Student Loan Interest-In Student's Name

[zeros]

Client received letter from IRS stating that there is no record of interest paid for student loans from the taxpayer. Turns out the loans are in the two student's name. The charge back is about $500. Is it possible to have the loan in the student's name and the parents be obligated for the loan? I understand that this is the only way they could deduct it. This doesn't look good for him. I would understand that the two students could deduct the interest which they did not. Any hope for this taxpayer?

I understand in a later phone call that he is a guarantor on the loans. Would this help whether he can deduct the interest?

[appelman]

It does look bad.

Only the person legally obligated to make interest payments can deduct them. And if you are claimed as a dependent by another person, neither you nor the other person can deduct the payments.

[JG EA]

Client received letter from IRS stating that there is no record of interest paid for student loans from the taxpayer. Turns out the loans are in the two student's name. The charge back is about $500. Is it possible to have the loan in the student's name and the parents be obligated for the loan? I understand that this is the only way they could deduct it. This doesn't look good for him. I would understand that the two students could deduct the interest which they did not. Any hope for this taxpayer?

I understand in a later phone call that he is a guarantor on the loans. Would this help whether he can deduct the interest?

Find out if the parents were legally obligated to pay and did pay. But if not here is a couple of quotes that may help.
Pub 970

Can You Claim the Deduction
Generally, you can claim the deduction if all of the following requirements are met.

Your filing status is any filing status except married filing separately.

No one else is claiming an exemption for you on his or her tax return.

You are legally obligated to pay interest on a qualified student loan.

You paid interest on a qualified student loan....

Example 2.

During 2010, Jo paid $1,100 interest on her qualified student loan. Only she is legally obligated to make the payments. Jo's parents claimed an exemption for her on their 2010 tax return. In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2010.

Interest paid by others. If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest.

[Gary2]

To add to the confusion, is there a difference between being co-signing the loan (with the identical obligation as the student) and guaranteeing the loan (with an obligation only after trying and failing to collect from the primary signer)?

[taxea]

To add to the confusion, is there a difference between being co-signing the loan (with the identical obligation as the student) and guaranteeing the loan (with an obligation only after trying and failing to collect from the primary signer)?

co-signing the loan is guaranteeing the loan...you are not named on the loan as primary and are only responsible if they fail to collect from the primary. Being a co-primary on the loan makes you as responsible for each payment when it comes due.

[newbie]

Guaranteeing and co-signing a loan are often similar

In many cases, if you guarantee a loan for someone who borrows money (called the debtor), the lender must first demand payment from the debtor, before going after you, the guarantor. But if you co-sign a loan, you are just as responsible to pay the loan back as the debtor is. So the lender can demand payment from you before, or even instead of, demanding payment from the debtor. It’s important that you review the guarantee or co-signing documents carefully before signing. These documents are often drafted so that there is little difference between the two. The result is that guaranteeing a loan often carries with it similar obligations and responsibilities as co-signing a loan.

[S T]

Client received letter from IRS stating that there is no record of interest paid for student loans from the taxpayer. Turns out the loans are in the two student's name. The charge back is about $500. Is it possible to have the loan in the student's name and the parents be obligated for the loan? I understand that this is the only way they could deduct it. This doesn't look good for him. I would understand that the two students could deduct the interest which they did not. Any hope for this taxpayer?

I understand in a later phone call that he is a guarantor on the loans. Would this help whether he can deduct the interest?

Newbie, gave some great info on co-signing and guarantor of loans - If the parents are making the payments and are deducting the "student loan interest" but the form is being issued in the Student's name (primary) I would ask the parents for a copy of the original signed "Student Loan Document" Much the same as co-owners or joint tenants on a Mortgage Interest Paid Statement (form 1098)

I belive the 1098-E (which is for informational purposes) will only be issued to the "first named" on the loan - my experience is that the guarantor or the co-signer whom is still also responsible their name and SSN does not appear.

I have taken the deduction for interest paid by parents as guarantor/co-signer when they have produced the original loan docment, and also when they can produce that they (the parents) have in fact made the payments.

So far so good!

Sandy

[zeros]

Att: ST (Sandy)

Apparently IRS matched the payments to the student's SSAN and not the parents, thus, no record of student loan interest. As the parents are the guarantor on the loan, do they have a good chance of getting this deduction if they can prove that they are the guarantor?

[Jesse]

To add to the confusion, is there a difference between being co-signing the loan (with the identical obligation as the student) and guaranteeing the loan (with an obligation only after trying and failing to collect from the primary signer)?

Apparently IRS matched the payments to the student's SSAN and not the parents, thus, no record of student loan interest. As the parents are the guarantor on the loan, do they have a good chance of getting this deduction if they can prove that they are the guarantor?

I would forward the documentation and argue for the deduction, but this is an interesting question.

If you guarantee a loan and you are obligated to repay only after the lender has tried and failed to collect would the interest be deductible by the guarantor only after the student failed to make the payments?

I have some clients that have Parent Plus loans and the 1098E is in the name and number of the parent. With other student loans I have yet to come across one that the parent has guaranteed. Sometimes I think the parents get confused because their financial information is used on the FASFA but the student is acctually responsible for the loan.

[taxea]

If the documents support it, I would have the agency that issued the loan to change the primary SSN to the parent on the interest paid document. That way the IRS will check the parent's return for the payment.

[joanmcq]

Unless it's a PLUS loan, I don't think the parents are ever the primary borrower, and you are not going to get the lender to change the docs. Just IMHO.