Why does student loan interest deduction reduce the amount of your AGI on taxes?

Yes, if you qualify.

That's what a "deduction" is -- subtract you subtract. "Deduct" is another word for "subtract".

Because it's a deduction, and that's what deductions DO. Look up what deduct means.

Congress has said that things like education loans are worth subsidizing with deductions for interest so that people will do this "good" thing. Increase in taxes to dis-incentives lower taxes/deductions/credits to incentive an action.

You subtract it from the AGI because congress says you can. Congress says you can to encourage more people to go to college even if it means taking loans.

When the 1040 was 2 pages it was easier to see, some deductions went on page 1 like student loan interest, and some went on page 2.

The benefits of the page 1 deductions were that you could still take the standard deduction and take these specific limited deductions. Otherwise you would of had to itemize and many people do not pay enough student debt interest to make itemizing the better choice.

Because that's what a "deduction" is in the context of U.S. income tax.

A reduction of your total taxable income, so that your total tax burden is reduced, in such a way that a person in a higher tax bracket gets less benefit from it than someone in a lower bracket.

If it were a tax *credit* everyone would get the same benefit.

Less income is taxed

The less AGI, the less taxes.

You WANT your AGI to be low so that you have less tax liability.