A Raise from $85K to $100K Can Cost You the Entire $2,500 Student Loan Deduction
We ran the same $2,500 in student loan interest through the calculator at three different MAGI levels for a single filer. At $60,000, the full $2,500 deduction applies — worth $550 at a 22% marginal tax rate. At $92,500, the midpoint of the 2025 phase-out window, only half survives: a $1,250 deduction. At $100,000, the deduction is completely gone — not reduced, gone — even though the loan and the interest paid are identical across all three scenarios.
Same $2,500 in interest, three different outcomes
| MAGI | Phase-out fraction | Deductible amount | Tax saved (22% bracket) |
|---|---|---|---|
| $60,000 | 0% | $2,500 | $550 |
| $92,500 | 50% | $1,250 | $275 |
| $100,000 | 100% | $0 | $0 |
The deduction doesn’t step down in a few discrete jumps — it phases out continuously across the $15,000 window between $85,000 and $100,000, which means two people with nearly identical incomes just inside and just outside that range can see meaningfully different tax outcomes from the same loan interest paid.
The raise that costs you more than it pays
Because the phase-out is linear across a fixed dollar window, a raise that lands squarely inside it effectively taxes the deduction away on top of ordinary income tax. Someone at $90,000 MAGI who gets a $10,000 raise to $100,000 doesn’t just pay tax on the extra $10,000 — they also lose whatever remained of the $2,500 deduction, an effect that doesn’t show up on a pay stub but shows up clearly at tax time. It’s not a reason to turn down a raise, but it is a reason not to be surprised when the student loan deduction shrinks the same year income grows.
Where this framework breaks
- You can be claimed as a dependent. The deduction belongs to whoever is legally obligated on the loan and not claimed as someone else’s dependent — a parent paying a dependent’s loan interest generally can’t claim it, and neither can the dependent in that case.
- The loan isn’t in your name. Only interest on a loan you’re legally obligated to repay counts; co-signing doesn’t create eligibility on its own if you’re not the one making payments as the primary obligor.
- MAGI has education-specific add-backs. For most filers MAGI here is close to AGI before this deduction, but specific add-backs (foreign earned income exclusion, foreign housing exclusion) apply to some filers — check the Publication 970 worksheet if those apply.
- Interest paid is under $600. Loan servicers aren’t required to send a Form 1098-E below that threshold, though the deduction can still be claimed with your own payment records.
What to actually do
- Pull actual student loan interest paid from Form 1098-E, or your own records if under $600.
- Check your actual MAGI against the 2025 phase-out window for your filing status before assuming the full $2,500 applies.
- If married, run the numbers both jointly and separately — the flat MFS ineligibility usually outweighs whatever else separate filing might save.
- Remember this is an above-the-line deduction — claim it even if you take the standard deduction.
- If close to a phase-out threshold, consider whether pre-tax retirement contributions (which lower MAGI) could preserve more of the deduction.
For the bigger lever on federal loan cost itself, see the IDR forgiveness tax bomb, priced honestly, and for understanding your actual marginal rate behind the tax-saving estimate here, see the marginal vs effective tax rate myth.
Open the Student Loan Interest Deduction Calculator → and run your own interest paid, MAGI, and filing status.