of Student Loan Interest on Federal Tax Returns
Students may deduct interest
they have paid on student loans on their tax returns, but only
for the first 60 months the borrowers are in repayment.
The maximum deduction was $1,000
in 1998 and $1,500 in 1999. The maximum deduction is $2,000
for 2000, and $2,500 for 2001 and beyond.
The deduction is phased out for
joint filers with adjusted gross income between $50,000 and
$75,000 and single filers with adjusted gross income between
$40,000 and $55,000.
The benefit is limited to those
students who are just entering repayment. Those that have been
in repayment for more than 60 months receive no benefit-they
are penalized. And, these are the students most likely to repay
and least likely to default. They deserve similar consideration.
Limiting the amount that is deductible
penalizes those with higher debt who may be the ones most in
need of the assistance.
Borrowers who consolidate their
student loans are faced with the difficulty of determining what
percentage of the consolidation loan is eligible (i.e. what
percentage is within the 60-month period.
Follow the Massachusetts example
in making interest deductible for the life of the student loan,
with no income caps, and no limit on the amount of the deduction
for both graduate and undergraduate students.
Federal Tax Returns