The Student Loan Interest Deduction can help reduce your taxable income, but not every student loan qualifies. In general, you cannot deduct interest paid on a loan that was borrowed from:
- A related person, or
- A qualified employer plan
Understanding these restrictions can help you avoid claiming a deduction you're not eligible to receive.
Related Person Loans
You cannot deduct interest paid on a student loan you received from a related person. The IRS considers the following individuals to be related persons:
- Your spouse
- Your brother or sister
- Your half-brother or half-sister
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and other lineal descendants
- Certain corporations, partnerships, trusts, and tax-exempt organizations that have a relationship to you
Example
If your parents loaned you money for college and you pay them interest, that interest generally does not qualify for the Student Loan Interest Deduction.
Qualified Employer Plan Loans
Interest paid on funds borrowed from a qualified employer-sponsored plan, such as certain retirement plan loans, is not eligible for the Student Loan Interest Deduction.
What Loans Typically Do Qualify?
Student loan interest is generally deductible when the loan was obtained from a legitimate lender and used solely to pay qualified education expenses, such as:
- Tuition and fees
- Required books and supplies
- Certain room and board expenses while enrolled
You must also meet the other IRS requirements for the deduction, including income limitations and filing status rules.
Related Tip
Even if you don't qualify for the Student Loan Interest Deduction, you may still be eligible for other education tax benefits, such as the American Opportunity Credit or the Lifetime Learning Credit, depending on your situation. Our software will help identify the education benefits you qualify for and calculate the option that provides the greatest tax savings.