I am working on OPT. I had student loan from my country(India). So what kind of tax benefit I can get? Can I pay loan through my paycheck to get tax benefits?
Other details:
Filed 1040Nr form last year, but income was low, so I got all refund.
Bank made all payments to school directly.

If the loan is used exclusively to pay tuition and fees to the school where you attended class, then (and only then) can you deduct the interest on the student loan on your tax return.

If ANY of the loan was used for other expenses, like travel costs and living expenses, then NONE of the interest is deductible.

I really appreciate your help.
I have taken loan to pay tution and fees only. My bank wire-transferd amount to school acount.
Which tax return form I need to file for that?
What documents I need to get it from Indian bank to get benefits?

You can claim student loan interest on Forms 1040, 1040A, 1040NR and 1040NR-EZ.

You need the Indian bank to tell you in writing how much you paid in interest in the calendar year 2010. This written proof will be needed should the IRS challenge the deduction.

If I am not wrong, I will deduct interest amount from income which I paid in the year 2010.
What about principle amount which I will be starting to pay soon. Shall I get benefits on that also?
I paid interest in Indian currency. Does it matter?

The repayment of the principal is NOT a tax deduction; that is why you need the statement from the bank to tell you how much of the amount you repaid in 2010 is interest and how much is principal.

It make sno difference whether the interest is paid in U.S. or Indian currency, though you WILL need to convert the interest amount to U.S. currency using the conversion rate on the date you made the payments.