My husband and I have around 30K student loan, interest is about 8%.
Right now we are paying monthly payment, sometimes pays extra in the good days, and hoping to pay it off sometime in the next 5-6 years.
But another hand, because student loan could be one of the income tax deductible, so we are not sure if we should keep the student loan as long as it takes and just pay minimum each month.
Which way actually save us money?
Use student loan as deductible each years or pay it off as soon as we can?
Related posts:
- Is student loan interest tax deductable if you take the standard deduction? I read that student loan interest was tax deductable...
- How can I payoff a $130,000 student loan, with a $30,000 per year income? I got a graduate degree used part of my...
- Start saving or payoff student loans? I graduated from college in may and was lucky...
- Is student loan still tax deductable when refinancing a student loan with a personal loan? My daughter has two very high interest student loans....
- What happens when a student loan is cancelled due permanent disability, but the student is rehabilitated? When a guaranteed student loan is discharged and later...
Related posts brought to you by Yet Another Related Posts Plugin.
Since you can deduct the interest and it comes directly from your highest tax rate, you can make the calculation like this.
I will assume a 25% tax bracket.
8% x (1-.25) = 6%
So if your interest is fully deductible then you are paying 6%. Not bad but not great either.
FYI, my wife has about 36k in student loans at a 2.75% interest rate. You should check on a consolidation loan at a lower rate.
You never want to pay interest just to get a tax deduction.
Pay it off as soon as possible.
Generally I wouldn’t hold off paying ANY debt just for a tax deduction. In actual refund dollars, a deduction ends up being the amount you pay times your marginal tax rate.
So for example, if you paid $1,000 in student loan interest for 2007 and you are in the 25% tax bracket, you’re “netting” a payment of $750 [1000 - (1000 x 25%)]. In other words, the deduction only gets you back 25% of what you paid.
Personally, I’d rather just be done with the debt altogether and pay it off ASAP.