A significant amount of interest paid on student loans is tax deductible and you may be able to deduct up to $2,500 in interest paid yearly on loans used to pay for qualified educational expenses.

To qualify, proceeds of the loan must have been used for qualified higher education expenses, including tuition, fees, room, board, supplies and other related expenses by the taxpayer, the taxpayer's spouse, or the taxpayer's dependent.

If you paid at least $600 in interest on education loans in 2007, you will receive a 1098-E Form from your student loan lender or servicer.

To claim this deduction, taxpayers must file federal tax Form 1040 or 1040A; however, itemizing deductions is not required.

For more information, see IRS Publication 970, chapter 4, "Student Loan Interest Deduction."