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What to do? Deferment and balances and life

Valued Contributor

What to do? Deferment and balances and life

Hi,

So I have about 35k in student loans. I just graduated last summer with my BA and am not really working. I just opened my own small business hoping just to pay the bills with my fiancée and our son. I'm hoping that this business will pay our monthly bills and allow me to save a little.

Currently I'm accruing interest every day (I think). I've read that if I pay the interest on these then it's considered tax deductible? Also if I pay the interest it will save a lot of money is this correct?

Also, in about another year to year and a half I plan on beginning law school and likely need to take out more student loans.

I just applied for forbearance and was approved for 1 year. My loan is with FedLoan Servicing.

Any thoughts?
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3 REPLIES
Established Contributor

Re: What to do? Deferment and balances and life

Yes, you are correct.  Student loan interest is tax deductible as an adjustment to your income up to $2500 per year.  If you have the means of paying the interest during the forebearance period, then that is the way to go.  Otherwise the interest gets capitalized and you will start paying interest on the interest.  Once you see what your income will look like, I suggest snowballing your student loans starting with the lowest balance one.  This will allow you to start decreasing the number of student loans that you have gradually, and when they come up for repayment again in a year, you will have less student loans, so a lower monthly commitment that is required to put toward your student loans.


Starting Score: Eq: 662 Tu: 532 (03/02/2011) CH7BK 01/12/2009 Discharge
Current Score: Eq: 712 (02/03/2017) Tu: 717 (04/03/2013)
Goal Score: Eq: 760 Tu: 760

Wallet: PenFed Power Cash 25k | AMEX Blue Cash (AU) 49.5k | Cap One QSMC 26.5k | AMEX Platinum NPSL | LFCU Visa 10k
Message 2 of 4
Valued Contributor

Re: What to do? Deferment and balances and life

Is there a way to select a specific loan you want to pay down? I thought they just take your payment and make mini payments to each loan.

Also, say I pay 1k a year in interest I'm able to get that back when doing taxes?

Thanks for the help!
Message 3 of 4
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Established Contributor

Re: What to do? Deferment and balances and life

Yes.  If you have not consolidated your loans and are paying through the servicer's website, you can typically chose which loan you want your payment to go toward.

 

It's not a dollar for dollar refund on the interest.  A percertage of the student loan interest your pay is deducted from your income, thus decreasing the income that you have to pay taxes on.  So paying $2500 in student loan interest does not equate to a $2500 tax refund.  I am not a CPA, and I hate tax law, but the below is a calculator on the IRS website you can use to do some estimates.  https://www.irs.gov/uac/can-i-claim-a-deduction-for-student-loan-interest 


Starting Score: Eq: 662 Tu: 532 (03/02/2011) CH7BK 01/12/2009 Discharge
Current Score: Eq: 712 (02/03/2017) Tu: 717 (04/03/2013)
Goal Score: Eq: 760 Tu: 760

Wallet: PenFed Power Cash 25k | AMEX Blue Cash (AU) 49.5k | Cap One QSMC 26.5k | AMEX Platinum NPSL | LFCU Visa 10k
Message 4 of 4