Tax form for student loan interest: Forms 1098-E and 1098-T

What Form 1098-E reports and when it arrives

Form 1098-E is the statement a student loan servicer issues for a borrower who paid $600 or more of student loan interest during the year. The IRS says a borrower who paid that much should receive one. The servicer must provide the statement, on paper or electronically, to the borrower, and the form reports interest, not principal.

The deduction is based on the interest actually paid, not on the form. The IRS sets the deduction at the lesser of $2,500 or the interest actually paid in the year. If the servicer did not send a Form 1098-E, pull the interest total from the servicer's year-end statement online.

If two servicers each send a Form 1098-E, add the interest from both forms before you apply the cap. The $2,500 limit applies once to the return, not once per form.

How the $2,500 deduction phases out

The deduction phases out as modified adjusted gross income rises. The IRS topic page on the deduction does not print the phaseout range, and the range is set each year. A 2026 return needs the range published for 2026, not the figures in a 2025 article, so look up the 2026 range in the IRS instructions for the 2026 return before you calculate.

Work the reduction instead of estimating it. Use the IRS worksheet for the deduction, enter the client's modified AGI, and take the reduced figure. The result is never more than $2,500 and never more than the interest actually paid. The modified AGI input matters as much as the interest total.

Filing status is a hard stop. The IRS lists filing status as a requirement, and a client who files married filing separately does not meet it. Confirm the filing status before you enter the interest, and note in the file if the client changes status late in the process.

Example: interest paid is above the $2,500 cap, and the phaseout cuts the maximum to half the cap. The deduction is half of $2,500. The file should show the reduced figure and the modified AGI used to reach it.

What Form 1098-T reports

Form 1098-T is filed by the eligible educational institution for each student it enrolls. Box 1 is the total of payments the school received for qualified tuition and related expenses from all sources during the calendar year. Box 2 is reserved for future use on the 2026 form, so a blank Box 2 is correct.

Box 5 is the total of scholarships or grants the school administered and processed during the calendar year. Box 6 is the reduction to scholarships or grants reported for a prior year. Box 7 is checked when some of the Box 1 payments are for an academic period beginning January through March of the following year.

The figure that matters for the credit is what was paid for qualified expenses in the tax year. Publication 970 tells filers to use only the amounts they paid and are deemed to have paid during the year, and it notes that the amount on Form 1098-T might be different from the amount actually paid.

When Box 1 does not match what was paid

Decision rule: if Box 1 is higher than what the family paid, claim the amount paid and keep the school statement that shows the difference. If Box 1 is lower than the amount paid, claim the qualified expenses you can substantiate as paid in the year, reconcile the difference in the file with receipts and the school's itemized statement, and ask the school for a corrected statement if the discrepancy looks like a school error.

The usual cause is a payment made in one year for a term that starts in the next year. Box 7 shows the school has flagged that case, so ask for the term-by-term breakdown. Send this wording: "Please send a statement of payments received in 2026, itemized by date and by academic term, and tell us which payments you reported in Box 1, Box 5 and Box 6." Keep the reply in the return file.

Failure mode: the family enters the tuition billed for a term instead of the payments made in the year. Fix: build the expense figure from the payment receipts, reconcile it to Box 1 and Box 5, and write the difference in the file. The credit then rests on money that was paid in the year.

Choosing the AOTC or the LLC

The American opportunity credit (AOTC) is up to $2,500 per eligible student. The first $2,000 of qualified expenses counts at 100% and the next $2,000 at 25%. Up to 40% of the credit may be refundable. The AOTC is available for only four tax years per student, and the student must not have completed the first four years of postsecondary education, as the 2025 instructions test that rule.

The lifetime learning credit (LLC) is up to $2,000 per return, equal to 20% of up to $10,000 of adjusted qualified education expenses per return. It is not limited to four years, and the limit applies to the return rather than to each student.

Decision rule: test the AOTC first for each student. It requires that the student has not finished four years, is carried at least one-half the normal full-time workload, and is in a program leading to a degree or other recognized credential. If any of those fails for a student, test the LLC for that student. For each student, you can elect for any year only one of the credits.

Example: one student in year two, enrolled at least half-time, with $4,000 of qualified expenses and joint modified AGI under $160,000. The AOTC gives 100% of $2,000 plus 25% of $2,000, which is $2,500. The LLC gives 20% of $4,000, which is $800. The AOTC is the better choice for that year.

Both credits phase out between $80,000 and $90,000 of modified AGI for single filers, and between $160,000 and $180,000 for joint filers, according to the 2025 Form 8863 instructions. Confirm the 2026 Form 8863 instructions before you use these ranges on a 2026 return.

Records to hold before you claim either credit

Publication 970 says the law requires a taxpayer, or a dependent, to have received Form 1098-T, with exceptions. If the client does not have one, the credit can still be claimed only if you can show enrollment and substantiate the payment of qualified expenses. Ask the school for a replacement or an enrollment verification letter before you prepare the return.

Build the file from four items: the Form 1098-T; the school's itemized statement of account; proof of payment, such as a bank or card statement, a receipt or the school's payment history; and enrollment verification that shows the student's enrolled hours and term dates.

Send this wording to the school: "Please send the Form 1098-T for 2026, an itemized statement of payments by date, and an enrollment verification that shows the student's enrolled hours and term dates." Keep the reply in the same file.

Failure modes and fixes

Claiming the interest deduction on principal payments. The servicer's total for the deduction is interest. Fix: use the interest total from the Form 1098-E or the year-end statement, and check that the figure does not include principal.

Claiming the AOTC for a fifth year. The four-year limit is counted per student across years. Fix: pull the student's prior returns or prior credit claims before you claim the AOTC, and write the count in the file.

Claiming both credits for the same student in the same year. The rule allows one credit per student per year. Fix: record which credit was chosen for each student and the figures used for it.