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How To Get a Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan, and there are tax credits available while paying for college that can help you save, maximizing your available budget. This page explains student loan interest deductions. Also learn about tax credits you can receive while paying for college.

Student Loan Interest Deduction

A Student Loan Interest Deduction can reduce the amount of your income subject to tax by up to $2,500 in 2009. Generally, you can claim the deduction if all of the following requirements are met: Your filing status is any filing status except married filing separately, no one else is claiming an exemption for you on his or her tax return, you are legally obligated to pay interest on a qualified student loan, and you paid interest on a qualified student loan.

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments. This is a loan you took out solely to pay qualified education expenses (defined later) that were: for you, your spouse, or a person who was your dependent when you took out the loan, paid or incurred within a reasonable period of time before or after you took out the loan, and for education provided during an academic period for an eligible student.

Who is eligible for a student loan interest deduction?

This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. The standard for what is half of the normal full-time work load is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the Department of Education under the Higher Education Act of 1965.

Qualified Education Expenses

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for college tuition and fees, room and board, books, supplies, and equipment, and other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

  1. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
  2. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Adjustments to Qualified Education Expenses

You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items.

  • Employer-provided educational assistance.
  • Tax-free distributions from a Coverdell education savings account (ESA).
  • Tax-free distributions from a qualified tuition program (QTP).
  • U.S. savings bond interest that you exclude from income because it is used to pay qualified education expenses.
  • The tax-free part of scholarships and fellowships.
  • Veterans' educational assistance.
  • Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.

Income limits

The amount of your student loan interest deduction for 2009 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return). This is an increase from the 2008 limits of $55,000 and $70,000 ($115,000 and $145,000 if you file a joint return).

For More Information on Student Loan Interest Deductions

More information on the availability of these credits can be found in IRS Publication 970: Tax Credits for Higher Education.