All of my tax information arrived today, including my 1098-E form for my student loan. You can deduct student loan interest on your tax return based on a yearly tax calculator. But there are a few qualifiers:
1) Your MAGI (modified adjusted gross income) cannot exceed $75,000 as a single person or $150,000 as a married couple filing jointly.
2) You’re not eligible if you are married filing separately.
3) The maximum benefit is $2,500.
4) The loan must have been used for educational expenses at an eligible education institution. This includes the regular colleges and universities, but also trade schools, for-profit colleges and residencies at hospitals and healthcare facilities.
This is an important credit that everyone should take advantage of, but it does seem like a lot of people are probably paying more than $2,500 per year in interest. In 2011, I paid $534 in interest on a federal subsidized loan (6.25% interest) with a balance of $8,500, even with paying off $2,000 over the year. So students with five-figure or six-figure debts are most likely paying a lot more interest, and anything over $2,500 isn’t deductible (or none of it is if you make more than $75,000). That’s too bad for those who finally got that high-paying job after so many years of grad school and are ready to start paying student loans. It seems a little unfair to not give the high-income earners a chance to get a deduction on their interest. Yes, they’re making good money, but they are still incurring interest on their loans. But in any case, I don’t have that problem this year so I will be deducting the full $534!
Here’s the complete IRS Publication (970 for tax nerds) on Tax Benefits for Education.