Is the Interest on Sallie Mae Educational Loans Tax Deductible?

If you have taken out a student loan to pay for college, the IRS may allow you to deduct the interest payments. There are rules, of course -- the IRS sets down conditions for "qualified" loans and limits on the amount you can deduct. But with student loans placing a heavy burden on many graduates, the deduction provides a bit of useful financial help.

Sallie Mae

Founded as the government-sponsored Student Loan Marketing Association in 1972, "Sallie Mae" was transformed into a private-sector corporation in the 1990s. The company offers a wide range of student loans and financial services tied to education. As a legally binding contract, a loan from the Sallie Mae organization meets the requirements of the IRS student-loan interest deduction. You may deduct up to $2,500 per year in interest you pay for a qualified loan, whether or not you (or the dependent student) has graduated.

AGI Limits

To claim the student loan interest deduction, you must file a tax return and show adjusted gross income of $55,000 or less (before adjusting for the interest paid), if you are filing as a single, individual taxpayer. If you are married filing a joint return, the AGI limit rises to $155,000. If you are filing a married, separate return, you can't deduct student loan interest. You do not need to itemize the deduction -- you can subtract it directly from your income on Line 33 of Form 1040 and take the standard deduction as well.

Qualifying Loans

To deduct interest, your student loan must be "qualified," which in IRS lingo means it meets the guidelines and conditions written in the tax code. A qualified loan must be used solely for educational purposes, and it can't take the form of a personal loan from a parent or other relative. Also, you can't take the loan from an employer savings plan qualified for favorable tax treatment by the IRS.

Dependent Rules

You can deduct student-loan interest if you are repaying the loan for your own education, or for the education of a spouse or dependent. If you signed the loan for a dependent, you can deduct the interest even if the student is out of school and no longer qualifies as a dependent. The IRS allows some exceptions to the general rule for dependents; the student can be married, and can earn more than the $3,800 exemption amount. Also, you can be claimed as a dependent on someone else's return and still claim the deduction.

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About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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