Can I deduct the interest paid on a defaulted student loan?

[anchorage_alaska]

I had my student loan fall into default in March 2017 and began a rehabilitation program in April. I made set payments on time between April and December. Can I deduct the interest paid here in this situation? I never received a 1098 form. 

[JulieH1 · Accepted solution]

You can deduct student loan interest on a defaulted loan if you, in fact, paid the interest. It's the interest that's deductible, not the principal.

You can take the amount of interest from a year-end statement if you did not get a 1098-E.  Just read below to make sure you enter the correct amounts.

Interest Already Paid

The student loan interest deduction allows you to write off interest paid during the entire year. You can deduct student loan interest you paid regardless of what happens after you make the payment, even if you default on the loan later that same year. For example, if you made your student loan payments during the year through June and then defaulted on the loan and made no more payments, you could deduct the interest you paid through June. This amount should be reported to you on a Form 1098-E.

Capitalized Interest

If you do not actually pay the interest, but the interest is added to your account balance, also known as the interest being capitalized, you can’t claim a deduction. For example, assume you owe $10,000 on your student loans. If you missed three student loan payments before you defaulted, and as a result $600 in interest that wasn’t paid was added to your balance due, you can’t include that $600 as deductible student loan interest.