On the Bright Side, Student Loan Interest is Tax-Deductible

Submitted by latoyairby on Thu, 11/13/2008 - 05:28

The first November after I graduated college, I started paying back my student loans. Not one of the happiest moments in my life. Each month, I begrudgingly send three different checks to three different student loan lenders. Unfortunately, this will go on for the next 15-20 years until I get these loans completely repaid.

There’s one thing I like, at least a little bit, about paying back my student loans -

the interest I pay is tax-deductible. Even better, it’s one of those “top of the line” tax-deductions that you can take whether you itemize or take the standard deduction.

These are the IRS’s qualifications for claiming the deduction:

  • You paid interest on the loan during the tax year.
  • You’re filing anything but married filing separately.
  • You made less than $65,000 (modified adjusted gross income) during the year ($135,000 if you’re filing jointly). These are 2007 numbers. Those for 2008 haven't been posted to the IRS' website.
  • You can’t be claimed as a tax dependent (or your spouse if filing jointly).

You can claim a maximum $2,500 deduction. But you can’t claim more than that, even if you paid more.

If you paid more than $600 interest on a qualifying loan, your lender should send you a Student Loan Interest Statement at the beginning of the next calendar year. This form is also known as 1098-E.

Even though student loan payoff may be a few years off, I’m consoled by the fact that I get a tax benefit for a portion of my payments.