So after 4 years of school I owe 26K! yay!
The interest on the loan so far is like 3100$, so i owe just under 30 grand
Now over the last 4 years I’ve managed to put aside about 31k to wipe out these loans, when i mentioned this to my mom, she said I could claim the interest on my taxes
I know nothing about taxes, is this true? I have documentation stating such and such about the interest any help would be great
Yes the interest paid on the loan can be claimed. Should receive a 1098-T form for it…It’s not much but it’s some extra cash
When you do your taxes you can write off interest for that year. It’s an item and nothing crazy to do. Your loan company gives you the form but do you really wanna keep paying money back at 4%+ to get back the interest on taxes?
Also you just get it deducted from your taxable income. You don’t get it actually back at least from what I have seen.
Yeah the amount you would get deducted doesn’t compare to the amount you actually pay in interest. It’s just a little kickback for those that can’t pay them off outright. If you have the means to pay off your loans, I would do it.
then for this tax season (10) ill def include it, otherwise it will be payed off AsAP! thanks fellas
There are tax deductions and tax credits. Tax credits reduce your taxes by the amount of the credit. Tax deductions reduce your taxable income by the amount of the deduction.
Lets say you made $50k and you have to pay 30% taxes. So you owe $15k in taxes. If you have a $5k tax credit then you end up only owing $10k.
Lets say you made $50k and you have to pay 30% taxes. So you owe $15k in taxes. If you have a $5k tax deduction then you pretend you only made $45k and 30% of that is $13,500. You owe $13,500.
Student loan interest is deduction, not a credit. Blah.
I’m guessing your student loan interest rates are near 6.8% right? Keep that $51k in a savings account or 6 month CD or something, and pay off your student loans at the end of your 6 month grace period.
By the way, congrats. Being able to pay off all your student loans upon graduation is no small accomplishment. :tup:
Have you actually paid on your loans in 2010? Only the interest you’ve paid is deductible and not how much is accrued. Whatever interest you paid should be reported to you on Form 1098 or you can call and ask.
Whatever you pay off now will be deductible on your 2011 returns.
^^Good point.
Devils advocate response: I noticed previously that you were interested in equity investing (ie stock market). If I recall, you said you were doing pretty well. I would (and am) using the money that could pay off my loans to invest instead while rates are low. You would have to do a quick projection calculation to figure out 1) your estimated interest paid per year after the SL interest deduction 2) What your rate of return could be on the monthly additional cash flow you would have if you paid off the loans.
Just something to think about.
student loans should be the last thing that you pay off. If you have no other debt in life and still have the cash to pay them off then I still probably wouldn’t do it.
Student loans can be suspended for just about any reason (disability, unemployment,…) unlike a mortgage or car loan. They only catch is unlike other loans they never can go away in bankruptcy and will follow you. They’re also normally the lowest interest money that you can borrow. They don’t count against your credit score and have a nice tax write off included.
If you came to me today and said you had $30k that you wanted to loan me at 2%-4% I’d probably take the cash and invest it to cover the interest and make profit or pay off other loans etc… what I’m saying is that you won’t be able to borrow money like this again so think twice before you cancel this advantage and then go and take out another loan which is worse.
as I always say: debt is something to be managed, not avoided. Every millionaire that I know has a lot of debt and could pay it all off today, but they don’t.
Well put. I do know some wealthy people who never use their own money to buy things right along with what you said.
The interest rate for new subsidized and unsubsidized loans first disbursed on or after July 1, 2006, is a fixed 6.80%, with the exceptions for subsidized undergraduate loans noted in the table below. The interest rate for PLUS loans first disbursed on or after July 1, 2006, is a fixed 7.90%. For Direct consolidation loan interest rates, see that rate page for information.
Date of First Disbursement Interest Rate for Subsidized Undergraduate Loan
7/1/08–6/30/09 6.00%
7/1/09–6/30/10 5.60%
7/1/10–6/30/11 4.50%
I agree that paying them off isn’t necessarily the right way to go, but student loans aren’t the <3% interest rates they were 10 years ago. These days most new car loans and mortgages are cheaper than student loans. And you can deduct mortgage interest just like student loans.
You keep enough cash on hand to live, plus a rainy day fund to stay solvent should you lose your job. Then you just look at how much borrowing will cost you versus how much investing will make you and go with the more profitable route.
Its always smart to pay off debt. Keeping it hanging around to take a stupid tax credit is insane. You can only write the first 2500 off in student loan interest per year. The rest you eat. My girlfriend had 4100 in interest this year alone on her bachelors program from Hilbert.
If it was always smart to pay off debt the amex black card wouldn’t exist.
Word. Debt can be a very useful financial tool. It just has a bad rep because it can get dangerous in a hurry.
thanks for the compliment on being able to pay it off, between working a ton to save to pay off hte loans and finishing the engineering program, i can def say these were some of the most unenjoyable years of my life lol but it was def all worth it in the end, I cashed in on some of my stocks btw and im gonna owe around 3k on tax for that (which ive also saved up for ahhh i love planning ahead!), i just got my 1098 form and i have accrued 3100$ in interest and there is no grace period for my loan, i spoke to the US dept of ed who takes care of it and whatever loaned my mom signed me up for when i was 18 is compounding
i was informed that if i wait until september (my first payment), i will owe an additional 900 bux i think the interest is around 6% id have to check
so if i could deduct that 3100 from my taxes that would really counteract the stock tax owed
I’m also considering like just sending 10 grand and knocking the loan down to like 19k
the situation as of now is I live at home, my parents charge me around 4-500 bux a month to stay there (covers everything and i cant pass that up!) I’m now at GM fulltime (unless aerotek fucks my ass!) and I still work delta on weekends
I dont plan on spending any big money anytime soon, i would like to save and save and save until next year but i am gonna buy a bike again this year!
that’s where im at right now
ALSO! on a sidenote, I need a new tax place, the last tax guy i went to kept telling me i was too young so it wasnt worth looking for any deductions on my taxes, then after he was done he tried selling me hypnosis sessions =p so tax places?
TurboTax dat shit brosef
You dont deduct your interest from your taxes. You just reduce your taxible income. If you paid 30% tax on 30,000 yearly income, you paid 15k in taxes. Claiming 3k in student loan interest reduces your taxable income to 27,000 so you get back the taxes you paid on the 3,000 of income.
If you send in 10 grand, make sure you apply it to principle and not your future payments. My loan by default if I pay 1,000 will apply anything over my payment to the next payments.
HOw many deductions do you have? You can take standard deductions of up to like 5k before you itemize. If you decide to itemize you really run the risk of a) being audited and b) a lot more paperwork.
I have a full time job, side work on my own social security number with business expenses, student loans and investments, and personal accounts and am able to do them really simple in TurboTax. You being young your taxes are going to be the easiest now so might want to take a effort at doing them yourself and learning about them.
if your loans are at 6% that’s high enough I might consider killing them if you have no other debt in life and are not planning to buy anything with a loan in the next couple years. I would first check if you can consolidate them down to 3% or who knows what since then you might be able to keep your cash in a safe investment and cover the interest costs on the loan.
When you consolidate you just end up with one loan at a rate equal to the weighted average of all the loans. Unless I’m missing something you can’t consolidate a bunch of 6% loans down to 3%.