Student Loan Interest Deduction

College can be expensive. Many apply for financial aid in the form of student loans, grants or scholarships to make sure that they can attend a four-year institution for the full four years. Most college students take out at least one student loan during their college career.

The payments on subsidized student loans are deferred until you complete your education. This includes graduate school if you choose to continue your education after attaining a bachelor's degree. But, the time will come when you must ultimately begin to make the loan payments.

There are tax benefits for students and/or their parents when it comes to repaying those education loans. It's called the student loan interest deduction and can be claimed on your tax forms. A student or their parents (whoever actually repays the loan) can claim a $2,500 tax deduction for interest paid on a student loan in the first sixty months of the repayment.

The deduction can be claimed each year for the first five years of the loan. The purpose of the deduction is to help with the repayment of student loans. Students may not make a large sum of money when they first get out of school, and loan payments can take a big chunk of their paycheck. A tax deduction lowers the amount of taxable income for the tax-paying former student.

There are qualifications that the student loan has to meet. For a student loan to qualify, the loan proceeds must have been used for educational expenses. If the loan was not used for these, none of the interest is tax deductible. The loan interest can be claimed even if the tax filer does not itemize deductions.

A student must have attended school at least half time when they secured the loan. The time spent at school has to be leading towards a degree, certificate, or diploma. Just taking classes without a declared major or course of study does not qualify.

Qualified educational expenses include room and board, books, tuition, and fees. Transportation can be included if it's a necessary cost related to education. You are not allowed to claim the deduction for someone else who is not a qualified claimant.

The student must be yourself, your spouse, or a person who was a dependent of yours at the time they were in school. Even if you took out the loan two years ago, you may claim the deduction for the rest of the five year period on the student loan.

There is also an income requirement. Joint filers who claim the student loan interest deduction will lose their deduction if their income is between $60,000 and $75,000. For a single filer, the income for phase-out is between $40,000 and $55,000.