Should I knock out the rest of my student loan?

quote:

---

What's your interest rate? Mine are at 6.8; if I were in your situation - and income is stable - I would pay it off and never look back.

---

If you have federal loans like me at ~3.5%, the rate really is 2.625% due to the tax write. You don't have ot itemize to get student loan writeoff


My work has essentially a high interest savings account that would get me 3.3%. I put my extra student loan money into that account and never look back.

I'd pay it off. It's really nice to be debt free, and you'll be able to save that money up again fairly quickly ($500 extra / month over two years). And if you're not buying a house or car and you still have a full emergency fund plus a small account balance, you aren't really using that extra money. Put it towards good use instead of being tempted to use it to buy something you don't need

If your rate is really around 6.8%+, pay that shite off.

I you really save like you say you do (although I didn't know bandits were known for their financial discipline), imagine having 25-33% of on top of your net, and how quickly you could replenish those savings. You could easily just transition that $500 to retirement savings, and not feel the difference in your paycheck, but start to diversify savings more.

In this environment, I don't see how many people could justify holding that loan. It's fairly expensive money, and I view it as a bit more risky because it is sort of collateralized by your income.

I did not take out debt in school, but when we payed my wife's off, it was a great feeling. You don't work with this feeling that you are there to pay off your debt.

I have the same problem not being able to deduct student loan interest.

Is there a work around or loophole that I am missing because it is extremely frustrating seeing how much I pay in interest each year and then not be able to deduct it.

quote:

---

Is there a work around or loophole that I am missing because it is extremely frustrating seeing how much I pay in interest each year and then not be able to deduct it.

---

If you own a home and itemize already (if you deduct mortgage interest), you could refinance or second mortgage to cash out enough to pay off the student debt. You will now be paying a lower interest rate and be able to deduct that interest.

This may or may not help your situation, but it as least an idea. I have not found many other creative ways to take the deduction if your income is too high.

Like I said, the deduction is bullshite, because it was never designed to help out someone that took out a large loan to obtain a high paying job. The deductibilty of any expense all revolves around whether or not that cost was incurred in order for you to make money, or otherwise earn a living. This is why medical and mortgage interest deductions are there (or simply embedded in the standard deduction), because these are costs to keep you healthy and secure so that you can earn a living. In other words, it is the gov't recognizing that there are certain costs that a person incurs to be a productive member of society. Beyond that, you deduct anything that is strictly business related, because those costs are directly tied to making money. All that being said student loan interest, at its core, was only ever taken out to help earn a living in the future. If you secured employment in the field you studied for, it shouldn't make a difference how much you make, particularly if there were high costs of obtaining that education in the first place (medical professionals). Further, by not allowing a deduction, you are keeping younger professionals in debt for a longer period of time. There should be some encouragement from the government to establish yourself in your field, begin saving and otherwise learn to manage your own finances if you landed a job in the field of your education. Instead, there is no incentive there, so your focus is to just pay off the debt quickly, because it is likely some of the higher interest you could obtain, therefore handcuffing you from growing your wealth.

I mean seriously, I am not a doctor so I am not positive on all of the costs, but from what I understand, by the time you make enough cash to actually pay off the loans completely, it could be as much as 10 years or more from when you first started your education. Does it really make sense that the current tax structure encourages the most highly trained individuals to be 30+ y/o, and the only asset they really have is their education? All of this while the same government is trying to drive up healthcare costs by providing more widespread coverage therefore eating into future margins for these professionals?

....sorry, did you ask a question?

quote:

---

Yep, the income limit is pretty damn low considering costs of education.

---

80k MAGI for someone single and 160K MAGI for married people isn't really all that low.

Saying it penalizes people that took out money with the intention of "actually getting a high paying job" is pretty stupid.

I'd pay it off. In its most basic form, you'll have $17k left, and putting the $500 a month back into savings will take 26 months to replenish your $13k. Deposit that $500 in an interest bearing account and make money rather than being charged interest which you're doing now via loan payments.

quote:

---

Saying it penalizes people that took out money with the intention of "actually getting a high paying job" is pretty stupid.

---

Why is it stupid? That is precisely how the limits (MAGI and total deduction) work.

quote:

---

80k MAGI for someone single and 160K MAGI for married people isn't really all that low.

---

Well, maybe for the population as a whole. But when the population in question are people that would be up higher than the limit in terms of interest paid, you would expect for them to have higher income, based upon their level of education. At 7% interest and a $2500 cap, the most your borrowings could be that actually can get deducted would be like $35k.

Oh and by the way, those MAGI's you listed are after complete phaseouts which start well before those figures (65k for single filer).

Ex: You go to school to get a job in a chosen field which requires an advanced degree. That job pays $100k/yr, out the box, and has little increases in pay throughout your career. That job requires schooling that costs $100k in total. You have finished school, you are single, and you got a job lined up before graduation. After exemption and standard deduction, you are above $80k MAGI by a decent margin. You will never be able to deduct interest at that job and rate of pay. Depending on your interest rate (let's say 7% because that is around the rate I see the most), you will have to pay 7% of your income (since they are both 100k in the example) in order to pay for a cost incurred to be able to achieve that income. You are taxed like someone that is paid 100k a year, but there is a cost to making that 100k. Now, lets say another individual is the exact same, but change the 100k's to 35k's. That person can now deduct the full amount of interest, which is the same percentage of their income as the other individual. Go up in income or interest from that point, and it gets less and less attractive.

So yes, all else equal, it is penalizing the person who borrowed more money to get a more specialized job. Or looked at differently (and more importantly), you are providing less incentive for individuals to seek out more specialized education if they would have to borrow either way.

Again, I would really like to hear your thoughts on how any of this is "stupid" as it pertains to the tax code.

If you don't need liquidity for major purchase/investment, go ahead and pay off. If SHTF and you need the coin you can get a personal loan.