Tax Deduction for Student Loan Interest

      Individuals who have incurred large debts in th process of acquiring an education do not always achieve the success they had hoped for with their degrees, and thus the bankrupty law  can create quite a burden by denying a discharge of student loan debts in most cases.

      This does seem fair in many ways, since these debtors incurred the student loans in an effort to improve themselves, which public policy should encourage. Yet unlike a person, who cannot keep track of his credit card debt, an individual, who studied hard in college or professional school and learned after he graduated that the opportunities for someone with the credentials he has worked so long to acquire just do not exist, can generally not receive relief in bankruptcy.

      One break the law does give to people having student loans though comes when they file their tax returns. Individual taxpayers may deduct up to $2,500 of interest a year on student loans, and this is an above the line deduction, which means the former student will receive the benefit, even if he or she does not itemize deductions.

      The deduction phases our for individuals having modified adjusted gross incomes of between $60,000 and $75,000 a year, or for couples filing joint returns who have between $120,000 and $150,000 of modified adjusted gross income. Modified adjusted gross income for this purpose means adjusted gross income with a couple of modifications that the law creates for purposes of figuring this deduction.

      To qualify for the deduction for interest on student loans, the taxpayer must be paying interest on a loan for qualified higher education expenses incurred by himself or his spouse, when the recipient was at least a half time student. Qualified higher education expenses include, room and board and related expenses involved in attending an institution of higher education as well as tuition and fees.