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IRS.gov Website
Publication 970
taxmap/pubs/p970-015.htm#en_us_publink1000178230

Chapter 4
Student Loan Interest Deduction(p31)

For Use in Tax Year 2017

What’s New(p31)

For Use in Tax Year 2017
rule
taxmap/pubs/p970-015.htm#TXMRabcb54fa
For 2017, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $65,000 and $80,000 ($135,000 and $165,000 if you file a joint return). You can’t claim the deduction if your MAGI is $80,000 or more ($165,000 or more if you file a joint return). For more information, see Figuring the Deduction.

taxmap/pubs/p970-015.htm#en_us_publink1000273663Introduction

Generally, personal interest you pay, other than certain mortgage interest, isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($165,000 if filing a joint return), you may be allowed a special deduction for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.
The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040).
This chapter explains:
taxmap/pubs/p970-015.htm#en_us_publink1000298880

Table 4-1. Student Loan Interest Deduction at a Glance

This table summarizes the features of the student loan interest deduction.

Don't rely on this table alone. Refer to the text for more details.

Feature Description
Maximum benefit You can reduce your income subject to tax by up to $2,500.
Loan qualifications Your student loan:
• must have been taken out solely to pay qualified education expenses, and
• can't be from a related person or made under a qualified employer plan.
Student qualifications The student must be:
• you, your spouse, or your dependent (as defined later for this purpose); and
• enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.
Limit on modified adjusted gross income (MAGI) $165,000 if married filing a joint return;
$80,000 if single, head of household, or qualifying widow(er).
taxmap/pubs/p970-015.htm#en_us_publink1000178234

Student Loan Interest Defined(p31)

For Use in Tax Year 2017
rule
Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.
taxmap/pubs/p970-015.htm#en_us_publink1000178237

Qualified Student Loan(p31)

For Use in Tax Year 2017
rule
This is a loan you took out solely to pay qualified education expenses (defined later) that were:
Loans from the following sources aren't qualified student loans.
taxmap/pubs/p970-015.htm#en_us_publink1000178238

Your dependent.(p31)

For Use in Tax Year 2017
rule
Generally, your dependent is someone who is either a:You can find more information about dependents in Pub. 501.
For this purpose, the term "dependent" also includes any person you could have claimed as a dependent on your return except that:
taxmap/pubs/p970-015.htm#en_us_publink1000178240

Reasonable period of time.(p32)

For Use in Tax Year 2017
rule
Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program.
Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met.
If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances.
taxmap/pubs/p970-015.htm#en_us_publink1000178241

Academic period.(p32)

For Use in Tax Year 2017
rule
An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period.
taxmap/pubs/p970-015.htm#en_us_publink1000178242

Eligible student.(p32)

For Use in Tax Year 2017
rule
An eligible student is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
taxmap/pubs/p970-015.htm#en_us_publink1000178243
Enrolled at least half-time.(p32)
A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study.
The standard for what is half of the normal full-time work load is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the U.S. Department of Education under the Higher Education Act of 1965.
taxmap/pubs/p970-015.htm#en_us_publink1000178244

Related person.(p32)

For Use in Tax Year 2017
rule
You can't deduct interest on a loan you get from a related person. Related persons include:
taxmap/pubs/p970-015.htm#en_us_publink1000178245

Qualified employer plan.(p32)

For Use in Tax Year 2017
rule
You can't deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan.
taxmap/pubs/p970-015.htm#en_us_publink1000178246

Qualified Education Expenses(p32)

For Use in Tax Year 2017
rule
For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution. They include amounts paid for the following items.
The cost of room and board qualifies only to the extent it isn't more than:
taxmap/pubs/p970-015.htm#en_us_publink1000178247

Eligible educational institution.(p32)

For Use in Tax Year 2017
rule
An eligible educational institution is generally any accredited public, nonprofit, or proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition.
An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.
For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training.
An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. The deductibility of interest on the loan isn't affected by the institution's subsequent loss of eligibility.
Deposit
The educational institution should be able to tell you if it is an eligible educational institution.
taxmap/pubs/p970-015.htm#en_us_publink1000178249

Adjustments to Qualified Education Expenses(p33)

For Use in Tax Year 2017
rule
You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items.
taxmap/pubs/p970-015.htm#en_us_publink1000178256

Include as Interest(p33)

For Use in Tax Year 2017
rule
In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest.
taxmap/pubs/p970-015.htm#en_us_publink1000178257

Loan origination fee.(p33)

For Use in Tax Year 2017
rule
In general, this is a one-time fee charged by the lender when a loan is made. To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. A loan origination fee treated as interest accrues over the life of the loan.
Loan origination fees weren't required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. If loan origination fees aren't included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan.
taxmap/pubs/p970-015.htm#en_us_publink1000178259

Capitalized interest.(p33)

For Use in Tax Year 2017
rule
This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. No deduction for capitalized interest is allowed in a year in which no loan payments were made.
taxmap/pubs/p970-015.htm#en_us_publink1000178260

Interest on revolving lines of credit.(p33)

For Use in Tax Year 2017
rule
This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. See Qualified Education Expenses, earlier.
taxmap/pubs/p970-015.htm#en_us_publink1000178262

Interest on refinanced and consolidated student loans.(p33)

For Use in Tax Year 2017
rule
This includes interest on a loan used solely to refinance a qualified student loan of the same borrower. It also includes a single consolidation loan used solely to refinance two or more qualified student loans of the same borrower.
EIC
If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you can't deduct any interest paid on the refinanced loan.
taxmap/pubs/p970-015.htm#en_us_publink1000178266

Allocating Payments Between Interest and Principal(p33)

For Use in Tax Year 2017
rule
The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal.
taxmap/pubs/p970-015.htm#en_us_publink1000178267

Example.(p33)

In August 2016, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2016 through October 2017) and adding it to the outstanding principal balance of the loan. The loan is payable over 60 months, with a payment of $200.51 due on the first of each month, beginning November 2017.
Peg didn't receive a Form 1098-E for 2017 from her lender because the amount of interest she paid didn't require the lender to issue an information return. However, she did receive an account statement from the lender that showed the following 2017 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest).
Payment Date Payment Stated Interest Principal
November 2017 $200.51 $44.27 $156.24
December 2017 $200.51 $43.62 $156.89
Totals $401.02 $87.89 $313.13
To determine the amount of interest that could be deducted on the loan for 2017, Peg starts with the total amount of stated interest she paid, $87.89. Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Assuming that Peg qualifies to claim the student loan interest deduction, she can deduct $401.02 ($87.89 + $10 + $303.13).
For 2018, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. She also will apply the remaining amount of capitalized interest ($625 − $303.13 = $321.87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes.
taxmap/pubs/p970-015.htm#en_us_publink1000178269

Don't Include as Interest(p34)

For Use in Tax Year 2017
rule
You can't claim a student loan interest deduction for any of the following items.
taxmap/pubs/p970-015.htm#en_us_publink1000178271

When Must Interest Be Paid?(p34)

For Use in Tax Year 2017
rule
You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off.