<prompt> Human: Background: Im a 24 yr old graduate student with around 45k in student loans, and should be about 50k total when I graduate in May. Im currently working an assistantship that earn 900 per month which covers all monthly expenses, with about 1500 in rainy day savings. Ive recently gotten engaged and hope to buy a house in a few years as well. My grandmother was very sick, and passed away last month. After expenses, my part of the inheritance was approximately 65k. Im currently debating how to divide it between debts and saving for a down payment on a house.I havent begun paying back student loans yet, but I believe Ive been told somewhere that the interest on them is a tax right off, so Im not sure its worth it to drop most of the 65k in that if no interest is saved. My fiance and I would like to buy a house in the near future, so putting a part towards half of the down payment would be nice too. Is there a best way to split this?  <response>: Student loan interest can be used as a deduction, not as a tax credit. And the most you can claim is 2500, or however much in interest you paid, whichever is lesser. And remember, as with all deductions, this only lowers your taxable income dollar for dollar, not your taxes. So if you are in the 25 tax bracket, for every 1 in interest you pay, you will reduce your taxes by 0.25. Paying interest is not a wash and will leave you with less dollars than not paying interest.And, you can only claim it if your adjusted gross income is less than 75,000 if single, and less than 155,000 is married and filing jointly.As to what you should allocate your inheritance to, that would depend on the interest rate on those student loans. 