For some, tax day means a much-awaited refund. For others, it may mean another expense. There are a variety of factors that can affect your taxes, including your status as a student.
If you paid qualifying educational expenses or student loan interest during the tax year, you may qualify for a student loan interest deduction or an education tax credit — which could potentially mean a lower tax bill or a higher tax refund.
When you claim a deduction on your taxes, it is subtracted from your total income. Your income taxes are assessed after the deduction is taken. In contrast, a tax credit is subtracted from any taxes you may owe.
Taxes are complicated, so it’s a good idea to consult with a tax professional about what deductions and tax credits you may be eligible for. What follows, however, are some general guidelines on how student loans might affect your tax returns.
Table of Contents
Key Points
• You can deduct up to $2,500 of student loan interest on your federal tax return, even if you don’t itemize deductions.
• The deduction phases out for higher-income individuals, with specific thresholds that vary by filing status.
• If your loans are forgiven, the forgiven amount may be considered taxable income, affecting your tax liability.
• Refinancing with a private lender may disqualify you from certain tax benefits, such as the interest deduction.
• Some states offer additional tax benefits for student loan borrowers, so it’s important to check your state’s specific rules.
Student Loan Interest Deduction Explained
The student loan interest deduction lets borrowers deduct all or part of the interest they pay on their federal student loans and/or private student loans when they file their federal income tax return.
Usually, you can expect to receive a 1098-E form from each of your student loan providers by the end of January each year. This form details the amount of interest you paid over the past calendar year.
Your loan servicer is only required to send you a 1098-E form if you paid more than $600 in interest on a qualified student loan. If you did not receive this by mail, your provider may have sent an email notification to let you know your 1098-E is ready to download.
To qualify for the maximum $2,500 student loan interest deduction, you must meet certain filing and income criteria. It may be possible to deduct student loan interest that has been paid on loans issued for yourself, your spouse (if you file jointly), and your dependents. However, parents can’t claim the student loan interest deduction if the student loan is in their dependent’s name only.
Since this is an adjustment to your gross income, you can take this deduction even if you don’t itemize. In order to claim this deduction, there are certain income requirements that must be met. The deduction is phased out when an individual’s modified adjusted gross income (MAGI) reaches certain thresholds.
The threshold amounts change every year, but for the 2024 tax year, the benefit began to phase out at $80,000 for single filers and $165,000 for married taxpayers filing jointly.
The deduction was eliminated completely for single filers making $95,000 or more and for married taxpayers filing jointly who are making $195,000 or more.
Recommended: Are Student Loans Tax Deductible?
Am I Eligible for Education Tax Credits?
If you paid tuition, fees, or other education-related expenses during the tax year, you may be eligible for an education tax credit, either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
Note that you can’t claim both credits for the same individual within the same year. If you qualify for both, it might be worth calculating them both in order to determine the option that is best for you.
American Opportunity Credit
This credit applies towards 100% of the first $2,000 of eligible education expenses and 25% of the next $2,000.
What does this mean? Students who are enrolled at least half time in a degree or certificate program for one academic period during the tax year may be eligible to receive a credit of up to $2,500 for the cost of tuition, fees, and course materials.
The credit may be claimed for up to four years, but it can’t be claimed after the eligible student has completed the first four years of post-secondary education, which means those pursuing graduate degrees aren’t eligible for this tax credit.
The MAGI limit for eligibility is $90,000 for individual filers and $180,000 for joint filers. The credit is reduced if MAGI is between $80,000 and $90,000 for individual filers and between $160,000 and $180,000 for joint filers.
The AOTC is a refundable tax credit. This means that if the credit takes your tax bill to zero, you can get 40% of the unused credit, up to $1,000, as a tax refund.
Recommended: Are Forgiven Student Loans Taxed?
Lifetime Learning Credit
The lifetime learning credit (LLC) is worth 20% of the first $10,000 of eligible education expenses, for a maximum of $2,000.
The LLC is similar to the AOTC, but with a few important differences. This credit has a lower income limit than the AOTC. For the 2024 tax year, the amount of your LLC is gradually phased out if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).
You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
There is no limit to how many years you can claim the credit. And the credit can be used to help pay for a variety of education expenses, including undergraduate, graduate, and professional degrees. You could even qualify for the credit if you’re taking classes to “acquire or improve job skills.”
Unlike the AOTC, the LLC is not refundable. This means that the credit can be used to pay for the taxes you owe, but if it surpasses that, you won’t receive any money back as a refund.
Finding Tax Help
If you want to learn more about these education tax credits and additional education tax deductions, the IRS has further information .
If the process of filing your taxes seems overwhelming or you’re still confused by the ins and outs of these tax advantages, you could consider finding help this tax season. A qualified tax professional could assist you in navigating your taxes and help you maximize your refund with less hassle — and they will know more about any credits or deductions you may be eligible for.
Recommended: Is an Employee’s Student Loan Repayment Benefit Taxed As Income?
Figuring Out How to Pay for School
Even with tax credits and deductions, paying for college might still be an overwhelming prospect.
If scholarships, federal student loans, grants, and savings aren’t enough to pay for school, you may want to consider applying for a private student loan. These are available through banks, credit unions, and online lenders. Loan limits vary by lender, but you can often get up to the total cost of attendance (which is more than you can borrow from the federal government). Interest rates may be fixed or variable and are set by the lender. Generally, borrowers (or cosigners) who have strong credit qualify for the lowest rates.
Keep in mind, though, that private loans may not offer the borrower protections — like income-based repayment plans and deferment or forbearance — that automatically come with federal student loans.
The Takeaway
Student loans can significantly affect your tax situation, from interest deductions to potential tax liabilities on forgiven debt. Understanding the federal and state tax implications is crucial for managing your financial obligations effectively.
When it comes to paying for college, most students rely on a combination of cash savings, scholarships, grants, and federal and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
How do student loans affect taxes?
Student loans can affect taxes through interest deductions, which can reduce your taxable income. However, loan forgiveness may be taxable, and refinancing with private lenders can disqualify you from certain benefits. Always check state-specific rules for additional tax advantages or obligations.
What is the American Opportunity Credit?
The American Opportunity Credit is a tax credit for qualified education expenses, offering up to $2,500 per eligible student. It covers the first four years of postsecondary education and is partially refundable, making it a valuable resource for reducing the financial burden of higher education.
What is the Lifetime Learning Credit (LLC)?
The Lifetime Learning Credit (LLC) is a tax credit for eligible education expenses, offering up to $2,000 per return. It applies to undergraduate, graduate, and professional degree courses, making it a flexible option for ongoing education and career development.
SoFi Private Student Loans
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOISL-Q325-016