Note: This originally started as part of the home buying thread, but I thought I would start a seperate discussion about it.

My understanding is that one of the provisions of the new tax bill allows you to deduct the total amount of student loan interest you've paid. The bill increases the maximum salary you can earn and still take this deduction, and it also eliminates the old 5-year limit of such deductions (at least I think it does -- the articles are contradictory on this point). For some reason, this provision of the bill hasn't been well-publicized. It would seem to me that this would be one way of selling the bill to younger members of the middle class.

Here are a couple of articles that discuss the provision:

From The Washington Post: Student Loan Costs to Shrink (this is the most comprehensive article I found)

From The San Francisco Gate: Advanced degree needed... (near the bottom)

-- Anonymous, June 14, 2001

Answers

No, it doesn't allow for the *total* amount of interest paid to be deductible. Rather, the new law will eliminate the 60-month limit as of Jan. 1, 2002. Under prior law, the student loan deduction could be claimed only during the first 60 months in which interest payments are required on the loan.

The income-eligibility limits for the deduction have also been raised. Currently, the deduction is phased out for single taxpayers with adjusted gross incomes between $40,000 and $55,000 and for married taxpayers filing joint returns with incomes between $60,000 and $75,000. Beginning in 2002, the new law will increase the income phase-out ranges to $50,000 to $65,000 for single taxpayers and to $100,000 to $130,000 on joint returns. In other words, those who this deduction would make a significant difference to get dick-all. Cry for the doctors and lawyers, please.

The student loan deduction provisions are effective for interest paid on qualified education loans after December 31, 2001.

Mostly lifted from the Joint Committee Report ('cept for that part about dick-all) and http://www.taxplanet.com/ which I just discovered a few days ago, but recommend. As best I can tell, it presents the facts in a fairly clear manner, minus all the partisan BS usually associated with online tax sites.

-- Anonymous, June 14, 2001

Only thing I'd add is to be very careful about taking out a mortgage to pay off student loans. True, mortgage interest is deductible. On the other hand, federal student loans are very flexible when it comes to repayment terms (length, unemployment deferment, etc.) and you might not want to give up that flexibility. Of course no one plans on things going wrong/bad, but the bottom line is that your house can be repossessed, while your education cannot.

-- Anonymous, August 09, 2001