The price of a college education has risen sharply over the years, and many graduates come out of school with a sizable amount of student loan debt hanging over their heads. As hard as it is to get that debt paid down, the federal government at least gives you a small silver lining in the form of a deduction for interest paid on your student loans, up to a maximum of $2,500. There are some restrictions on being able to deduct your student loan interest, though, so it pays to understand the rules and what you need to do to take advantage of this tax break.

The general rules on the student loan interest deduction

Several rules limit the ability to take the deduction for student loan interest. In order to deduct student loan interest that you paid during a given tax year, you must have been the person legally obligated to do so. That means that if you pay interest for someone else's loan, the payment is treated as a gift from you to the person who owes on the loan, and it's the borrower who can claim the deduction, not you.

In addition, you must have a filing status other than married filing separately. Neither you nor your spouse can be claimed as dependents on someone else's tax return.

The loan must also be for a qualifying purpose. Specifically, the loan must go toward paying qualified higher education expenses, which includes tuition, required fees, room and board, books, supplies, equipment, and other necessary expenses. However, the amount for room and board can't exceed what the school determines is the appropriate allowance for determining costs for financial aid purposes unless the school itself actually charges more.

Finally, there are income limits on who can take the student loan interest deduction. In 2016, joint filers making more than $160,000 in modified adjusted gross income or other files making more than $80,000 can't claim the deduction at all. Singles with modified adjusted gross income above $65,000 or joint filers above $130,000 have to phase out a portion of their deduction. For instance, if you're single, paid $1,000 in deductible interest, and had income of $72,500, then you'd only be able to deduct $500 of your interest, because the deduction was phased out by 50%.

How to plan for the student loan interest deduction

One benefit of the student loan interest deduction is that you don't have to itemize deductions in order to claim it. Technically, the deduction is treated as an adjustment to your gross income, just like an IRA contribution deduction or other similar reductions. That's different from how other types of deductible interest, such as mortgage and investment interest, typically get treated. With other interest payments, you would usually have to itemize in order to claim the tax benefit.

Depending on how much in interest you have to pay on your student loans, you might receive a tax record from your lender that gives details on the relevant figures you'll need to claim the deduction. The threshold amount above which a lender must send you this information on Form 1098-E is $600 in interest payments. Some lenders will provide similar information even if your total interest was less than that amount.

One thing to keep in mind that might seem counterintuitive is that if you're someone else's dependent, it's likely that neither you nor the person claiming you as a dependent will be able to take the student loan interest deduction. For instance, parents often are able to claim a college-age child as a dependent if they're providing financial support for the child. Yet if the child pays interest on a student loan and is the one obligated to do so, then the child can't claim it because of the dependent status, and the parents can't claim it because they weren't the ones with the legal obligation to pay.

Given how much debt many students incur in going to college, being able to deduct some of your student loan interest might seem like only a minor compensating reward. Nevertheless, knowing when you can properly take advantage of this tax break will help produce some savings you can use to get out of debt that much faster after you graduate.