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Deducting Student Loan Interest

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I receive the following email the other day and I am posting it to see if anyone else has some advice for a fellow reader with regards to his situation:

From: Dave

Subject: Tax Breaks for Student Loan

Hi Jim,



I’ve got a question on a difficult situation.



My girlfriend’s brother exited an Indiana university early with a 4.0 GPA several years ago, and when he wanted to go back he didn’t have the resources to get started. My girlfriend got a $3k student loan for him, as well as a laptop she put on her Discover card, with the idea that he would buy books and give her the rest back to immediately pay back Discover. Long story short, he never paid her back, ended up running away to the Southwest, and pawned her laptop. There’s not much that the authorities can do, since she applied for the loan and essentially gave him a gift on her credit card, but I was wondering if there was anything that she could redeem from the student loan on her taxes. All police reports have been filed at present.



Any help, as you could imagine, would be an enormous help. We have a mortgage to pay and would like to afford to have a child. I just want to see some of that back, if at all possible.

My response:

Thanks for the email and that’s unfortunate what’s happened between your girlfriend and her brother, but sometimes that’s life. In general, student loan interest is deductible if you make under $50,000 (after adjustments) and I would think that since she is a cosigner on a student loan, she could claim the deduction as long as she’s not a dependent on someone else’s claim (her parents?). If she just got a regular loan from the bank (not a student loan), and lent it to him, she may not have any options in terms of deductibility.

Anyone have any thoughts?

{ 4 comments, please add your thoughts now! }

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4 Responses to “Deducting Student Loan Interest”

  1. HC says:

    Normally I’d say only he is eligible to deduct the interest. But if she cosigned the loan, then she is probably considered “legally obligated” which is one of the points that deductibility turns on.

    http://www.irs.gov/publications/p970/ch04.html

    She should definitely call the IRS to clarify this.

  2. John Adkins says:

    My salary is being garnished at this time to repay my defaulted student loan. It is an administrative garnishment, not a judicial garnishment. My question is: Will I be able to deduct the interest on my tax return for this administrative garnishment?
    Thanks,
    John

  3. Anonymous says:

    The answer is no – she cannot take the student loan interest deduction. The student must be you or your dependent at the time the loan was taken. Since her brother is not her dependent, she cannot take the deduction

  4. John says:

    Sad story, hopefully her brother comes to his senses and pay her back. And the previous commentator is right unfortunately she cannot reduct the interest.


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