Between parents and students, there is a danger of letting the student loan interest deduction slip through your fingers. Here's the problem. You must meet all of the following basic conditions to claim the deduction:
- You must be obligated the pay the interest and
- You must pay the interest and
- The loan must have been for your college education or that of someone who was your dependent at the time the debt was incurred.
You have to meet all 3 criteria. This presents all kinds of horrible possibilities. For example, you have a dependent college student who takes out Sallie Mae loans and you make the required loan payments. You can't take the deduction if because the STUDENT is obligated to pay, NOT YOU. That's a disappointment. What's worse is that the student can't claim the deduction either, because he didn't pay -- you did. Therefore, neither you nor your student meet all 3 of the above criteria.
Another scenario: Suppose you took out a Plus loan for you child's eduction, but he wasn't your dependent at the time. You are definitely obligated to pay the student loan with interest, and you indeed pay. However, since the student wasn't you dependent at the time you took the loan out, neither you nor the student meet all 3 of the above criteria and neither can claim the deduction.
So be careful planning your student loan interest tax deduction !!
Here's a link for further reading.
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