If you’re like us, just seeing the words “student loans” printed out probably raises your blood pressure. Many of us have taken on multiple loans and the different terms and repayment options all seem like a foreign language. AND that recent WaPo article on how senior citizens are still paying off $36 billion in student loans really isn’t helping either!

Well, take a deep breath and know that at least there’s some tax relief for struggling student borrowers out there! If you’ve already graduated, you can benefit from paying off your qualified student loans by claiming a Student Loan Interest Deduction. This is a simple way to keep more of your money-and what could be better than that?

Here’s what you need to know:

Am I eligible for the Student Loan Interest Deduction?

You are eligible for this deduction if, in the last tax year, you met ALL of the following criteria:

- Paid interest on a qualified student loan

- Were legally obligated to pay interest on a qualified student loan

- Had tax filing status that was NOT “married filing separately”

- Your Modified Adjusted Gross Income (MAGI, which is the adjusted gross income listed on the federal income tax return) is LESS than $75,000, or $150,000 if filing jointly

- You (and your spouse if filing jointly) can’t be claimed as dependents on someone else’s tax returns

How much can I deduct?

You can’t deduct the entire student loan but you can deduct the interest you’ve paid up to $2,500. If you’re in the 35% tax bracket, a full $2,500 deduction means $875 in savings that can be used to purchase that killer pair of heels you have been eying (www.saks.com) or a plane ticket to Paris (www.airfrance.com)!

But don’t double dip! If you already claimed the student loan interest deduction elsewhere (such as home mortgage interest) you can’t deduct it a second time under the student loan interest deduction.

How do I know how much interest I paid in tax year 2011?

If you paid more than $600 in interest (including capitalized interest, loan origination fees and, any payment you made voluntarily), your lender will send you a form 1098-E [here]. If you paid less than that, it’s up to you to keep track and request a form from your lenders.

What exactly are “qualified” student loans?

“Qualified” includes student loans that were used ONLY for specific, school-related expenses that were a necessary for attendance, such as tuition + fees, room & board, books & supplies, equipment and transportation. That does NOT include the loan you took for spring break in Mexico or that new designer suit you bought to look sharp and land your dream job before interviews senior year!

What if my mom or dad took out the loan in my name, do I still get a tax credit?

Whoever is legally obligated to pay the loan can claim the deduction. So if your parents are on the hook for the loan, they get the deduction. If they just decided to help you out this year and pay your interest as a gift but the loan is actually in your name, YOU can claim the deduction. Just make sure they don’t claim you as a dependent.

So… how do I claim this deduction again?

Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, 1040A, or 1040NR. The student loan interest deduction is an adjustment to income. To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ)

Phew. That’s a lot, we know! But spending a little time on this now means more money in your pocket later. Plus, you can deduct interest until your loans are paid off in full, so make sure to do this every year!

April is Financial Literacy Month! It’s time to get organized and get serious about staying on top of our finances. Start by making sure to submit your taxes by April 17 or file for an extension [here]!

And, as we step off our student loan soapbox, just a reminder to not miss a payment on your student loans! You can defer the principal, but PAY YOUR INTEREST ON TIME!

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Michelle Larivee and Amee Patel, Wharton MBA students with ballooning student debt and co-founders of MyStuDebt, a web platform to help students manage and repay their student loans.