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Student Loan Interest Deduction


Borrowers of qualified education loans may deduct up to $2,500 in interest on their federal income tax returns as an above-the-line exclusion from income. This includes interest paid on federal and private education loans. This deduction may be taken even if the taxpayer does not itemize.

Amount of the Deduction

You can deduct up to $2,500 in interest on a qualified education loan. The deduction is taken as an adjustment to income, so you can take the deduction even if you don't itemize deductions on Schedule A of your 1040.

Qualified Education Loans

The interest must have been paid on a qualified education loan for you, your spouse, or someone who was your dependent when the money was borrowed.

A qualified education loan is defined as a debt borrowed solely to pay qualified higher education expenses. Mixed-use loans do not qualify. This means that if the borrower refinances their education loans and receives cash out, interest on the new loan is no longer deductible. However, if the excess cash is only used to pay for higher education expenses, the interest on the new loan remains deductible. Similarly, if a credit card is used only for qualified higher education expenses, the interest is deductible (and the debt is excepted from bankruptcy discharge). A single unqualified expense on the card, however, will make the credit card interest non-deductible.

Interest on private education loans qualifies, provided that the higher education expenses are attributable to a particular academic period and the disbursement used to pay for those expenses occurred during the academic period or a 90-day window at the start and end of the academic period. Education loans do not need to be federally guaranteed to qualify. The debt, however, may not be owed to anybody who is related to the borrower.

According to regulations published by the IRS on May 7, 2004, education loan origination fees and capitalized interest qualify as deductible education loan interest. The amounts are amortized over the term of the loan (i.e., divide the capitalized interest by the number of years of the loan). Lenders will start reporting origination fees and capitalized interest for loans made on or after September 1, 2004. Students and parents can claim the deductions for past years by filing amended income tax returns.

Note that the borrower must have been legally obligated to make payments under the terms of the loan. If a parent makes payments on a student's loans, the parent cannot claim the student loan interest deduction based on those payments, since the parent was not legally obligated to make payments on the student's loans. However, the student may claim the deduction based on payments made by the parent (assuming that the student is not claimable as a dependent on someone else's federal income tax return).

A borrower is able to claim the student loan interest deduction based on voluntarily makes payments of interest during a period when such payments are not required, such as during a forbearance, deferment or grace period.

Eligible education expenses include tuition, fees, room and board, books, supplies, and equipment, transportation expenses, and other necessary expenses (as included in the school's student budget).

Additional Eligibility Restrictions

To take the deduction, you must not be claimed as an exemption on someone else's tax return.



Coordination Restrictions



Income Phaseouts

The deduction is phased out for taxpayers with adjusted gross incomes of $60,000 to $75,000 (single filers) and $120,000 to $150,000 (married filing jointly). (These are 2010 income phaseouts.)

Taxpayers who are married but filing separate returns are not eligible.



The 5-year limitation on the student loan interest deduction was temporarily repealed by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) through the end of 2012. This repeal was made permanent by the American Taxpayer Relief Act of 2012, which eliminated the sunset provisions of EGTRRA.


Mark Kantrowitz, Founder