Continuing the AIM Financial IRS tax form series, the next blog covers IRS Form 1098-E, which helps student loan borrowers understand the student loan interest deduction and how it may affect their federal income taxes.

What Is IRS Form 1098-E?

If you made payments on qualifying student loans during the tax year, you may receive IRS Form 1098-E, Student Loan Interest Statement. This form reports qualifying student loan interest received by a lender or loan servicer during the year.

The information can help you determine whether you qualify to deduct student loan interest on your federal income tax return. For eligible borrowers, this deduction may reduce taxable income and potentially lower the amount of federal income tax owed.

However, receiving Form 1098-E does not automatically mean you qualify for the deduction. Eligibility depends on factors such as your filing status, modified adjusted gross income, whether you can be claimed as a dependent, and whether the loan qualifies under IRS rules.

For borrowers in Grand Rapids, Kentwood, Wyoming, Middleville, and throughout West Michigan, understanding Form 1098-E can make tax preparation easier and help you identify a potential tax benefit.

Who Receives Form 1098-E?

You may receive Form 1098-E if you paid interest on qualifying student loans during the year and your lender or loan servicer meets the applicable reporting requirements.

Common situations include:

• Making payments on federal student loans.
• Repaying eligible private education loans.
• Paying student loan interest through a loan servicer.
• Having multiple student loans administered by different lenders.

If you have several student loans, you may receive more than one Form 1098-E. Some borrowers may also need to obtain interest information directly from their loan servicer if a form is not issued.

Keep your Form 1098-E with your other tax documents. Even if you do not receive a form, you may still want to verify whether you paid qualifying interest and whether you meet the deduction requirements.

Understanding the Information on Form 1098-E

Form 1098-E is generally more straightforward than some other IRS information returns.

Box 1: Student Loan Interest Received by the Lender

Box 1 generally reports the amount of student loan interest received by the lender or loan servicer during the calendar year.

This amount is the starting point for evaluating your potential student loan interest deduction. However, the amount you can actually deduct may be less than the amount shown, depending on your eligibility and applicable tax limits.

For example, a borrower may have paid interest during the year but have income above the applicable limit. Another borrower may not qualify because of filing status or dependency rules.

Review the amount carefully and retain supporting payment records in case you need to verify the information.

How Much Student Loan Interest Can You Deduct?

Eligible taxpayers may be able to deduct up to $2,500 of qualifying student loan interest per year, subject to applicable requirements and income limitations.

The deduction is an adjustment to income. That means eligible taxpayers generally do not have to itemize deductions on Schedule A to claim it.

However, the maximum deduction is not available to everyone. Your deduction may be reduced or eliminated when your modified adjusted gross income reaches the applicable phaseout range for your filing status and tax year.

Income limits and other requirements can change, so use the IRS instructions for the specific year you are filing.

Who Qualifies for the Student Loan Interest Deduction?

To claim the student loan interest deduction, you generally must meet several requirements.

You Must Have Paid Qualifying Interest

The deduction generally applies to interest actually paid during the tax year on a qualifying student loan. Paying down loan principal does not count as paying interest.

Review your Form 1098-E and loan payment history to distinguish interest from principal payments.

The Loan Must Meet IRS Requirements

The loan generally must have been taken out solely to pay qualified higher education expenses for you, your spouse, or someone who was your dependent when the loan was taken out.

Qualified expenses can include eligible tuition, fees, room and board, books, supplies, and certain other education-related costs, subject to the rules.

Not every loan used to pay bills while attending college will necessarily qualify. Personal loans and other borrowing arrangements may not meet the definition of a qualified student loan.

You Must Meet Filing Status and Dependency Rules

You generally cannot claim the student loan interest deduction if your filing status is married filing separately. You also generally cannot claim it if another taxpayer can claim you as a dependent.

This is particularly important for younger adults who are beginning to repay student loans while still being claimed on a parent’s tax return.

Your Income Must Fall Within the Applicable Limits

The deduction is subject to income-based phaseouts. Depending on your modified adjusted gross income and filing status, you may qualify for the full deduction, a reduced deduction, or no deduction.

