Student Loan Interest Form: A Guide for Students and Recent Grads

Student loan interest 1098-E form: Paying back student loans can be a hassle, especially with the interest that accrues on top of your original loan balance.

But did you know you could deduct some of that interest on your taxes? The Student Loan Interest Deduction allows you to reduce your taxable income by up to $2,500 of student loan interest paid.

You must file Form 1098-E – Student Loan Interest Statement to claim this deduction.

Here’s what you need to know about this form and claiming the student loan interest deduction:

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What is Form 1098-E?

Form 1098-E, or the Student Loan Interest Statement, is a tax form you receive from your student loan servicer. It shows how much interest you paid on your student loans during the tax year.

Student loan servicers are required to send this form to you by January 31st if you paid $600 or more in interest in the previous tax year.

The form includes:

  • Your name, address, and Social Security number
  • Student loan servicer’s name, address, and federal ID number
  • Total amount of student loan interest paid in the tax year

You’ll need this form to claim the student loan interest deduction when you file your taxes.

Ensure you receive it and hold on to it with the rest of your tax documents.

Who is Eligible for the Student Loan Interest Deduction?

To claim the deduction for student loan interest paid, you must meet a few eligibility requirements:

  • Your filing status is single, head of household, married, filing jointly, or qualifying widower.
  • Your modified adjusted gross income (MAGI) is less than $85,000 if single or head of household or $175,000 if married, filing jointly.
  • You paid interest on a qualified student loan in the tax year.
  • You are legally obligated to pay interest on the loan.
  • You are not claimed as a dependent on someone else’s tax return.

Qualified student loans include federal and most private student loans taken out to pay qualified higher education expenses. This includes loans for undergraduate, graduate, and vocational programs.

You can remove up to $2,500 of student loan interest paid as long as you meet these requirements. The amount may be less, depending on your income level.

How Do I Claim the Student Loan Interest Deduction?

To claim the deduction, complete Form 1098-E and submit it with your federal tax return.

Here are the steps:

  1. Make sure you receive Form 1098-E from your loan servicer by January 31st. Check that the information listed, including the amount of interest paid, is accurate.
  2. When filing your taxes, complete Form 1040. On line 21 of the 2022 Form 1040, enter the amount of student loan interest paid in 2022 found on Form 1098-E.
  3. If your MAGI is between $70,000 and $85,000 if single or between $145,000 and $175,000 if married filing jointly, you’ll need to complete the student loan interest deduction worksheet to calculate the reduced amount you can deduct.
  4. The deductible amount will then transfer to Schedule 1, line 21. Make sure to attach Form 1098-E.
  5. Complete the rest of your tax return. The student loan interest deduction will reduce your adjusted and taxable gross income.

Double-check that you’ve completed all forms accurately to claim the maximum deduction you qualify for. This can save you hundreds of dollars on your tax bill.

Common Questions About Form 1098-E

If you’re new to taking student loan interest deductions, here are answers to some common questions about Form 1098-E:

What if I paid interest to multiple servicers? You should receive a separate Form 1098-E from each servicer showing the interest paid to each. Add up all interest amounts and enter the total on your tax return.

What if I don’t receive Form 1098-E? Contact your loan servicer. You can receive this form for your records and tax filing.

Consult IRS Publication 970 for guidance on calculating deductible interest without the form.

Are Parent PLUS loans eligible? The parent borrower can deduct the interest paid on PLUS loans taken out by parents to pay for a dependent’s education.

The dependent cannot claim the interest even if they’re legally obligated to repay the loan.

Can I deduct interest on a refinanced loan? Yes, as long as the new loan was used to pay existing student loans and meets the other qualification requirements.

Student loan interest can be deducted regardless of whether the loan is federal or private.

What if I’m married, and we both have loans? If you’re married and filing jointly, you can deduct up to $2,500 in total interest paid on both spouses’ loans.

If married filing separately, each spouse can deduct up to $2,500 of their student loan interest.

How Much Can I Save With the Student Loan Interest Deduction?

The amount you can save depends on your income level and the amount of interest paid.

For example:

  • If you paid $2,500 in interest and are a single filer with a $50,000 MAGI, you can deduct the full $2,500. This would reduce your taxable income by $2,500. At a 22% marginal tax rate, this would save you $550.
  • If you paid $3,000 in interest but are married and filing jointly with a household MAGI of $160,000, your deduction would be limited. Use the deduction worksheet to calculate your savings.
  • If you paid $1,800 in interest with an income below the phase-out limits, you can deduct the full $1,800. At a 22% tax rate, this would reduce your tax by $396.

