To pay or not pay student loans in full this year!

[slikk]

I have about 8K in federal student loans @ 6.8% interest rate. I have the ability to pay it off all in the next 3 months but I don’t know if I should. The reason being I want to have the cash at hand to be able to meet any emergency need that may arise. 6.8% interest rate is pretty low. In case I decide not to pay off the full amount and just pay the monthly installments, how much of the interest paid in 2012 will I get back when I file my taxes next year. My salary range is 40-45k. If I get back all the interest paid in 2012 in the form of refund then I'd rather not pay the full loan amount.

 

My other question is this full amount of 8k is made up of two fed subsidized loans that are in repayment. Would it help me if I consolidate them or im just better off without having to consolidate them?

 

Thanks.

Any advice?Thanks.

[jolla]

If I get back all the interest paid in 2012 in the form of refund then I'd rather not pay the full loan amount.

I'm no tax expert, so if I'm wrong, someone please correct me, but you don't get back your interest, you get to deduct your interest, which means you don't pay tax on it.

 

Simplified example: if your income is $40k, you pay 25% tax, and you paid $2k in interest, instead of owing $10k in taxes, you would owe $9,500 in taxes.

[rslifkin]

If I get back all the interest paid in 2012 in the form of refund then I'd rather not pay the full loan amount.

I'm no tax expert, so if I'm wrong, someone please correct me, but you don't get back your interest, you get to deduct your interest, which means you don't pay tax on it.

 

Simplified example: if your income is $40k, you pay 25% tax, and you paid $2k in interest, instead of owing $10k in taxes, you would owe $9,500 in taxes.

 

No tax expert either, but I thought you could deduct the amount of interest paid on Federal student loan FROM the amount of taxable income.

 

For example: If you had $100k in SL debt, paid ~$2000 in interest on it somehow, (?) otherwise had taxable income of $50,000.. would now have ~$48,000 taxable income.

 

As to the OP's question. Same boat. Just north of 10k debt to Guarantor. Can likely pay all/most of it off this year.. but I want to let it enter Rehab, not pay it all off? (Default statuses removed?)

[butterflywings]

If I get back all the interest paid in 2012 in the form of refund then I'd rather not pay the full loan amount.

I'm no tax expert, so if I'm wrong, someone please correct me, but you don't get back your interest, you get to deduct your interest, which means you don't pay tax on it.

 

Simplified example: if your income is $40k, you pay 25% tax, and you paid $2k in interest, instead of owing $10k in taxes, you would owe $9,500 in taxes.

 

No tax expert either, but I thought you could deduct the amount of interest paid on Federal student loan FROM the amount of taxable income.

 

For example: If you had $100k in SL debt, paid ~$2000 in interest on it somehow, (?) otherwise had taxable income of $50,000.. would now have ~$48,000 taxable income.

 

As to the OP's question. Same boat. Just north of 10k debt to Guarantor. Can likely pay all/most of it off this year.. but I want to let it enter Rehab, not pay it all off? (Default statuses removed?)

 

That is correct. For years now, dh and I have deducted our student loan interest from our income on Line 18 of our 1040. It's considered an *adjustment* to income and it definitely lowers your AGI.

[slikk]

Thanks for ur insights guys.

 

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[hegemony]

I would pay them off asap. Remember the tax benefit goes away at higher income levels. I paid off mine in about 7 years and was sooooo happy to have that part of my life behind me.