Do you have private student loans? Don't forget to take this tax deduction

While federal student loan borrowers haven't had to face loan repayment or worry about racking up interest charges since the beginning of the pandemic, private student loan borrowers haven't been as lucky since the current federal payment moratorium doesn't apply to student loans that are privately funded.

According to EducationData, it's estimated that 13% of students use loans from a private source such as a bank or credit union. As student loans continue to be a burden for millions of Americans, there's a bit of a silver lining in the form of a special tax benefit those in this situation can take advantage of.

Below, Select details a helpful tax benefit all private student loan borrowers should be aware of and how they can reduce the amount of student loan interest they'll pay in the future.

If you accrued any student loan interest in 2021, your lender should be sending you a 1098-E form, which discloses how much you have paid in total for that year. You'll find this on line 21 of the Schedule 1 (form 1040), and you're able to deduct up to $2,500.

Note, however, that this deduction is limited and based entirely on your 2021 income. If your modified adjusted gross income was under $70,000 (for single filers) or $140,000 (if filing jointly,) you're allowed to deduct the entire $2,500. If your modified adjusted gross income was between $70,000 and $85,000 (for single filers) or $170,000 (if filing jointly), you're allowed to deduct less than than the $2,500 maximum.

Keep in mind that any principal you pay down on your student loan is not tax-deductible. Whether you're working with a tax professional or using a tax software service like H&R Block or TurboTax, indicate the amount of student loan interest you paid in 2021 to help reduce your taxable income.

Paying down your student loans isn't a fun journey, and seeing the interest rack up on all that debt can feel like adding salt to the wound. The good news is there is one way you can significantly reduce the amount of interest that's being paid out.

Refinance your student loans

Similar to the way you would refinance a mortgage, the act of refinancing your student loans simply means you're moving your debt from one place to another in order to earn a lower interest rate or secure better repayment terms. The best part is the process is simple and in many cases, fee-free.

I've actually refinanced my student loans six times and it's saved me tens of thousands of dollars in interest, allowing me to significantly pay down my loans from nearly $80,000 to less than $10,000 in under seven years. Now that I'm working with a mere 2.25% interest rate by using a personal line of credit, I'm slowly paying back my loans and prioritizing investing within my 401k and Roth IRA.

To get started refinancing, find your current student loan balance, interest rate and repayment schedule. From there, see if a student loan refinancer like SoFi* or KeyBank can offer better repayment terms or come up with a lower interest rate.

In my own student loan journey, the combination of making heavy repayments and refinancing my interest rates down as far as possible has been the key to paying them off in full.

Just remember that if you have federal student loans and refinance them with a private lender, you'll lose federal protections and won't be eligible for the current federal student loan payment mortarium.

Student loans are a large financial burden for millions of Americans, but with an aggressive debt pay-down strategy of refinancing your loan and taking advantage of tax benefits along the way, you can begin crushing your student debt.

And once your student loans are under control and you're confident you can continue paying them down, you'll be able to prioritize other important things, like having a fully-funded emergency fund and investing for the future.

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*Fixed rates range from 3.99% APR to 10.99% APR with 0.25% autopay discount and 0.125% SoFi Plus discount. Variable rates range from 5.74% APR to 10.99% APR with 0.25% autopay discount and 0.125% SoFi Plus discount. Unless required to be lower to comply with applicable law, Variable Interest rates will never exceed 13.95% (the maximum rate for these loans). SoFi rate ranges are current as of 8/19/26 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. You may pay more interest over the life of the loan if you refinance with an extended term. Autopay Discount: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly payments as outlined in your loan agreement by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. When the autopay interest rate deduction is added or removed, the next time the loan is re-amortized (quarterly for fixed rate loans; monthly for variable rate loans),the principal balance of your loan will be spread over the remaining loan term, and your monthly payment amount will change. This benefit is suspended during periods of deferment, grace period, or forbearance. Autopay is not required to receive a loan from SoFi. SoFi Plus Discount: To be eligible to receive an additional (0.125%) interest rate reduction on your Student Loan Refinancing (your "Loan") for enrolling in SoFi Plus, you must enroll in SoFi Plus within 30 days of Loan funding, either by receiving an Eligible Direct Deposit to your SoFi Checking and Savings account, or by paying the SoFi Plus Subscription Fee. Once eligible, you will receive this discount during periods in which you have received Eligible Direct Deposit to your SoFi Checking and Savings Account, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount lowers your interest rate but does not change the amount of your regular monthly payment. This discount will be removed during periods in which SoFi determines you have turned off Eligible Direct Deposit to your Checking and Savings account or in which you have not paid the SoFi Plus Subscription Fee. SoFi reserves the right to change or terminate this interest rate reduction offer for unenrolled participants at any time without notice. You are not required to enroll in Eligible Direct Deposit or to pay the SoFi Plus Subscription Fee to be eligible for Loan approval. See what qualifies as an Eligible Direct Deposit here: www.sofi.com/terms-of-use/#slr-discount
Eligible Direct Deposit means regularly recurring deposit of regular income to an Automated Clearing House ("ACH") Network during a 30-Day Evaluation Period (as defined below). Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not generate payments that are detectable by our system. So qualifying direct deposits are those where the student loan refinance discount rate is applied automatically for each month where you have an Eligible Direct Deposit of at least $1,000 per 30-day Evaluation Period. Eligible Direct Deposit does not include transfers between accounts you own, refunds, rebates, reimbursements, stimulus payments, merchant refunds, or payments from person-to-person payment services (such as Venmo). To qualify for the 0.25% interest rate reduction, the direct deposit must be recurring and paid directly into a SoFi Checking or Savings account. For the avoidance of doubt, deposits made via check, cash, or mobile check deposit are not eligible. Direct Deposit eligibility is determined by SoFi's sole discretion. The 30-Day Evaluation Period refers to the period starting on the "Start Date" and ending on the "End Date" set forth on the App Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APV Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking → Checking → APV or (ii) Banking → Checking → APV Details. If you do not qualify for the discount during the initial 30-Day Evaluation Period, your loan will not be eligible for a discount unless you re-qualify in a later 30-Day Evaluation Period. If you qualify during the 30-Day Evaluation Period, the discount will be applied on a going-forward basis only. SoFi Bank determines eligibility. If you have a joint account, each account holder receives Eligible Direct Deposits into your SoFi Checking and Savings account, then you will be eligible for all SoFi Plus benefits, including on accounts you hold in your own name. Federal Loan Disclosure: Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELiIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligiblity. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).