The deduction for interest paid on a student loan is one of several tax benefits for education. It is a special deduction that can be taken on your U.S. federal income tax return as an adjustment to income. The deduction reduces your income subject to tax, and you do not need to itemize in order to take this deduction.
Who Qualifies for the Deduction?
You qualify for the student loan interest deduction if you paid interest on a student loan that was used to pay higher educational expenses for a qualified student. The student loan can be for you, your spouse, or dependent.
You can claim the deduction for student loan interest if you meet all four of the following requirements:
Your filing status is any status except married filing separately,
No one else is claiming an exemption for you,
Your modified adjusted gross income is less than the maximum allowable amount before phase-out (this amount is doubled if married filing jointly),
You paid interest on a qualified student loan.
Provided you are the person legally obligated to make the interest payments, you may be able to deduct an interest payment made by someone else.
If the student is your dependent, you can deduct interest paid on a student loan only if:
You are the person legally obligated to make the interest payments,
You actually made the payments during the tax year, and
You claim an exemption for your dependent on your tax return.
To qualify, the loan cannot be from a related person or from a qualified employer plan. For these purposes, a related person is the student’s:
Spouse
Brothers and sisters
Half brothers and half sisters
Parents, grandparents, etc.
Children, grandchildren, etc.
Certain corporations, partnerships, trusts, and exempt organizations
Who is an Eligible Student?
The person for whom the expenses were paid must have been an eligible student, defined as follows:
The student was enrolled in a degree, certificate, or other program (including a program of study abroad) leading to a recognized educational credential at an eligible educational institution and
The student carried at least half the normal full-time workload for the course of study he or she was pursuing.
Being enrolled at least half-time means carrying at least half of what the eligible educational institution would consider a normal work load for the student’s course of study. This can vary from one educational institution to another.
What Educational Expenses Must Be Paid with the Loan Proceeds?
For purposes of the student loan interest deduction, expenses include:
Tuition and fees
Room and board
Books, supplies, and equipment
Other necessary expenses, such as transportation.
The cost of room and board qualifies to the extent that it is not more than the greater of:
The allowance for room and board as determined by the eligible educational institution and included in the cost of attendance (for financial aid purposes), or
The actual amount charged if the student is living in housing provided by the educational institution (on campus, for instance)