Frequently Asked Questions About Eligibility for the 
Student Loan Interest Deduction


Since I received a 1098-E, am I therefore eligible for a deduction?
How do I know if I am eligible for the Student Loan Interest Deduction?
If my loan is already in repayment, am I eligible for the deduction?
Am I eligible to claim the amount shown in Box 1 on my 1098-E?
Is a parent eligible for the Student Loan Interest Deduction?
I am making student loan payments, but my parents are claiming me as a dependent.  Who can claim the deduction--me or my parents?
My parents took out a student loan, but I'm now an independent taxpayer making the payments.  Who can claim the deduction--me or my parents?
My parents took out a parent loan on my behalf and I took out a student loan because I was not their dependent.  Who can claim the deduction--me or my parents?
My spouse and I each paid $2000 for student loan interest.  Are we eligible to claim a $2000 deduction for each of us?
I don't think that I am eligible for the deduction, but the interest I paid has been reported to the IRS.  What should I do?

The information provided in this web page is NOT tax advice.  It is offered only as general information for UCI students and their families.  Please consult a qualified tax expert for advice on computing, claiming, or determining qualification for any tax benefit mentioned in this web site.


Question:  Since I received a 1098-E, am I therefore eligible for a deduction?

Answer:  Not necessarily.  Section 6050S of the Internal Revenue Code requires financial establishments, government agencies, and educational institutions that receive student loan interest payments totaling $600 or more to report to the Internal Revenue Service.  Issuing a 1098-E does not constitute a statement or guarantee about a student's eligibility, as additional criteria must be met to claim the Student Loan Interest Deduction.

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Question:  How do I know if I am eligible for the Student Loan Interest Deduction?

Answer:  The Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download] contains detailed eligibility criteria and illustrated examples for figuring and claiming the deduction  The IRS also includes a discussion of eligibility, with step-by-step directions and worksheets, in the instructions for Form 1040 [download] (see page 28) and Form 1040A [download] (see page 31).

IRS Notice 97-60 [download] contains a section reviewing eligibility for the Student Loan Interest Deduction.  Frequently asked questions regarding eligibility have been compiled in IRS Tax Topic 456:  Student Loan Interest Deduction and IRS FAQ:  Student Loan Interest Deduction.  You can also work through the IRS' interactive guide in the IRS Tax Trail:  Student Loan Interest.

The University and your loan servicer(s) are unable to determine your eligibility or provide guidance for figuring and claiming the Student Loan Interest Deduction.  It is the taxpayer's responsibility to figure and claim the deduction correctly.  You may wish to consult a tax professional, or contact the IRS.

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Question:  If my loan is already in repayment, am I eligible for the deduction?

Answer:  Possibly.  If the "covered period" has not elapsed, a borrower may deduct the portion of interest paid after January 1, 1998 on a "qualified student loan."  Of course, all other eligibility requirements must also be met.  (See "What is the 60-Month Period?" in the Student Loans chapter of  IRS Publication 970:   Tax Benefits for Higher Education [download]  for more information).

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Question:  Am I eligible to claim the amount shown in Box 1 on my 1098-E?

Answer:  Not necessarily.  The amount entered in Box 1 of your 1098-E is the sum of interest received by the payee, for a "qualified student loan" within the "covered period" for the current tax year.  However, this figure may be different from the amount of interest you could claim for the Student Loan Interest Deduction .  The amount you may deduct is "phased out," or gradually eliminated, if your modified adjusted gross income (MAGI) as a single taxpayer falls between $40,000 and $55,000 ($60,000 and $75,000 for married taxpayers filing jointly).

The Student Loan Interest Deduction worksheets included in the instructions for Form 1040 [download] (see page 28) and Form 1040A [download] (see page 31) will help you to apply the "phase out" rule when calculating the amount of your deduction.  Here is an example of reducing the deduction amount, using a format similar to that of the worksheets:

Peter Anteater is a single taxpayer with a modified adjusted gross income of $47,000.  His Perkins loan is a "qualified student loan" that has a "covered period" ending in 2003.  Box 1 of his 1098-E reports $800 interest paid in tax year 2001.
Total interest paid (from Box 1 on the 1098-E)

$800

Maximum allowed for tax year 2001 $2500
Lesser amount of total interest paid or maximum allowed $800
Modified Adjusted Gross Income (MAGI) $47,000
Base amount for filing status (single taxpayer) $40,000
Range for filing status ($40,000 to $55,000) $15,000
Difference between MAGI and base amount $7000
Reduction  factor (MAGI-base amount) / range 0.467
Interest reduction (interest paid X reduction factor) $374
Allowable deduction (interest paid - interest reduction) $426
Peter may deduct at most $426, provided that all other eligibility criteria are satisfied.

