Up to $2,500 of Student Loan Interest Comes Off Your Income. The New Plan Shrinks Your Number.

If you sent money to a student loan servicer this year, some of that interest comes straight off your income at tax time. Up to $2,500 of it, and you don’t have to itemize to get it. In the 22% bracket, a full $2,500 is worth about $550 back.

Now the word that decides your actual number: paid.

What the rule says

The IRS puts it plainly. You deduct “the lesser of $2,500 or the amount of interest you actually paid during the year.” It’s an adjustment to income, so it sits above the itemize-or-not decision entirely. It covers federal and private loans alike, as long as the loan went solely to qualified higher education costs and you are legally on the hook for it.

The income limits moved for 2026. Revenue Procedure 2025-32 sets the phase-out start at $85,000 of modified adjusted gross income, $175,000 on a joint return, with the deduction completely gone at $100,000 or $205,000. Those are the figures for the return you file in early 2027.

Two things kill it outright. File married filing separately and you get nothing. Get claimed as a dependent on somebody else’s return and you get nothing.

Here’s the catch

The Repayment Assistance Plan went live July 1 and it does something genuinely useful: if your monthly payment does not cover the interest that accrued, the shortfall is waived instead of bolted onto your balance.

That waived interest is interest you never paid. So it’s not deductible. It won’t appear on a Form 1098-E, because your servicer only reports interest it received.

Watch the numbers. A $40,000 balance at 6.5% throws off about $2,600 of interest in a year, comfortably over the cap. Pay $900 of that and let RAP waive the rest, and your deduction is $900, not $2,500. In the 22% bracket that is roughly $352 of tax benefit instead of $550.

Don’t try to out-clever this. The waived $1,700 never hits your balance, which beats a $374 tax benefit on the same money. The waiver wins. Just know your real number before you plan around a deduction you aren’t getting.

The same logic applies to any month in deferment or forbearance when nothing left your checking account. No payment, no deduction. Interest you volunteer during forbearance does count, because you paid it.

Do this now

Log into your servicer and find the year-to-date interest paid figure. Not accrued. Paid. Write it down.

If you crossed $600, a Form 1098-E is coming in January and the number will be on it. If you didn’t, nothing is coming and you still get the deduction, so the figure you just wrote down is the one you’ll need in April. Loans split across two servicers mean two figures, added together.

Then run your income against the phase-out before you count on the full amount. If you’re near $85,000 single or $175,000 joint, a bonus in December can cost you part of this. Our loan calculator will show you what the interest side of your balance is doing, and the education hub covers the plan changes feeding into it.

Verdict: smart, and it’s worth the five minutes. Just claim the number you actually paid.

How Candid Yak makes money. Some of the products we write about pay us if you apply or sign up through our links. That never changes our verdict, our rankings, or the numbers in this article. We call a bad deal a bad deal whether it pays us or not. Some brands shown in our comparison tools are placeholder examples while we finalize partner agreements, and we label them as such.