Taxable Financial Aid
Current federal tax laws have made some financial aid taxable income. Financial aid received (other than loans) above the cost of tuition, fees, and books is considered taxable income. You should contact the IRS or a tax preparer for additional information.

Educational Income Tax Credits
There are two educational income tax credits that can reduce your or your family’s federal taxes. They are based on your university tuition and fee charges. The Hope tax credit can be claimed during the first two years of college, up to a maximum of $1,650 per year. The Lifetime Learning tax credit is available for any level of post-secondary study, up to a current maximum of $2,000 per year. Note that only one type of credit (Hope or Lifetime Learning) may be claimed for a student in a given year. For more information about tax credits, you can visit the IRS web site at www.irs.gov.

Student-Loan-Interest Deduction

Benefit
You may be able to reduce your taxable income for interest paid during the tax year on your student loans.

Income limits
Please check IRS Publication 970 (for current tax year), Tax Benefits for Education

Example from 2007 tax year:
If you are a single taxpayer with a modified adjusted gross income of between $50,000 and $65,000, you can take a partial deduction. If your income is below $50,000 — below $105,000 if you are married and filing jointly — you qualify for the full deduction. Married taxpayers with modified adjusted gross incomes of
between $105,000 and $135,000 may qualify for a partial deduction if they file joint tax returns.

Other information
Deductible interest includes loan origination fees, capitalized interest and voluntary interest payments on loans taken out solely to pay qualified educational expenses for a student enrolled at least halftime. Interest paid on loans from a relative or made under a qualified employer plan does not qualify for the deduction. You can claim this deduction even if you don't itemize deductions. Hope Tax Credit