Additional discussion and examples of the "phase-out" rule may be found under "Does the Amount of Your Income Affect the Amount of Your Deduction?" in the Student Loan chapter of IRS Publication 970:   Tax Benefits for Higher Education [download].  Remember that it is the taxpayer's responsibility to figure and claim the Student Loan Interest Deduction correctly.

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Question:  Is a parent eligible for the Student Loan Interest Deduction?

Answer:  An individual may claim the deduction if he/she paid interest on a loan taken out solely to pay the "qualified higher education expenses" of someone who was a dependent at that time.  Therefore, parents paying interest on PLUS loans may claim the deduction, provided that income restrictions and other eligibility requirements are met.  (See the discussion under "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download].)

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Question:  I am making student loan payments, but my parents are claiming me as a dependent.  Who can claim the deduction--me or my parents?  

Answer:  Neither you nor your parents are eligible for the deduction in this unfortunate "catch-22" situation.  Even though you are making the payments, you are not eligible for the deduction because another taxpayer has claimed you as a dependent.  Your parents are not eligible for the deduction because they did not pay the student loan interest.  Keep in mind that it is the taxpayer's responsibility to figure and claim the Student Loan Interest Deduction correctly.  (See "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download] for eligibility criteria.)

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Question:  My parents took out a student loan, but I'm now an independent taxpayer making the payments.  Who can claim the deduction--me or my parents?

Answer:   This is another "catch-22" situation in which neither you nor your parents may benefit from the deduction.  Even though you are making the payments, you did not take out the loan and do not have primary responsibility for repaying it.  Your parents are not eligible for the deduction because they did not pay the student loan interest.  Always remember that it is the taxpayer's responsibility to figure and claim the Student Loan Interest Deduction correctly.  (See "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download] for eligibility criteria.)

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Question:   My parents took out a parent loan on my behalf and I took out a student loan because I was not their dependent.  Who can claim the deduction--me or my parents?

Answer:  Parents may claim the deduction if they paid interest on a loan taken out solely to pay the "qualified higher education expenses" of someone who was a dependent at that time.  Since you were not your parents' dependent when they took out the loan, they are not eligible for the deduction on the parent loan, but you may claim the deduction for your student loan if you satisfy all the eligibility requirements.  Keep in mind that it is the taxpayer's responsibility to figure and claim the Student Loan Interest Deduction correctly.  (See "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download] for eligibility criteria.)

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Question:  My spouse and I each paid $2000 for student loan interest.  Are we eligible to claim a $2000 deduction for each of us?

Answer:  The maximum deduction for married taxpayers filing jointly is $2500 per return, so you cannot claim a $4000 deduction.  Married persons filing separately are not eligible for the Student Loan Interest Deduction.  Always remember that it is the taxpayer's responsibility to figure and claim the Student Loan Interest Deduction correctly. (See "Can You Claim the Deduction?" in the Student Loans chapter of IRS Publication 970:   Tax Benefits for Higher Education [download] for eligibility criteria.)

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Question:  I don't think that I am eligible for the deduction, but the interest I paid has been reported to the IRS.  What should I do?

Answer:  A borrower is not obligated to claim the Student Loan Interest Deduction, since eligibility requirements such as filing status may disqualify the individual.   If you are unsure about your eligibility, you may wish to consult a tax professional, or contact the IRS.

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The information provided in this web page is NOT tax advice.  It is offered only as general information for UCI students and their families.  Please consult a qualified tax expert for advice on computing, claiming, or determining qualification for any tax benefit mentioned in this web site.


Further information is available from:

U.S. Department of Education

U.S. Department of Education
(800) USA-LEARN or TTY (800) 437-0833
At this site, borrowers can read:
"Families' Guide to the 1997 Tax Cuts for Education"
"General Information About Your 1098-E"

Internal Revenue Service

Internal Revenue Service
(800) 829-1040 or TTY/TDD (800) 829-4059
Along with general information about TRA 97, the IRS website also offers these specific links:
Notice 97-60:   Education Tax Incentives
Publication 970:  Tax Benefits for Higher Education
Tax Topic 456:  Student Loan Interest Deduction
FAQ:  Student Loan Interest Deduction
Tax Trail:  Student Loan Interest 

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