Why did my student loan interest payment refund not add to my refund dollar for dollar?

[elanarachelle]

I paid $1,400 in student loan interest payments, but only about $300 of that was added to my tax refund. Meanwhile the explanation said I would get a refund dollar for dollar up to $2,500. So what happened?

[jerry2000 · Accepted solution]

You misunderstood what you read. Student loan interest is a deduction not a tax credit. It does not reduce your tax dollar for dollar. It reduces your tax by the amount of the deduction times your marginal tax rate. For example, if you are in the 25% tax rate bracket, a $1,000 deduction reduces your tax by  $250.