Tax Deductions for Interest on Student Loans

    To help schools provide basic information to borrowers about the deductibility of student loan interest, listed below is a summary of the current provisions.  These Internal Revenue Service (IRS) rules apply to student loan interest payments made on or after January 1, 2002:

• All interest paid on student loans on or after January 1, 2002 may be deductible.  Borrowers are no longer limited to deducting interest paid only during the first 60 months that interest payments are required.
• Deductible interest includes loan origination fees, capitalized interest, interest on revolving lines of credit, interest on refinanced student loans and voluntary interest payments.
• The student loan interest deduction is generally the smaller of : a) the interest paid in 2002, or; b) $2,500.
• The maximum benefit is $2,500 per tax return and is not allowed on returns when the filing status is "Married Filing Separate".
• The amount of the deduction for 2002 will be phased out (gradually reduced) if the taxpayer's modified adjusted gross income (MAGI) is between $50,000 and $65,000 ($100,000 and $130,000 for those filing a joint return).  MAGI for most taxpayers is the adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest.
• No deduction may be taken if the MAGI is $65,000 or more ($130,000 or more for a joint return).
• Student loan interest cannot be deducted by a person making loan interest payments who is not legally responsible for the loan.
• A student loan borrower cannot deduct interest if another person not legally responsible for the loan made the interest payments.
• Borrowers who pay $600 or more per year in interest on student loans should receive a statement from the lender.