Which Student Loans Qualify?

Beyond the dollar amount of the interest ($2,500) and the AGI restrictions, the tax break for student loan interest also places some limits on the types of loan, the expenses that the loan had to be used for, and the type of education the student was pursuing.

The loan must have been taken out to pay qualified higher education expenses, which include the costs of tuition, fees, room and board, books, equipment, and other necessary expenses such as transportation.

However, you must reduce these costs by any employer-provided educational benefits received by the student, any nontaxable distributions from a Coverdell ESA, any savings bond interest that was nontaxable because it was used for education expenses, any nontaxable scholarships or veteran's education benefits, or any other nontaxable payments other than gifts, bequests or inheritances.

Qualified educational institutions for this purpose include virtually any accredited post-secondary institution, including those conducting internship or residency programs in hospitals or health care facilities.

To be eligible the student must have been enrolled in a degree, certificate or similar program and must have been carrying at least one-half the normal full-time load.

Claiming the Deduction. You don't need to fill out any special forms to claim the student loan interest deduction, and you don't need to itemize your deductions to take advantage of it. The deductible amount is simply written on Line 33 of Form 1040, or Line 18 of Form 1040A, and subtracted from your income.