Student loan extra payment

[auron]

I'm trying to decide whether or not it will be worth it to pay extra on my student loans (interest) to take advantage of the tax credit for SL interest. My parents agreed before I graudated college that they would pay my student loans but I do not wish to spend the next 10 years relying on someone else to pay debt I am liable for so I am matching their monthly payment.

Income: $3400/mo after tax, $532/mo from parents for SL pmt
Expenses: $3290/mo ($1064 on SL)(I include $100/150 in savings/401k in my expenses)
EF: $11,050 (and no I'm not going to use it to pay down debt so don't suggest this one)
SL balance: $46,200
No other debt
No significant other/no children/1 dog/25 years old

Mainly, I am looking for advice on if I should fork over another $1436 to get to the $2500 interest deduction (saving me ~$400 in interest over a projected 5 years) before the tax year ('11) ends.

[bjl584]

Why is your SL payment so high? 46K in student loan debt should come out to like a $300 and something payment on a standard 20yr SL. Have you considered refinancing?

Paying extra can make sense, but it depends on the interest rate on your loan. Take into consideration the amount that you can write off on taxes, then determine if you can earn more on your own by investing the money, or if that money would be better served going toward your debt.

[auron]

I am on the 10 year repayment plan @ 6.8% which ends up being $532/mo. The payment is high mainly because I am essentially making an extra payment each month. Parents contribute $532 and I contribute $532.

No, I have not considered refinancing mostly because I would rather be debt free. I know I could probably make a better return investing in something, but I don't have a working knowledge of what that something is yet.

[bjl584]

I am on the 10 year repayment plan @ 6.8% which ends up being $532/mo. The payment is high mainly because I am essentially making an extra payment each month. Parents contribute $532 and I contribute $532.

No, I have not considered refinancing mostly because I would rather be debt free. I know I could probably make a better return investing in something, but I don't have a working knowledge of what that something is yet.

It comes down to your goals.

Do you have any other savings or debt?
Would you like to buy a house? Do you have money saved for that?
Do you have money saved for a replacement car?
Are you currently saving for retirement?

Would the extra money that you put toward your loans be better served fulfilling one of the above questions? Maybe you already have all of your finances in order and the extra money that you put toward your SL's is truly extra money left over after all other financial obligations have been met. If so, then that's great. But, if your savings are lacking or your retirement is underfunded, then maybe directing the extra money that you put toward your loans elsewhere would make more financial sense.

[auron]

I appreciate the responses. Honestly, I can't say if being debt free or buying a house has a higher priority for me. Looks like I'll be doing some goal setting this weekend.

[Cassius King]

Are you funding a Roth? If not, I would be utilizing that space right now.

[Petunia 100]

I'm trying to decide whether or not it will be worth it to pay extra on my student loans (interest) to take advantage of the tax credit for SL interest. My parents agreed before I graudated college that they would pay my student loans but I do not wish to spend the next 10 years relying on someone else to pay debt I am liable for so I am matching their monthly payment.

Income: $3400/mo after tax, $532/mo from parents for SL pmt
Expenses: $3290/mo ($1064 on SL)(I include $100/150 in savings/401k in my expenses)
EF: $11,050 (and no I'm not going to use it to pay down debt so don't suggest this one)
SL balance: $46,200
No other debt
No significant other/no children/1 dog/25 years old

Mainly, I am looking for advice on if I should fork over another $1436 to get to the $2500 interest deduction (saving me ~$400 in interest over a projected 5 years) before the tax year ('11) ends.

I don't understand the question. Are you saying if you make an extra payment now, they will apply some of it to interest, thereby increasing your deductible interest for 2011? If so, yes, this is a good tax strategy.

[auron]

I don't understand the question. Are you saying if you make an extra payment now, they will apply some of it to interest, thereby increasing your deductible interest for 2011? If so, yes, this is a good tax strategy.

Yes, this is exactly what I am suggesting.

[Hector]

at 6.8% and being in the tax bracket you are, I would put every extra penny towards student debt.

[pdweaver]

It comes down to your goals.

Do you have any other savings or debt?
Would you like to buy a house? Do you have money saved for that?
Do you have money saved for a replacement car?
Are you currently saving for retirement?

Would the extra money that you put toward your loans be better served fulfilling one of the above questions? Maybe you already have all of your finances in order and the extra money that you put toward your SL's is truly extra money left over after all other financial obligations have been met. If so, then that's great. But, if your savings are lacking or your retirement is underfunded, then maybe directing the extra money that you put toward your loans elsewhere would make more financial sense.

This reply is spot on. If you can save money on interest, and can get the added tax advantage, do it. If your goal is to purchase a house in the future, and need to save for a down pmt, then save the money. If you want to purchase a home and the SL pmt of $500+ will affect your DTI (debt to income) so you cannot get your dream house, then pay down the loan. Go over your future goals, make a plan, and stick to it.

[jpg7n16]

3 Easy Ways to Get Out of Debt by Paying Off Your Student Loan

Here are some tips that might help students get out of debt, in a quick and diligent manner:
• Collateral Loans – Students, usually do not have a good credit rating. Hence, collateral loans like car title loans, auto title loans, pink slip loans and other collateral loans come in handy. The easiest one, especially for students, is the car title loan. Students can use their personal vehicle as security, against which they can acquire loans of up to 50% of the valuation.

How does taking out a loan get you OUT of debt??

And why would you trade in your low interest, tax-deductible student loan debt, for a high interest non-deductible title loan??

Why car title loans are a bad idea - CNN


Your other options were good (pay more or get someone else to pay more for you). This one however, is terrible.


Maybe it has something to do with the link in your post. Do you work for that title loan company or something??

[auron]

Did you even read my original post Travis? The thread was a question regarding the cost/benefit between paying extra to maximize SL interest tax deduction while keeping short term cash flow in mind...

p.s. There is no "easy" way to get out of debt....

EDIT: disregard my response, I now see Travis is just advertising this car title loan service on SL posts

[Money Gal]

What is your AGI for 2011 taxes and do you expect it to be the same for 2012? If your income is approaching the cutoff for deducting interest you need to be careful (I believe it is $60K limit for a single).

[auron]

What is your AGI for 2011 taxes and do you expect it to be the same for 2012? If your income is approaching the cutoff for deducting interest you need to be careful (I believe it is $60K limit for a single).

Hmm I did not consider this, but I only worked 6 months this year (was in school till end of spring term). I wasn't aware there is an income cutoff for SL interest deduction, or at least not that low. I'll have to keep this in mind for 2012...