Check the current IRS guidance for the applicable income thresholds rather than relying on figures from an earlier tax year.

Do You Need to Itemize to Claim Student Loan Interest?

No. The student loan interest deduction is generally claimed as an adjustment to income rather than as an itemized deduction.

This can make it valuable for eligible taxpayers who take the standard deduction.

For example, a borrower who qualifies for a student loan interest deduction may be able to reduce adjusted gross income even if they do not have enough itemized expenses to make itemizing worthwhile.

The actual tax savings depend on your overall income, deductions, credits, and other circumstances. A deduction reduces taxable income; it does not directly reduce your tax bill dollar for dollar.

What If You Paid Less Than $600 in Student Loan Interest?

A lender or loan servicer generally must issue Form 1098-E when the applicable reporting threshold and requirements are met. If you paid less than the threshold, you may not receive the form.

That does not automatically mean you should ignore your student loan interest payments. Check your annual loan statement or contact your servicer to determine how much qualifying interest you paid.

Whether you can deduct that interest still depends on the tax rules and your eligibility.

If you have multiple student loans, remember that interest information may come from more than one servicer. Review the combined amount and avoid counting the same interest twice.

What If Your Student Loans Were Forgiven or Discharged?

Student loan forgiveness and discharge can have separate tax consequences. Depending on the type of loan, the reason for forgiveness, the date, and applicable federal law, some canceled student loan debt may be taxable or excluded from taxable income.

Form 1098-E reports interest, not necessarily the full tax consequences of loan forgiveness. If you received a separate cancellation-of-debt form or notice, provide it to your tax preparer.

Do not assume that student loan forgiveness is always taxable or always tax-free. The applicable rules can vary, and federal and state treatment may differ.

Common Form 1098-E Tax Filing Mistakes

Borrowers should watch for several common errors when preparing their income tax returns:

• Assuming the entire amount is deductible: Income limits and eligibility rules may reduce or eliminate the deduction.
• Confusing principal with interest: Only qualifying interest is generally considered for this deduction.
• Ignoring multiple loan servicers: You may need to combine information from multiple forms without double-counting.
• Overlooking dependency status: Being claimed as a dependent can affect eligibility.
• Using outdated income limits: Phaseout thresholds and tax rules should be checked for the correct tax year.
• Assuming all education loans qualify: The loan must meet IRS requirements.
• Forgetting related tax documents: Loan forgiveness or discharge may require a separate review.

Keeping loan statements, payment records, and tax forms organized can help reduce reporting errors.

How AIM Financial Can Help With Student Loan Tax Questions

Student loan interest is one of several education-related tax issues that can affect students, recent graduates, parents, and working professionals.

AIM Financial can help individuals and families with federal and Michigan income tax preparation, including reviewing Form 1098-E, evaluating whether the student loan interest deduction may apply, and organizing information needed for an accurate return.

If you are looking for tax preparation in Grand Rapids, Kentwood, Wyoming, Middleville, or elsewhere in West Michigan, AIM Financial can help you understand your tax documents and determine which reporting requirements may apply to your circumstances.

Before filing, gather your Form 1098-E, annual student loan statements, information about your income, and any other relevant tax documents. If you have several loans or questions about eligibility, a careful review can help clarify your options.

Contact AIM Financial for Tax Preparation Assistance

Whether you recently graduated from college or have been repaying student loans for years, do not overlook the potential tax implications of your interest payments.

Contact AIM Financial to discuss your federal and Michigan income tax preparation needs. For borrowers in Grand Rapids and surrounding West Michigan communities, AIM Financial can help you work through your tax documents and understand the deductions that may be available.

AIM Financial — helping individuals and families navigate income tax preparation with greater confidence.

This article is for general educational purposes only and does not constitute individual tax advice. Deduction limits, income phaseouts, and student loan tax rules can change. Consult the current IRS instructions or a qualified tax professional for guidance about your circumstances.