However, not everyone will get the full value of the student loan interest deduction. Find out how much lower your taxable income could be if you claim your student loan interest as a deduction.

Average student loan interest deduction worth $201

Like other tax deductions, the student loan interest deduction helps you by reducing how much of your income is taxed.

In this case, your taxable income is lowered by the amount of student loan interest you paid in 2017 — up to $2,500. It can lower your tax bill by as much as $625. And that could mean paying less in taxes or getting a bigger refund.

For student loan borrowers who count on their tax refund to make ends meet or get ahead on financial goals, it can be a huge help.

However, few tax filers get the maximum $625 value of the student loan interest deduction. Here are some stats on the student loan interest deduction, per 2017 Congressional tax estimates:

  • 11.45 million Americans will be eligible to claim the student loan interest deduction on their return for the 2017 tax year.
  • The average dollar value of the student loan interest deduction is $201.

Student loan interest deduction 2017: High-income filers benefit the most

Some filers get more than the average, however, as you can see in the table below:

Income Class Average Deduction Value
Below $10,000 $76.92
$10,000 to $20,000 $99.77
$20,000 to $30,000 $158.37
$30,000 to $40,000 $184.87
$40,000 to $50,000 $165.27
$50,000 to $75,000 $216.89
$75,000 to $100,000 $173.96
$100,000 to $200,000 $244.10
$200,000 and over $66.67

Filers who earn above $50,000 benefit the most from claiming the student loan interest deduction. And the highest average student loan interest deduction ($244) is claimed by those earning more than $100,000.

The fact that higher earners benefit the most from the student loan interest deduction is likely the result of a couple of factors. First, those who pay student loan interest and qualify for this student loan interest deduction are more likely to have a college degree and earn a higher income.

Additionally, low-income borrowers might pay less interest if they’re taking advantage of repayment options such as deferment, forbearance, or income-driven repayment plans. These repayment plans lower the payments borrowers make, sometimes to $0. If those borrowers pay little on student loans, they won’t have much student loan interest to claim.

Whatever your income level, if you paid student loan interest last year, you should look into claiming a student loan interest deduction for 2017. If not, you could lose out on getting some of that money back.

What is your student loan interest deduction worth?

As you work to prepare your taxes, you might want to better understand the value of your student loan interest deduction for 2017.

The average value of this tax benefit is $201. But the value of your student loan interest deduction will depend on the specifics of your situation. From how much interest you paid in the past year to the rate at which your income is taxed, your own student loan and tax details are key.

Fortunately, our student loan interest deduction calculator can quickly and easily estimate your personal savings if you claim this tax benefit. Using this tool can give you a more accurate idea of what kind of tax refund you can expect to get back.

Interest Deduction Calculator

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Do you qualify for the student loan interest deduction?

The IRS makes it clear who can and can’t claim the student loan interest deduction. Here are some factors that affect whether you’re eligible to claim the student loan interest deduction for the 2017 tax year:

  • Your income: This tax deduction is phased out at $80,000 modified adjusted gross income (MAGI) for single filers and $160,000 MAGI for filers who are married and filing jointly.
  • Filing status: You can’t claim the student loan interest deduction if you’re claimed as a dependent on someone else’s return or if you’re married but filing separately. What won’t matter is whether you’re taking a standard deduction or itemizing. The student loan interest deduction is an “adjustment to income,” according to the IRS, and can be claimed either way.
  • Qualified student loan: You must’ve paid interest on a student loan that was initially borrowed to fund qualifying educational expenses. Both federal and private student loans can qualify but not student loans from a family member.
  • Student loan interest paid: You must’ve paid the interest on the qualified student loan during 2017, and it must’ve been on student loans you’re legally obligated to pay. Both prepaid student loan interest and loan origination fees can be claimed and deducted as interest paid.

The last point might be the trickiest since he person repaying a student loan isn’t always the person who owns it. Here’s when filers can and can’t claim the student loan interest tax deduction:

  • Can’t claim: If a student loan is in your name but your parents are making the payments, your parents can’t claim the interest they paid since they’re not the legal owners of the loan.
  • Can’t claim: You can’t claim the student loan interest tax deduction if someone else, such as a parent, is making payments, even if your name is on the loan.
  • Can claim: Your parents can deduct interest they paid on student loans they cosigned with you since their names are on those loans.
  • Can claim: You can claim interest you paid on student loans that are in your name, whether they were taken out to pay for your education or someone else’s.

If you paid more than $600 in interest charges on your student debt in 2017, you’ll get a 1098-E outlining the student loan interest you paid. Using the info from your 1098-E, you can claim your student loan interest deduction for 2017 and get the full benefit you’re entitled to.

If you didn’t receive a 1098-E from your lender, don’t worry. You can still claim your interest, but you might have to do some extra legwork to determine how much student loan interest you paid:

  • Take a look at your account summary or payment statements for each student loan servicer you’re paying back to find out how much interest you paid in 2017.
  • If that information isn’t readily available, contact each student loan servicer and ask for this figure.

With this information in hand, you can claim your student loan interest deduction when filing your 2017 tax return. Then comes the fun part: deciding on the smartest way to spend your 2017 tax refund.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.