1098-E Tax Deduction: Eligibility, Limits, and Phase-Outs

The 1098-E tax deduction lets you subtract up to $2,500 of student loan interest from your taxable income each year, using the interest total reported in Box 1 of Form 1098-E from your loan servicer.¹ It’s an adjustment to income on Schedule 1 of Form 1040, so you can claim it whether you itemize or take the standard deduction. For 2026, it begins phasing out at $85,000 of modified adjusted gross income for single filers and $175,000 for married couples filing jointly.²

What Form 1098-E Reports

Any lender or servicer that collected $600 or more in student loan interest from you during the year must send you Form 1098-E. Box 1 shows the total interest you paid.³ If more than one servicer holds your loans, expect more than one form, and add the Box 1 amounts together.

Paid less than $600? Your servicer isn’t required to issue the form, but your interest is still deductible. Ask the servicer for an annual interest statement showing the exact amount you paid.³

Who Can Claim It

You need to meet every one of these tests:¹

You are the person legally obligated to repay the loan. A co-signer with legal responsibility also qualifies.
Nobody claims you (or your spouse, if filing jointly) as a dependent on their return.
You don’t file as married filing separately. Married couples must file jointly.
You actually paid the interest during the tax year. Interest that accrued but wasn’t paid doesn’t count.

The dependent rule catches many recent graduates. If a parent still claims the graduate as a dependent and pays the interest, neither person gets the deduction: the parent isn’t on the loan, and the student is a dependent. When a parent or anyone else pays interest on a loan you’re obligated on and you aren’t claimed as a dependent, the IRS treats it as if that person gave you the money and you paid the interest, so the deduction belongs to you.⁴

Which Loans Qualify

A qualified education loan is debt taken out solely to pay higher education costs — tuition, fees, room and board, books, and supplies — for you, your spouse, or someone who was your dependent when you borrowed. The school must have been eligible to participate in federal student aid programs.⁵ Federal and private loans both count, as long as every dollar went toward education expenses.

Refinanced loans still qualify, provided the original loan was a qualified education loan and you didn’t refinance for more than the outstanding balance. Consolidation of two or more qualifying loans from the same borrower also qualifies. If you refinance for more than the balance and use the extra for something other than education, the entire new loan loses its deductible status.⁴

Two categories are shut out: loans from a related person (a family member, for instance) and loans from a qualified employer retirement plan.⁵

One quiet source of deductible interest is capitalized interest. When unpaid interest gets rolled into your principal during deferment or forbearance, later payments that go toward that capitalized interest are deductible in the year you make them.⁴

How Much You Can Deduct

The maximum is the lesser of $2,500 or the total qualifying interest you actually paid during the year, and that cap applies to all your loans combined, not per loan.⁵

Your deduction shrinks as your modified adjusted gross income rises. For 2026:²

Single, head of household, or qualifying surviving spouse: the deduction begins phasing out at $85,000 MAGI and is gone at $100,000.
Married filing jointly: phase-out begins at $175,000 combined MAGI and ends at $205,000.

Below the lower threshold, you get the full deduction up to $2,500. Above the upper threshold, nothing. In between, the IRS reduces it proportionally.

The Phase-Out Math

Take the amount your MAGI exceeds the lower threshold, divide by the phase-out width ($15,000 for single filers, $30,000 for joint filers), and multiply by your interest paid (up to $2,500). That’s the portion you lose.⁵

Say you’re a single filer with $91,000 MAGI who paid $2,000 in qualifying interest during 2026. Your MAGI exceeds $85,000 by $6,000. Divide $6,000 by $15,000 to get 0.40. Multiply $2,000 by 0.40 for the disallowed portion of $800. Your deductible amount is $1,200. The Schedule 1 instructions include a worksheet that walks through these steps.

For this deduction, MAGI is your AGI figured without the student loan interest deduction itself, so for most filers it lands very close to the AGI on their return.

Claiming It on Your Return

Report the deduction on Schedule 1 (Form 1040), Part II, in the Adjustments to Income section. The Schedule 1 total flows to Line 10 of Form 1040, reducing gross income on the way to AGI.⁶ Because it’s above the line, you get it whether you itemize or take the standard deduction.¹

A lower AGI can matter beyond this single line. Education credits, the earned income credit, and IRA deductibility all use AGI as a threshold, so shaving a few hundred dollars off can occasionally unlock or enlarge another benefit.

Don’t file Form 1098-E with your return. Keep it with your records for at least three years from the filing date in case the IRS matches your deduction against the servicer’s reporting.⁷

Forgiveness Is a Separate Issue

The 1098-E deduction covers interest you paid. It doesn’t cover forgiven principal. The American Rescue Plan Act’s exclusion of most student loan forgiveness from taxable income applied only to loans forgiven between January 1, 2021, and December 31, 2025. Starting in 2026, forgiven balances, including discharges under income-driven repayment plans, are generally taxable as cancellation-of-debt income.⁸ If you’re nearing forgiveness, plan for that bill separately from anything you deduct off a 1098-E.

1
Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
2
Internal Revenue Service. Rev. Proc. 2025-32
3
Internal Revenue Service. About Form 1098-E
4
Internal Revenue Service. Publication 970, Tax Benefits for Education
5
Office of the Law Revision Counsel. 26 U.S. Code 221 – Interest on Education Loans
6
Internal Revenue Service. 2025 Form 1040
7
Internal Revenue Service. How Long Should I Keep Records
8
Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes