Higher education is becoming increasingly less affordable. As such, you should make every effort to reduce your tax burden by taking advantage of student loan interest deductions when filing for your taxes. You would be surprised by how many people out there are unaware of this process. Do not make the same mistake. By following the steps below, you can save money, making it easier to tackle your college loans in the future.

Steps for Claiming Tax Deductions from College Loans and Interest Payments

1. First you must determine whether or not you are even eligible. If the loan is in your name and you are not a dependent, then you may qualify. It is important to remember that if you are currently married, you are not allowed to file your taxes separately.
2. Do you make over $70K a year as an individual or $145K together with your spouse? If so, then you may not qualify.
3. Next, calculate the amount of student loan interest that is eligible for deduction. This is the total government or bank interest you are required to pay within the given tax year. Loans from family members or 401(k)s do not account. You may deduct up to and including $2,500.
4. You must next determine whether or not you may make a full deduction or only a reduced deduction. If you are married and filing jointly with a combined income above $115K, you can only pay a reduced deduction, which is your combined income minus $115K all divided by $30K. If you are filing as an individual, and you make over $55K, then you can only pay a reduced deduction. This amount is your combined income minus $55K all divided by $15K. Subtract this deduction from your eligible student loan interest.
5. Enter the remaining student loan interest (reduced or non-reduced) on line 33 of Form 1040.
6. Voila. You are done.

Stanley Rubenti

Stanley Rubenti is a world traveling writer and editor who has lived in Japan, the US, Thailand, and France. He currently resides in Kuala Lumpur, Malaysia where he offers college admissions advice for international students interested in studying abroad.

Source:
Deborah Nelson • How to Deduct Student Loan Interest from Your Taxes • Dec 31, 1969

If you need financial aid to attend college, you should make sure to choose a school that participates in federal student aid programs. These programs offer a wide variety of grants, scholarships and low-interests loans.

The first step in finding financial aid to help fund your college education is to fill out the Free Application for Federal Student Aid (FAFSA, http://www.fafsa.ed.gov). This application gathers information on the income of you and your parents, and based on those numbers, an Expected Family Contribution (EFC) is calculated and provided to you in a Student Aid Report (SAR). The EFC is how much you and your family will be expected to contribute to your education for the coming year. You must then give the SAR to the colleges you are interested in attending, and their financial aid department will create a payment plan for you based on your EFC.

The financial aid packages from your schools will most likely be combinations of grants and loans. Grants may come directly from the school, or you may be awarded a federal grant based on academic achievement. Loans are frequently from the Stafford, PLUS or Perkins federal programs. Some schools will offer more grant money than others depending on your academic achievement, and these are often the better financial choice.

What happens if you and your family will not actually be able to meet the EFC, as is often the case? You will have to turn to other sources, like private scholarships or loans with higher interest rates. Some state governments have educational loan programs for residents. Consult your high school guidance counselor and web sites like: FAFSA (Federal Student Aid)

Sources:
FAFSA
Federal Student Aid