What is Qualified Educatiion Loan & Qualified Educatiion Expense ?

Internal Revenue Code allows qualified education deduction for interest paid on loan taken for education purpose. The law uses the term Qualified Educational Expense as far as  deduction of interest on qualified student loan  for qualified education expense.

What is Qualified Education Expense and Qualified Student Loan ?

A loan is called qualified student loan if a student borrows money for the qualified educational expense or specified types of education related expense . So , the qualified Educational Expense is deifned as  total costs of attending an eligible educational institution that  may include amounts paid for the following items:

  • Tuition and fees.
  • Room and board.
  • Books, supplies and equipment.
  • Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it is not more than the greater of:

  • The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or
  • The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Any loan to pay qualified education expenses is called Qualified Educational Loan . Following points should be noted :

  • Educational loan can be taken for yourself, your spouse, or a person who was your dependent when you took out the loan.
  • Education expense paid or incurred within a reasonable period of time before or after you took out the qualified educational loan.
  • Educational expense is for education provided during an academic period for an eligible student.

What Educational Loan Can Not Qualify for Deduction ?

Educational loans from a related person or under a qualified employer plan  are not qualified student loans.

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