The Student Loan Tax Deduction


There goes the IRS again…trying to help Americans improve their lives.  This time it’s the student loan tax deduction: encouraging us to to attend college, get loans, and deduct the interest on those loans.  Now don’t get me wrong: going to college can be a great thing.  And yes sometimes debt is necessary: in this case for the greater career goal you have in mind.  And yes, while every single tax deduction will help you in the end, this isn’t going to dramatically change your life.  The most deduction you can get is $2500 (that’s a deduction, not a credit so it’s not worth $2500 in your pocket). For more on student loan interest rates see the American Student Assistance website here.

How to Qualify for the Student Loan Tax Deduction

The IRS uses the term Qualified Education Loan, so let’s take a look at what constitutes “qualified”.

  1. First of all, your loan must be a loan that’s solely for eduction.  And it has to be higher education.  That means college.
  2. Secondly, the taxpayer must be the student, or the spouse of the student.  The student can also be a dependent of the taxpayer claiming the student loan tax deduction.
  3. Third, the time period of the loan must be around the same time frame as the actual education.  A “reasonable period of time” between the debt and the schooling must be shown.
  4. Fourth, the student must also be eligible.  Even if the student is eligible at the time of claiming the student loan tax deduction, it only counts if he or she was an eligible student at the time of the education.  Hope that makes sense.  In other words, maybe the taxpayer is claiming the deduction for interest paid on a loan taken out on his wife,  But if she wasn’t his wife at the time she was a student then he doesn’t get to claim the student loan tax deduction.
  5. Fifth, the expenses covered by the student loan must also be qualified.  This means the loan must cover the cost of attending school beyond what other financial help the taxpayer may have received.  In other words, the taxpayers expenses aren’t necessarily the same as what’s on the tuition bill.  He or she may have had some scholarships that cover education costs.  There are also some other education expenses that aren’t included in gross income on the 1040 anyway, so they can’t be covered by the student loan tax deduction.
  6. Sixth, the school has to qualify as well.  It must be an educational institution which has a program leading to a degree or a certificate.  It can be a college or it can be something like a hospital which offers post graduate education leading to some sort of certification.
  7. No double dipping.  If you are getting a deduction or credit for your student loan interest in some other way, it’s not allowed under this particular tax deduction.
  8. If you’re married, you have to file with the status married filing jointly in order to claim the student loan tax deduction.