If you paid interest on a student loan in 2026, you may be able to deduct up to $2,500 without itemizing. The deduction phases out at higher incomes, but for most borrowers it reduces taxable income directly.
What Is the Student Loan Interest Deduction?
The deduction under IRC Section 221 lets eligible taxpayers subtract interest paid on a qualified student loan from gross income. It is an "above-the-line" deduction, meaning it reduces your adjusted gross income (AGI) even if you take the standard deduction.
The maximum deduction is $2,500 per year, regardless of how much interest you actually paid.
Who Can Claim It?
You must meet all of these conditions:
- You paid interest on a qualified student loan during 2026
- You are legally obligated to repay the loan (you took it out in your name, or co-signed)
- Your MAGI falls below the phaseout ceiling (see below)
- You cannot be claimed as a dependent on someone else's return
- You are not married filing separately
What Counts as a Qualified Student Loan?
The loan must have been used to pay qualified higher education expenses for you, your spouse, or a dependent who was enrolled at least half-time in a degree or certificate program at an eligible institution. Qualified expenses include:
- Tuition and required enrollment fees
- Books, supplies, and equipment required for courses
- Room and board (up to the institution's cost of attendance allowance)
- Transportation expenses that are required
The loan can be from the federal government, a private lender, or an educational institution. Personal loans and credit cards used to pay education costs do not qualify.
2026 Income Phaseout Thresholds
The deduction is reduced ratably as your MAGI rises and eliminated entirely once you exceed the ceiling.
| Filing Status | Phaseout Begins | Fully Eliminated |
|---|---|---|
| Single, Head of Household, Qualifying Surviving Spouse | $75,000 | $90,000 |
| Married Filing Jointly | $155,000 | $185,000 |
| Married Filing Separately | Not eligible | Not eligible |
Within the phaseout range, the deductible amount is reduced proportionally. For example, a single filer with $82,500 MAGI (halfway through the $15,000 range) would have their deduction reduced by 50%, capping it at $1,250.
How to Calculate Your Deductible Amount
If your MAGI is within the phaseout range, use this formula:
- Subtract the phaseout floor from your MAGI
- Divide by the phaseout range ($15,000 for single; $30,000 for MFJ)
- Multiply the result by your full deductible interest (up to $2,500)
- Subtract that amount from your full deductible interest
Example: Single filer, $82,500 MAGI, paid $3,000 in student loan interest in 2026.
- Step 1: $82,500 - $75,000 = $7,500
- Step 2: $7,500 / $15,000 = 0.50
- Step 3: $2,500 x 0.50 = $1,250 (reduction)
- Step 4: $2,500 - $1,250 = $1,250 deductible
Where to Report It
Your lender will send Form 1098-E showing total interest paid. Report the deductible amount on:
- Schedule 1 (Form 1040), Line 21
- The amount flows to Form 1040, Line 10 as part of your total above-the-line adjustments
You do not need to file Schedule A or itemize to claim this deduction.
What OBBBA Did Not Change
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, did not modify the student loan interest deduction under IRC Section 221. The $2,500 cap, phaseout thresholds, and eligibility rules are unchanged from 2025.
Common Mistakes to Avoid
- Claiming it while filing MFS: Not allowed, regardless of income.
- Using MAGI instead of AGI: The phaseout uses MAGI, which adds back certain deductions (FEIE, IRA deductions, etc.) to AGI.
- Claiming interest on loans not in your name: Only the person legally obligated to repay can deduct the interest.
- Missing Form 1098-E: Lenders with at least $600 in reportable interest must send one. For smaller amounts, check your loan servicer portal.
If you also paid tuition in 2026, compare this deduction against the education tax credits (AOTC and LLC) to see which benefit is larger for your situation.
Have questions about your student loan deduction or other above-the-line adjustments? Contact TS CPA for a free consultation. We respond within the same day.