The higher your income and interest paid, the more beneficial the deduction. Use the IRS student loan interest deduction calculator to estimate your potential savings based on your situation.

When Should I Claim the Deduction?

Generally, you should claim the student loan interest deduction every year that you qualify.

Your savings add up from being able to deduct up to $2,500 in interest each tax year over the life of your loan.

Make sure to claim the deduction on original tax returns. You can only claim it on an amended return if you remember to claim it the first time.

An exception is if you are on an income-driven repayment plan for federal student loans.

On these plans, your required payment may not cover all the interest accruing, so unpaid interest gets added to your balance.

You can deduct this unpaid interest as you gradually pay it down over time through your payments.

Consult a tax professional for guidance on how to deduct this interest properly.

Are There Other Education Tax Benefits?

In addition to the student loan interest deduction, there are a few other education tax credits and deductions you may qualify for:

  • American Opportunity Tax Credit: Provides up to a $2,500 credit per eligible student for the first four years of college.
  • Lifetime Learning Credit: Get up to $2,000 per tax return for any college or graduate courses taken to gain or improve job skills
  • Tuition and fees deduction: Reduce taxable income by up to $4,000 for tuition and certain fees paid (subject to income limits)
  • Savings bond interest exclusion: Exclude from federal income certain interest earned on redeemed qualified U.S. savings bonds used to pay for college costs.

Refer to IRS Publication 970 and Form 8863 for more details on these credits and deductions.

They can be claimed in the same year as the student loan interest deduction.

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When Does Eligibility for the Deduction End?

You can also claim the student loan interest deduction each year for the life of your loans as long as you meet the eligibility requirements.

Typically, you can deduct student loan interest until the loan is paid off.

There are a couple of cases when you may no longer qualify earlier:

  • Your income exceeds the limits: If your MAGI rises above the phase-out thresholds, you can no longer deduct interest even in later years.
  • You refinance with a non-qualified loan: If you refinance federal or private student loans with a non-qualified loan (like a home equity or personal loan), you can no longer deduct the interest.
  • The loan is forgiven: If your remaining loan balance is forgiven, such as through an income-driven repayment plan, you cannot deduct any remaining interest.

If you continue making qualifying student loan payments and meet the income limits, you can deduct the interest each year on your taxes.

Consult IRS Publication 970 if you have questions on when your eligibility ends.

How Do I Get the Most Savings From the Student Loan Interest Deduction?

Here are some tips to maximize your tax savings from the student loan interest deduction:

  • Review your 1098-E form to reflect the interest you paid last year accurately. Verify with your servicer if anything needs to be corrected.
  • If your income is near the phase-out limits, consider strategies to reduce your MAGI, like contributing to a 401(k). This could allow you to deduct more interest.
  • Make interest payments by December 31st to increase interest paid for that tax year. This allows you to deduct the additional amount.
  • Pay a little extra toward your highest-interest loans. This increases the interest you pay and can be deducted.
  • Be sure to claim the deduction every year you qualify. Setting a reminder in November can help you remember.
  • See if you qualify for other education credits and deductions to maximize your savings.
  • Consult a tax professional if you have questions about your specific situation. They can help ensure you receive every deduction possible.

With some tax planning, you can deduct student loan interest paid for many years and reduce your tax bill.

Just stay organized with your tax paperwork and make on-time payments.

Who Should I Contact if I Have Issues With Form 1098-E?

First, contact your loan servicer if you need help receiving Form 1098-E or disagree with the information reported. Ask them to correct any errors or provide you with the form.

You can contact the IRS at 800-829-1040 if you have issues getting the form from your servicer. Or call if your servicer reports the wrong amount and will not correct it.

Keep detailed records like bank statements and canceled checks showing student loan interest paid.

This supports claiming the correct deduction amount if the 1098-E form needs to be corrected.

Call the IRS helpline or speak with a tax professional for general questions on qualifying loans, income limits, or calculating your deductions.

Getting the student loan interest deduction right can save you much money!

Key Takeaways

  • Form 1098-E shows student loan interest paid; submit it with your tax return to claim the deduction
  • Single filers with MAGI under $85,000 and married joint filers under $175,000 are eligible
  • You can deduct up to $2,500 in interest, subject to income limits
  • Make sure to claim the deduction each year you qualify
  • Contact your servicer and the IRS with any issues obtaining accurate 1098-E forms

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Final Thought

Claiming the student loan interest deduction each year can reduce your taxable income by thousands of dollars over the loan term.

So hold onto those 1098-E forms and remember to complete the deduction worksheet if your income falls in the phase-out range.

With some tax planning, you can maximize your deduction and savings.

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