It may not be the most exciting topic, but as tax time approaches it’s a good time to talk about deductions.  The student loan interest deduction is a deduction to AGI and is allowed for interest paid on qualified student loans… they DO NOT have to be federally subsidized loans.  The interest deduction is calculated by taking 100% of any interest due and paid on a qualified student loan.  The maximum interest deduction allowed is $2,500 and payments made before the required repayment dates are NOW deductible.  Also, any payments you make voluntarily toward interest during a period in which the education loan is in deferral or forebearance are also deductible.

Regarding PLUS loans: Parents are able to deduct education interest expense on PLUS loans as long as the student was dependent of the parents when the loan was disbursed.  Repayment of the loan by the parents begins immediately after the loan is disbursed. 

Qualified Expenses: The student loan interest deduction is only available for qualified expenses for undergraduate or graduate courses.  The loan MUST have been used to pay the cost of attendance at an eligible educational institution for a student enrolled at least half-time in a program heading toward a degree or other recognized educational credential.  The expense include: Tuition, fees, room and board, supplies, equipment, transportation and related personal expenses.

Qualified expenses DO NOT include expenses paid by a loan from a person related to the student or expenses paid with a loan from a qualified employer retirement plan.

As for the students:  Students who claim themselves on their tax returns are able to deduct education interest expenses on Federal Stafford and Perkins loans and the repayment of these does not begin until after the student leaves college.

We hope you understand to a greater degree the deductions available on education expenses.