What is the difference between the student loan interest deduction and the undergraduate student loan interest deduction?
The student loan interest deduction applies to interest payments for both undergraduate and graduate studies. It is based on the federal rules in effect on January 1, 2005. The maximum deduction allowed is $2,500, but the amount is phased out for taxpayers with federal modified adjusted gross income of $55,000 to $70,000 ($115,000 to $145,000 for joint returns). The undergraduate student loan interest deduction allows taxpayers to deduct the full amount of interest payments on education debt for undergraduate studies only. The loan must have been obtained and spent to pay tuition and other expenses related solely to the school enrollment. The same taxpayer may take both deductions provided the deductions are not taken for the same interest payments.
