Student Loan Interest Deduction

    In response to numerous inquiries, the Utah Higher Education Assistance Authority (UHEAA) provides the following information regarding the student loan interest deduction for federal income tax returns.  In 1997, Congress passed legislation which allows certain taxpayers who pay interest on qualified education loans to claim a federal income tax deduction for their interest payments, regardless of whether they itemize their deductions. Some requirements for this deduction were amended in 2001. Important provisions of the student loan interest deduction legislation include the following:

Maximum deduction: The interest payment amount eligible for the deduction cannot exceed $2,500 for tax year 2001 and subsequent years.

Income Restrictions: The amount of the deduction is phased out at certain adjusted gross income levels. For 2001 the phase out occurs between $40,000-$55,000 for single filers and $60,000-$75,000 for married filers. For years after 2001 the deduction is phased out between $50,000 - $65,000 for single filers and $100,000 - $130,000 for married filers.

Loan: A qualified education loan is a loan used to pay the costs of attendance (including tuition, fees, room, board, and books) at an eligible educational institution (a college, university, vocational school, or other post-secondary educational institution) for a student enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. The deduction does not depend on whether the loan is federally guaranteed or subsidized.

Student: The student must be the taxpayer, the taxpayer's spouse, or the taxpayer's dependent at the time the loan was obtained.

60-month limit: For tax year 2001, the student loan interest deduction is only available during the first 60 months that interest payments are required. Beginning with tax year 2002, this 60 month limit no longer applies.

IRS form 1098-E. Congress requires eligible institutions to report both to the IRS and to students certain information relating to student loan interest payments on form 1098-E. There is no requirement to attach Form 1098-E to federal income tax returns.

For more information on the student loan interest deduction see IRS Publication 970, Tax Benefits for Higher Education.  You may call 1-800-TAX-FORM to order a copy or download the publication from the Internet at http://www.irs.gov/pub/irs-pdf/p970.pdf.

    UHEAA does not render personal tax advice. To determine specific eligibility requirements for the student loan interest deduction or other tax benefits, please contact your personal tax advisor or the Internal Revenue Service for assistance.

    Questions regarding this Bulletin should be directed to the UHEAA Policy and Training Department at (801) 321-7166 or by e-mail at cjudd@utahsbr.edu.