Can I Deduct Foreign Student Loan Interest?
June, 02 2025 by Brittney D. Williams, EA and Veselina S. Arangelova, EA
It would be no surprise if we said, “The cost of higher education has continued to increase over the past 30 years.” This price increase is felt by every parent who supports their child in pursuit of higher education. As costs have risen, so has the need for student loans and other financial assistance, such as grants and scholarships. According to the Education Data Initiative, the current student loan debt in the United States is $1.77 trillion. Approximately 92.2% of student loans are federal student loans, while the remaining are private loans.1
Students today are not confined to just domestic institutions. In pursuit of broader horizons, some choose to embark on a global education journey, a transformative experience that opens doors to new cultures and perspectives, undeniably creating lasting memories. However, managing your taxes in these instances can be a daunting task, especially when it comes to keeping track of qualified education expenses for the student loan interest deduction.
This often-overlooked deduction can provide you with a lifeline that can significantly impact your tax return. In this blog post, we’ll unravel the complexities of this deduction, describe eligibility criteria, and provide you with actionable steps on how to audit-proof your return. We’ll start by reminding ourselves about the basics of student loan interest deduction.
What is Student Loan Interest?
Generally, student loan interest is interest you paid during the calendar year on a qualified student loan. It includes required and voluntary pre-paid interest payments. The term qualified is very important. A loan from a related person or from an employer-sponsored plan is not a qualified student loan.
To qualify for the student loan interest deduction, all the following must be true:
- You paid interest on a qualified student loan in the tax year you are claiming the deduction. For example, if you paid qualified student loan interest in 2024, you would report it on your 2024 personal income tax return.
- You’re legally required to pay interest on the qualified student loan.
- Your filing status isn’t Married Filing Separately.
- Your modified adjusted gross income (MAGI) must be under certain limits.
- Neither you nor your spouse, if you are married and filing a joint return, can be claimed as dependent on someone else’s return.
You may be wondering if these rules apply to a foreign student loan? The answer is yes. The actual amount of interest paid on loans taken from foreign lenders may be eligible for the student loan interest deduction as long as it is a qualified student loan, and all the above requirements apply. The rules are just the same as for a loan taken from a U.S. lender.
There is a small but distinct difference we should note. In the United States, if you pay more than $600 in interest toward your loans, you will be issued a Form 1098-E, Student Loan Interest Statement. This is a standard U.S. form that reports to the IRS the total amount of interest paid to a lender. You may receive more than one if you have multiple loans from different lenders. This is not a global form, and foreign institutions are not required to issue it, so there is a good chance you won’t receive one if the eligible school is located outside of the U.S.
You can still claim the student loan interest deduction in the absence of the 1098-E form. A bank statement showing the total amount paid for the year, even if reported in another currency, is sufficient proof. Just make sure to convert the total into U.S. dollars and keep good records of how you arrived at your numbers.
What is a qualified higher education expense?
Now that we know what a qualified student loan and interest are, let’s discuss what qualified higher education expenses are. Qualified education expenses are the total costs of attending an eligible education institution, including:
- Tuition and fees,
- Room and board,
- Books, supplies, and equipment,
- And other necessary expenses.
These necessary expenses must be:
- For you, your spouse, or a person who was your dependent when you took the loan.
- For education provided during an academic year for an eligible student.
- Paid or incurred within a reasonable period before or after you took out the loan.
What is an eligible educational institution?
In the United States, an eligible educational institution is any accredited, public, nonprofit, or privately owned college, university, vocational school, or other post-secondary school that is eligible to participate in the Federal Student Aid program administered by the U.S. Department of Education. Typically, most postsecondary institutions meet this definition.
To verify if your school is a qualified educational institution, check the U.S. Department of Education’s Database of Accredited Post-Secondary Institutions and Programs (DAPIP) or the Federal Student Loan Program list.
If you have a foreign student loan that you used to pay for a U.S. institution, you may check the links above to verify your school's standing. If your school was also foreign, like your loan, you may want to check with your school's administration to confirm its accreditation and that it is equivalent to one in the United States.
What else can be included as interest?
In addition to the interest on the loan, the following can be included as student loan interest when figuring the student loan interest deduction – but, keep in mind that certain requirements must be met:
- Loan origination fee – the origination fee must be used for the use of money and not for property or services provided by the lender.
- Capitalized interest – this is the interest added by the lender to the outstanding balance of the loan and is deductible as loan payments are made.
- Interest on revolving lines of credit – this includes interest on credit card debt if it was used only to pay for qualified education expenses.
- Interest on refinanced and consolidated student loans – the refinanced and consolidated loans must be for the same borrower.
How much is the student loan interest deduction?
The maximum amount you may be able to deduct from your taxes is the lesser of $2,500 or the actual amount of total interest you paid during the calendar year. In the event you have multiple student loans from one or more financial institutions, the total interest for the year is the sum of all interest paid on these loans. This amount is gradually reduced and eventually eliminated if your income reaches the annual limit for your filing status.
For 2024, the modified adjusted gross income (MAGI) limits are as follows:
- Single, Head of Household, or Widower – between $80,000 and $95,000
- Married Filing Jointly – between $165,000 and $195,000
- Married Filing Separately - $0
The student loan interest deduction is claimed as an adjustment to income, so you don’t need to itemize to receive the deduction. Let’s look at an example.
Max is ready to prepare his tax return for 2024 and, after reading the TaxAudit blog post about student loan interest deduction, he is convinced he can deduct the interest paid on his foreign student loan. His bank in Germany provided him with a statement that shows he paid the equivalent of $2,500 in student loan interest for 2024. Max earned $85,000 as a salary from his job, and he is not married. He doesn’t have any other income and can’t be claimed as a dependent on his parents’ return.
Before he determines how much can be deducted, Max calculates his modified adjusted gross income (MAGI). With only a salary of $85,000 and no other income or adjustments, his MAGI will equal his adjusted gross income (AGI). This is under the maximum income for a single person of $95,000 for the year, so Max will be able to deduct the entire $2,500 in student loan interest.
Remember: When figuring out an education credit or a deduction, you should only use the exact amounts you paid during the year. It is always good practice to keep records of the statements and forms you used to prepare your taxes if the IRS asks you to provide them. This includes:
- Statements issued by financial institutions showing how much you paid in the current year.
- Documents describing your qualified student loans.
- Documents relating to your qualified education program, if you graduated from a foreign institution.
This may not be an exhaustive list, but it is a great start. You can learn more about other educational benefits by referring to IRS Publication 970, Tax Benefits for Education.
(1)Hanson, Melanie, “Student Loan Debt Statistics,” EducationData.org, March 16, 2025,
https://educationdata.org/student-loan-debt-statistics
