Written By Adam S. Minsky, JD
Updated on April 1, 2025
As Americans race to file their tax returns, millions of student loan borrowers may have one final opportunity to claim a popular student loan tax deduction. That’s because Republican lawmakers in Congress are considering eliminating the tax deduction starting next year — along with a number of other major changes to the tax code and student loan programs.
For nearly 30 years, student loan borrowers have been able to deduct up to $2,500 in student loan interest paid during the year on their tax return. This has allowed borrowers to reduce their tax burden or increase their tax refund. But as part of a massive reconciliation bill primarily intended to extend broad tax cuts that went into effect in 2017, congressional Republicans are looking for ways to cut federal spending to offset the costs of those tax cut extensions. And student loan programs and benefits, including the student loan interest tax deduction, may get nixed.
Here's what borrowers should know.
How the student loan interest tax deduction works
In 1997, President Bill Clinton signed the Taxpayer Relief Act. One of the provisions of this law allowed student loan borrowers to deduct the interest they’ve paid on their loans, subject to caps and income limitations. The tax deduction has been in effect since then.
According to IRS guidance, “Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily prepaid interest payments.” Student loan borrowers may deduct “the lesser of $2,500 or the amount of interest you actually paid during the year.”
Related: Student Loan Interest Tax Deduction Calculator for 2025
A student loan that qualifies for the tax deduction must be “a loan you took out solely to pay qualified higher education expenses that were: for you, your spouse, or a person who was your dependent when you took out the loan; for education provided during an academic period for an eligible student; and paid or incurred within a reasonable period of time before or after you took out the loan.”
The student loan interest tax deduction is subject to income restrictions and “is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.”
Qualifying student loan borrowers who paid at least $600 in student loan interest in the prior year would be issued a Form 1098-E, Student Loan Interest Statement, typically by their loan servicer or lender.
GOP lawmakers propose eliminating student loan interest tax deduction
But Republican lawmakers are proposing to eliminate this tax deduction. If they do, 2025 could be the last year that student loan borrowers will be able to benefit from it.
A House Budget Committee memo leaked to the media earlier this year identifies dozens of programs that lawmakers are evaluating to restrict or repeal in order to offset the costs of extending the expiring tax cuts.
Among them is the student loan interest tax deduction.
“Eliminate Deduction of Interest on Student Loans,” reads the memo. “Taxpayers can deduct up to $2,500 of interest paid on student loans from their taxable income. This option would eliminate the deduction for student loan interest.” GOP appropriators anticipate that repealing the student loan interest tax deduction would save $30 billion over 10 years.
Lower and middle-income borrowers would be hardest hit by the proposed changes, given the income caps that limit the ability of higher-income earners to claim the deduction.
Related: Top Student Loan Tax Documents You Can’t Afford to Overlook
Other tax and student loan changes may hit borrowers hard
The repeal of the student loan interest tax deduction is just one of many proposals Republican lawmakers are looking at that could impact student loan borrowers. Additional items on their list of potential targets include:
- Repealing the SAVE plan, the Biden-era income-driven repayment program that offers borrowers lower monthly payments and an interest subsidy designed to prevent runaway balance growth. SAVE is also facing a legal challenge, and millions of borrowers who had been in the SAVE plan are now in a forbearance.
- Eliminating all existing IDR plans (including Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn) and replacing these plans with a new repayment plan tied to income, but without student loan forgiveness after 20 or 25 years, as the current IDR plans offer. Instead, the new plan would only provide for loan forgiveness after the borrower has paid at least the amount they would have paid in total over the course of a 10-year Standard plan. Many borrowers will never do that, meaning they could be stuck in repayment for decades or the rest of their lives. Current borrowers may be grandfathered into the current repayment plan options.
- Repealing new regulations for Borrower Defense to Repayment and Closed School Discharge programs, which are Biden-era regulations designed to make it easier for borrowers to qualify for relief.
- Imposing new eligibility restrictions on Public Service Loan Forgiveness (PSLF), potentially based on the size of the borrower’s balance or their income. It is unclear if current borrowers would be grandfathered in.
- Eliminating the tax-exempt status of nonprofit hospitals, which could jeopardize PSLF eligibility for millions of healthcare workers who are pursuing student loan forgiveness based on their profession.
- Sunsetting the Parent PLUS and Graduate PLUS program, taxing scholarships, and taxing fellowship income. All of this could make it harder for college and graduate students to afford their degree, and it could push some families to rely more on private student loans, which generally have fewer repayment options and can go into default more easily.
Related: Will Student Loan Forgiveness Get Rolled Back In 2025? 4 Things to Watch
Taken together, these potential changes, coupled with the elimination of the student loan interest tax deduction, could dramatically increase the cost of repayment for millions of borrowers.
In addition, most observers do not expect congressional Republicans to extend federal tax relief for student loan forgiveness that is set to expire at the end of this year. Without such an extension, student loan forgiveness under IDR plans would revert to being taxable again.
Profession-based student loan forgiveness, such as through PSLF, should remain tax-free unless Republican lawmakers impose new tax obligations on that program. It is less clear whether Congress will extend federal tax relief for the Total and Permanent Disability (TPD) discharge program, which Republicans and President Trump supported in 2017.
