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The interest on student loans may be deductible, depending on your
income. To get a full deduction, your income must be less than
$50,000 ($105,000 on a joint return). Partial deductions are
available with income up to $65,000 ($135,000 on joint returns).
In addition, the amount of this deduction is limited to $2,500 per
year. On the plus side, if this deduction is available, it is
taken "above-the-line," meaning that you can claim it even if you
do not itemize deductions on your tax return. An above-the-line
deduction reduces adjusted gross income, which may save taxes
elsewhere on your return.
If the deduction is not available, considering prepaying your
student loans with a home equity loan. Interest rates may be lower
on a home equity loan and such a loan may generate fully
tax-deductible interest, regardless of your income.
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