The Catholic University of America

Summary of Federal Laws

Tax

Tax Issues Related to Students

Student Loan Interest Deduction, 26 USC 221

Under I.R.C. § 221, a taxpayer may take a deduction as an adjustment to income for interest paid on student loans. 

The interest deduction may be used with respect to "qualified education loans" incurred by the taxpayer for higher education expenses for the taxpayer, his/her spouse, or anyone who was a dependent of the taxpayer at the time the debt was incurred. A loan from a relative or a qualified employer plan does not meet the I.R.S. definition of a "qualified educational loan". The person for whom the expenses were incurred must have been an eligible student, and the expenses for which the loan was used must have been paid or incurred within a reasonable period of time before or after taking out the loan. Also, married couples must file a joint return in order to claim the deduction. A student who is claimed as a dependent on someone else's tax return cannot claim the student loan interest deduction.

Qualified education expenses include

  • Tuition and fees.
  • Room and board.
  • Books, supplies, and equipment.
  • Other necessary expenses (such as transportation)

The institution attended must be an eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

In addition, the total amount paid for qualified higher education expenses cannot include the following items:

· Employer-provided educational assistance (see discussion of I.R.C. § 127)

· Tax free withdrawal from education IRAs

· Certain scholarships

· U.S. savings bond interest use to pay higher education expenses

· Veteran's educational assistance benefits

· Any other nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses

For a complete discussion of the rules concerning the phase out of the deduction and all other applicable rules relating to the deductibility of student loan interest see I.R.S. Publication 970.

 

 

Resources

 

Topic Number 456-Student Loan Interest Deduction*

 

updated 12-17-18