Parents who help a child repay a student loan cannot deduct interest that they pay on the debt unless they are also legally liable on the loan for repayment.
But all is not lost. The student may be entitled to the interest deduction, even if a parent paid the student loan. IRS treats the transaction as if the money were given to the child, who then paid the debt. The student can claim the write-off as long as he or she is no longer claimed as a dependent on the parents’ return. And the child doesn’t even have to itemize on Schedule A to use this money-saver.
The maximum deduction allowed for student loan interest is $2,500 a year. However, it phases out as AGI exceeds $130,000 for couples and $65,000 for single filers.