Heather, Thanks so much for this site.  It is incredibly helpful to have an advocate like you out there.  I graduated from law school in Spring 2011 and am working as an entry-level attorney at an environmental public interest firm in the Midwest.  My school has a generous loan repayment program that I am participating in now that my loans went into repayment as of November 2011.  In getting ready to prepare my taxes, I’ve been stumped, however, in trying to figure out whether I can still take advantage of the education loan interest deduction for federal income taxes.  My school’s program is of the type where I signed a promissory note with them and they then sent me a lump sum to be used for making various loan payments (Stafford, Perkins, university loan, bar exam loan).  As I said, the program is a life-saver and is allowing me to pursue a field I never could have afforded otherwise—the lump sum payment is enough to cover all my loan payments except for about $100 I contribute per month out of my own funds.

I know you can’t give me official tax advice but I found the IRS publications ambiguous as to whether law school loan repayment programs of this type mean you can no longer take the education loan interest deduction.  I also don’t want to have to hire a tax advisor merely for this one question—I’m confident I can prepare my own taxes save for this issue.  Any idea of how I can figure this out?

Thanks so much for any help you can provide!

Excellent question but I’m afraid I know just what you know and nothing more on this one.  I’m not totally sure, but I don’t think there is definitive law on this precise question.

Being the bad ass lawyers that we are [wink], we can readily make arguments on both sides of the question, particularly because you could become responsible for repaying your school if you do not meet the requirements of their program. 

Incidentally, since the student loan interest deduction is above the line, it reduces Adjusted Gross Income, and so has additional financial benefits for borrowers using the Income-Based Repayment plan.

I’ll ask around to some of the tax folks I know to see if I can dig up anything more on this one.