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About IRS Form 1098-E and Student Loan Interest Deduction

Form 1098-E is an information return that is used by student loan lenders to report interest paid toward the loan. Any interest paid on a student loan is tax deductible. A copy of Form 1098-E can be requested from a student loan lender for this information to help a person fill out their taxes. For lenders, Form 1098-E must be ordered from the IRS since it can not be downloaded from their website.

Most tax preparation software has a line to enter student loan interest paid to help on calculate their deductions. Student loan interested may be deducted up to $2,500. There are also other requirements for the deduction:

1.) The tax preparer must not have a modified adjusted gross income (MAGI) of over $75,000 if single and $150,000 or more if married.

2.) The tax filer must have any filing status except: married filing separately.

3.) There must have been interested paid on a qualified student loan.

4.) There must be a legal obligation to pay interest on that loan.

Not every loan qualifies. For example, if a student loan was refinanced for more than the amount of the original loan, and the money was used for other purposes besides education purposes, the interest paid on that loan would not qualify for a deduction.

Loan origination fees that are used to pay for services by the lender can not be deducted as interest.

Also, certain student loan repayment programs such as the NHSC Loan Repayment Program may affect how loan interest payments are calculated.

Loan origination fees qualify if the fee is required for the use of the money rather than for services provided by the lender.

Another loan payment that may qualify is credit card debt. Interest on revolving debt that is used to pay for educational expenses can be deducted and is considered student loan interest. However, the credit card must be exclusively used for educational purposes.

Both consolidated and collapsed loans qualify as well. Refinanced student loans qualify as well, again, as long as the money is used for educational purposes.

Voluntary payments also qualify for the deduction. Interest payments can be deducted for the life of the loan.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

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