I am confused about how a student loan plans in to the tax deduction eligibility. I have a couple different scenarios that I need some help with to make sure I don't cheat myself out of the tax benefits when paying for my graduate school. This is my first year of graduate school so I am not familar with past 1098-T's. Scenario A (The obvious) I pay my graduate school bills entirely through cash or credit card or even a private loan. I should be able to claim up to the full $4000 as a tax deduction assuming the
2007 laws match 2006. Scenario B Graduate school is paid by my Stafford loan entirely in
2007. I pay only the interest each month. My assumption is that I can only claim the interest that I paid, is that true? Can I claim any principal that I paid or even the full amount up to $4000 that the Stafford loan paid? It sounds like it all depends on how this is reported on the
1098-T and I have no clue how it would be reported in this scenario. If I continue paying on the loan for two years after graduating, will there be any tax deductions in those year post-graduation? Scenario C Basically the same as Scenario B, but I pay off the at least $4000 towards the student loan before the end of 2007. In the end, if I can't afford it all in cash, I am wondering if there is any benefit to me putting it on a low interest credit card and trying to pay it off as fast as possible AND getting a tax deduction if the Stafford loan makes me uneligible for the tax deduction. Thank you in advance for your advice.
Chris
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