Reporting Requirements for the Student Loan Interest Deduction

Which Information is Reported?

Beginning with tax year 1998, Section 6050S of the Internal Revenue Code, as enacted by the Taxpayer Relief Act of 1997 [download] (TRA 97), requires financial establishments, government agencies, and educational institutions that receive student loan payments to report to the Internal Revenue Service.  In general, an information return must be filed with the IRS for each borrower whose interest payments total $600 or more in a given tax year.  However, reporting applies only to interest payments received within the "covered period" for "qualified student loans." 

Various loan servicers provide borrowers with copy B of IRS Form 1098-E:  Student Loan Interest Statement [download], to assist them in claiming the Student Loan Interest Deduction.  In accordance with IRS Notice 98-7 [download] (tax year 1998), IRS Notice 98-54 [download] (tax year 1999), IRS Notice 99-37 [download] (tax year 2000), and IRS Notice 2000-62 [download] (tax year 2001), each 1098-E provides the following information:

• the payee's name, address, and Taxpayer Identification Number (TIN)
• the payor's name, address, and Social Security Number (SSN)
• the amount of interest received during the tax year

Which Information is Not Reported?

The IRS directs payees to report interest only on "qualified student loans" that have a "covered period" ending after the first day of the tax year (see "Specific Instructions for Form 1098-E" in the IRS' 2001 Instructions for Forms 1098-E and 1098-T.)   Furthermore, if the ending date falls within the tax year, just the interest paid during the "covered period" is reported to the IRS.  Servicers monitor repayment carefully, suspending and ending the "covered period" when appropriate.

Even within the "covered period," payees are not required to report student loan interest totaling less than $600 to the IRS.  Nevertheless, at their discretion, servicers may still furnish a 1098-E to a borrower whose loan otherwise meets eligibility requirements.  A borrower may deduct smaller amounts of student loan interest, despite that the sum is not sufficient to report to the IRS. 

Proposed regulations provide that loan origination fees and capitalized interest are included when determining the amount of interest received during the tax year.  Box 2 was added to the 1098-E form for 2001 to allow lenders to report these amounts if desired.  However, lenders are not required to report loan origination fees and capitalized interest for loans made before January 1, 2002.

Which Borrowers are not Reported?

The borrower's name, address, and Social Security Number (SSN) are key elements in student loan interest reporting.  Borrowers are required to keep this information current with their loan servicer(s).  If a servicer does not have a valid address on file, then the borrower may not receive a 1098-E by mail.  If the borrower's SSN is missing or invalid, then a 1098-E form cannot be filed with the IRS nor furnished to the borrower.  

Until final regulations for the Student Loan Interest Deduction are issued, institutions need only make a "good faith effort" at reporting.  Penalties for failure to file correct 1098-E forms with the IRS, and for failure to furnish correct 1098-E forms to borrowers, have been waived for tax year 1998 (see  IRS Notice 98-7 [download]), tax year 1999 (see IRS Notice 98-54 [download]), tax year 2000 (see IRS Notice 99-37 [download]), and tax year 2001 (see IRS Notice 2000-62 [download]).

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.

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