From William Perez,
Your Guide to Tax Planning: U.S..
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Interest paid on a student loan may be tax deductible.

Reporting Student Loan Interest

Your lender will send you a Form 1098-E. The amount of interest you paid on your student loans for the year will be reported on Form 1098-E, box 1.

The maximum amount of student loan interest you can claim is $2,500 per year.

Where to Claim

Report your student loan interest paid on Form 1040 Line 33 or on Form 1040A Line 18.

Limits

The maximum amount of student loan interst you can claim as a tax deduction is limited to $2,500.

The deduction is also limited by your total income. If your income is under $55,000 (or $110,000 for married couples filing a joint return), then you can deduct up to $2,500 in student loan interest.

If your income is over $55,000 but under $70,000 ($110,000 to $140,000 MFJ), then your deduction for student loan interest will be prorated.

If your income is over $70,000 ($140,000 MFJ), then your student loan interest is not deductible at all.

The phaseouts for the deduction are described in more detail in IRS Publication 970. Tax software will calculate the deductible portion of your student loan interest, or you can use the worksheet in Publication 970.

From the IRS

"Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $70,000 ($140,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2007."
Source: IRS Publication 970, Tax Benefits for Education, Chapter 4, Student Loan Interst Deduction.

Additional Information:
Student Loan Interest Deduction (IRS Tax Topic 456)
Tax Benefits for Education (IRS Publication 970)