CRCM practice question 18 of 35

On which of the following loans does First Savings Bank NOT have to provide a 1098-E (Student Loan Interest) report?

Answer options

A: A $10,000 tuition loan made to Bobby Wilcox, a student at the state university, guaranteed by the Department of Education

B: A $35,000 line of credit made to Don and Barbara Cocelli, secured by their home, for the payment of certified school expenses for their twin daughters at an accredited private school

C: A $15,000 loan to Linda Chu to be used for the purpose of paying tuition and fees and purchasing college books, lab equipment, and a computer for use in her education at the local community college

D: A $12,000 loan to Paul and Rhonda Pena and their daughter Jennifer, used to pay her college tuition as well as the tuition at the private high school her sister, Jeanne, attends Correct answer

Correct Answer:

D. A $12,000 loan to Paul and Rhonda Pena and their daughter Jennifer, used to pay her college tuition as well as the tuition at the private high school her sister, Jeanne, attends

Explanation

IRS Form 1098-E is used to report interest paid on a "student loan," which is defined as a loan incurred solely to pay for qualified higher education expenses. Qualified expenses are for post-secondary education (college). The loan to the Pena family was used for a mix of college tuition (a qualified expense) and private high school tuition (a non-qualified expense). Because the loan proceeds were not used solely for qualified higher education expenses, the loan does not meet the definition for 1098-E reporting, and the bank is not required to file the form for this loan.

Why Incorrect

A. A government-guaranteed loan for a university student is a classic example of a loan for which a 1098-E is required.
B. A loan is reportable if the lender has reason to know it is for qualified education expenses, regardless of whether it is secured by a home.
C. A loan used for tuition, fees, and required equipment at a community college meets the definition of a student loan for 1098-E reporting.

References

1. Internal Revenue Service (IRS). (2023). Instructions for Forms 1098-E and 1098-T. Section: "What Is a Student Loan". p. 2.

2. U.S. Code. 26 U.S.C. § 221 - Interest on education loans. Defines "qualified education loan" and "qualified higher education expenses."

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