Why isn't turbo tax deducting the full amount of my student loan interest in the "federal tax due" window?

[tcsmitty2]

When I enter $1,200 of student loan interest paid, the tax due window only goes down by a couple hundred dollars.  I understand that it should deduct up to $2500

[jerry2000 · Accepted solution]

A student loan deduction is a deduction, not a credit. It does not reduce your tax dollar for dollar. It reduces your tax by reducing your taxable income. The maximum benefit you get from a deduction is the amount of the deduction times your marginal tax rate. For example, if you are in the 25% marginal tax bracket, a $1,000 deduction reduces your tax by, at most, $250.
The maximum student loan interest deduction that you can claim is $2,500 per tax return.