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.
