Student Loan Interest Reporting

Under I.R.C. § 6050S, enacted by the Taxpayer Relief Act of 1997, lenders, including most colleges and universities that participate in the Perkins Loan Program or operate institutional loan programs, must report student loan interest payments to the IRS. See Notice 98-7, 1998-3 I.R.B. 54. Lenders will have to complete Form 1098-E, "Student Loan Interest Payments," for all of their borrowers who repay interest aggregating $600 or more during the year on one or more student loans. Payees are required to report interest received only with respect to student loans that have a covered period ending during or after 1998.

On June 16, 2000, the IRS issued proposed regulations that provide guidance to educational institutions receiving payments of, or making reimbursements or refunds of, qualified tuition and related expenses. The proposed regulations may be found at 65 Fed. Reg. 37,728. The returns filed for 2000 will still be governed by the rules set forth in Notice 97-73, 1997-51 I.R.B. 16. The proposed regulations were to apply to information returns required to be filed and information statements required to be furnished after December 31, 2001, but on December 1, 2000, the IRS issued Notice 2000-62, which extends for another year (to include calendar year 2001) the minimal reporting requirements, as the final regulations have not yet been issued.

The proposed regulations require any person engaged in a trade or business that receives from any payor interest of $ 600 or more for any calendar year on one or more qualified education loans (a payee, as defined in I.R.C. § 221(e)(1) and the regulations thereunder) to file a Form 1098-E with the IRS. Under the proposed regulations, a payee must report the name, address, and taxpayer identification number (TIN) of the payee; the name, address, and TIN of the payor; and the aggregate amount of interest received during the calendar year from the payor. The payee may be the lender, the holder of the loan, or the loan servicer. The regulations define the payor as the individual carried on the books and records of the payee as the borrower on a qualified education loan. If there are multiple borrowers, the principal borrower indicated on the payee's books and records is treated as the payor for purposes of I.R.C. § 6050S.

The proposed regulations provide that a payee must furnish an information statement to each payor for whom it is required to file a Form 1098-E. The proposed regulations provide that the statement must include the information included on the Form 1098-E filed with the IRS and a legend that identifies the statement as important tax information being furnished to the IRS. The statement must include instructions that state that, under I.R.C. § 221 and the regulations thereunder, the payor may not be able to deduct the full amount of interest reported on the statement. The instructions must state that interest payments are deductible only during the first 60 months that interest payments are required. If the payee reports only stated interest, the instructions must state that the payor may be able to deduct additional amounts (e.g., certain loan origination fees and capitalized interest) not reported on the statement. The instructions must also state that the payor should refer to relevant IRS forms (65 Fed. Reg. at 37,732) and publications (such as Publication 970) for explanations relating to the eligibility requirements for, and the calculation of, any allowable interest deduction on qualified education loans.

The proposed regulations describe the rules for the time and manner of filing information returns with the IRS and furnishing information statements to payors. Forms 1098-E must generally be filed with the IRS on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the interest payments were received. In general, a payee must furnish an information statement to the payor on or before January 31 of the year following the calendar year in which interest payments were received. Although the regulations do not specifically address the issue of electronic transmission of information statements, the IRS is currently studying the issue and may address that issue in future guidance.

See Tuition Payment Credit Reporting Requirements for rules on obtaining the TIN, and what constitutes acting in a responsible manner by the payee for purposes of compliance.

On January 21, 1999, the IRS issued a notice of proposed rulemaking that focuses on guidance to taxpayers on student loan interest. See 64 Fed. Reg. 3257 (Jan. 21, 1999).