There have been a lot of changes in the way student loan interest can be handled for tax purposes. For example, the Internal Revenue Service and the U.S. Government have now included student loan interest as a tax deductible item on personal tax returns. In addition, the previous cap on maximum loan interest rates was repealed and new rates when into effect. So, what does all of this mean? Well when the new rates were announced lenders immediately began advertising campaigns to have students consolidate existing loans in order to lock in the older lower interest rates. The belief was that the newer rates would impact tax returns as the students (or their parents) began to repay educational loans.
In order to understand how a change in interest rates can have a huge effect on student loans and student taxes, one needs to have a basic understanding of debt management. For example, interest rates on the unsubsidized or privately issued loans will begin accruing from the date the loan is issued and continues to compound upon itself. Thus, deferred payment loans that also defer interest payments can generate an extremely large amount of additional debt for any...
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