A single taxpayer has $61,000 of income. He completed graduate school three years ago and is in his 3rd year of 10 years of payments on his student loans from college and graduate school. He pays $3,500 of interest. He can deduct education loan interest of $1,500 [$2,500 x ($70,000 – $61,000)/$15,000)]. If his income continues to rise, his interest deduction will continue to be limited by the cap and phase-outs. If he refinances his student loans using a home equity loan, he could deduct a portion of his interest payments as a student loan and the remaining portion as a home mortgage interest itemized deduction.