Financing a college or graduate school education often requires incurring at least some student loan debt. For those who qualify for it, the tax deduction for student loan interest can help ease the financial burden.

Overview

The deduction is available for as much as $2,500 of interest annually. Taxpayers don't have to itemize their deductions to claim it. However, the deduction is phased out if adjusted gross income (AGI) exceeds certain levels. And married taxpayers must file jointly to claim the deduction.

Qualifying loans. The debt must be incurred to pay tuition, room and board (including properly documented off-campus expenditures), and related expenses to attend a post-high school educational institution. The funds may be borrowed to cover the qualifying expenses of the taxpayer or his or her spouse or dependent. The student must be a degree candidate carrying at least half the normal full-time course load. Loans taken to attend certain postgraduate programs (e.g., a medical residency) also can qualify.

Who gets the deduction? Only the person legally obligated to make the interest payments may deduct them. So, for example, if parents make payments on their child's student loan (essentially as a gift to the child), the parents aren't allowed to deduct the interest. Their child could deduct the interest they paid as long as the child isn't a dependent that year. (A dependent may not claim the deduction.)

AGI limits. For 2021, no deduction is available with an AGI of $85,000 or more ($170,000 or more for married-joint filers). The deduction is reduced with an AGI between $70,000 and $85,000 ($140,000 and $170,000 for married-joint filers).