How to use the student loan interest deduction and claim education tax credits

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Turn tuition into tax relief.

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Nearly 43 million individuals in the U.S. have federal student loan debt, adding up to more than $1.6 trillion. For many borrowers, that balance translates into years of monthly payments and a hefty amount of interest.

But the federal tax code offers some ways to ease the cost. You may be able to claim the student loan interest deduction, qualify for education tax credits like the American opportunity tax credit (AOTC) or the lifetime learning credit (LLC), or use college savings accounts to help reduce your overall tax bill.

If you’re making student loan payments, part of each payment goes toward interest (the cost of borrowing money). One way to reduce that burden is through the student loan interest deduction.

This deduction is taken “above the line,” meaning you claim it before figuring your adjusted gross income (AGI), and you can take it even if you don’t itemize. It doesn’t reduce your tax bill dollar for dollar, but it lowers your taxable income, which in turn can shrink what you owe.

You can deduct up to $2,500 each year, or the interest you paid, whichever is lower. For example, if you paid $1,800 in interest, you can deduct $1,800 from your taxable income—assuming you’re within the income limits. Your loan servicer is required to send you a Form 1098-E if you paid $600 or more in interest during the year. Depending on the servicer, you might receive it by mail or get an email notification that it’s ready for download. If you don’t receive a notice, you can usually sign in to your loan account to view the form online.

Not everyone qualifies. For the 2024 tax year, the deduction phases out once your modified adjusted gross income (MAGI) is from $80,000 to $95,000 (for single filers) or $165,000 to $195,000 (for those married filing jointly), and isn’t allowed above those amounts.

Tuition and required fees are eligible expenses for both credits. Books, supplies, and course materials also qualify under the AOTC even if you don’t buy them from the school. For the lifetime learning credit, required books, supplies, and equipment qualify only if they’re billed by and paid to your school. In most cases, you’ll need a Form 1098-T from your school to claim a credit. Costs like insurance, medical expenses, room and board, other living expenses, and transportation don’t qualify.

The AOTC can reduce your tax bill by up to $2,500 each year for up to four years of undergraduate study. Parents may also be able to claim the credit for a dependent student. The AOTC is partially refundable, meaning that you can get up to 40% of the credit back as a refund even if your tax bill is zero.

To qualify, students must be pursuing a degree or recognized credential, be enrolled at least half-time for at least one academic period that begins in the tax year, not have completed the first four years of higher education at the year’s start, and have no felony drug convictions as of the end of the tax year.

If you received a scholarship that reduces the tuition you paid to less than $2,500, your credit may be limited, unless you include the scholarship in your income (which can increase the credit but may raise your taxable income).

The LLC is available for undergraduate, graduate, and professional degree courses, as well as courses to improve job skills. The maximum lifetime learning credit is $2,000 a year, regardless of how many students are claimed. If separate returns are filed, each return has its own $2,000 cap (married filing separately isn’t eligible). Unlike the AOTC, there’s no limit on the number of years you can claim it. The LLC is nonrefundable, meaning it can only offset any tax you owe. If your tax is already zero, you won’t get money back.

The LLC is flexible, and none of the AOTC requirements apply. You can claim it for just one course, and you don’t have to be in a degree program.

You can’t claim both credits for the same student in the same year. Income limits also apply. For the 2024 tax year, both credits phase out from $80,000 to $90,000 in MAGI for single filers and $160,000 to $180,000 for joint filers. If someone else claims you as a dependent, you can’t claim either credit yourself.

Before 2018, employees could deduct certain unreimbursed work-related education costs if they itemized and the expenses exceeded 2% of AGI. The Tax Cuts and Jobs Act (2017) suspended that deduction through 2025, and the One Big Beautiful Bill Act (2025) made the suspension permanent, so employees generally cannot deduct work-related education costs.

A few employee groups may still deduct qualifying unreimbursed job expenses, including certain education costs, as an adjustment to income:

Other situations:

The IRS allows a deduction for education costs only if they are required by your employer or by law to keep your current salary, status, or job, or to maintain or improve skills needed in your current job. Costs don’t qualify if they’re required to meet initial licensing or other minimum requirements for your field (for example, a first CPA license, a law degree, or an initial teaching certificate), or if the program would qualify you for a new trade or business.

College savings accounts can offer significant tax advantages. The two main options are 529 plans and Coverdell education savings accounts. Although contributions to these accounts don’t come with a federal tax deduction, your money grows tax free, and withdrawals aren’t taxed as long as you use them for qualified education expenses.

Some states also offer their own tax deductions or credits for contributions, so it’s worth checking your state’s rules.

You can also use money from a traditional or Roth individual retirement account (IRA) to pay for college costs. You’ll still owe income taxes on the withdrawal, but the 10% early withdrawal penalty doesn’t apply to qualified higher-education expenses.

Tax breaks such as the student loan interest deduction and education credits won’t erase the cost of higher education, but they can make it more manageable. Check whether you qualify and be sure to claim any benefits you’re eligible for when you file your tax return.