Question : Payoff student loan or use it as deductable?
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?
- asked by Cindy16
All Answers:
Answer #1
Since you can deduct the interest and it comesdirectly from your highest tax rate, you can makethe calculation like this.I will assume a 25% taxbracket.8% x (1-.25) = 6%So if your interest isfully deductible then you are paying 6%. Not badbut not great either. FYI, my wife has about 36kin student loans at a 2.75% interest rate. Youshould check on a consolidation loan at a lowerrate.
- answered by ck-cfp
Answer #2
You never want to pay interest just to get a taxdeduction.Pay it off as soon as possible.
- answered by Wayne Z
Answer #3
Generally I wouldn't hold off paying ANY debt justfor a tax deduction. In actual refund dollars, adeduction ends up being the amount you pay timesyour marginal tax rate. So for example, if youpaid $1,000 in student loan interest for 2007 andyou are in the 25% tax bracket, you're "netting" apayment of $750 [1000 - (1000 x 25%)]. In otherwords, the deduction only gets you back 25% ofwhat you paid. Personally, I'd rather just bedone with the debt altogether and pay it off ASAP.
- answered by jaypez77
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