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When you pay the interest on your student loan to your student loan provider (Nelnet, Sallie Mae, etc), the interest paid is automatically tallied. Typically, any money put towards loans is applied to interest and loan fees first and then principal last unless you specify otherwise. At the end of the tax year, you'll download a 1098-E Student Loan Interest Statement form from your student loan provider. There will be a spot in the deductions category of your tax preparation sheet to input the value on the 1098-E form.

 

Take advantage of it while you're a student if you have the means because most PAs make too much money to deduct the interest paid on student loans once you're practicing.

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Great, thank you so much.  I think I read that you can deduct up to $2,500?

 

When you pay the interest on your student loan to your student loan provider (Nelnet, Sallie Mae, etc), the interest paid is automatically tallied. Typically, any money put towards loans is applied to interest and loan fees first and then principal last unless you specify otherwise. At the end of the tax year, you'll download a 1098-E Student Loan Interest Statement form from your student loan provider. There will be a spot in the deductions category of your tax preparation sheet to input the value on the 1098-E form.

 

Take advantage of it while you're a student if you have the means because most PAs make too much money to deduct the interest paid on student loans once you're practicing.

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If you have zero income, there is nothing to deduct the interest from. In other words, if you don't pay any taxes, you can't deduct to pay less taxes. 

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Thank you for bringing this up, I didn't even consider this.  Brain stuck in cardiology module at the moment. 

 

 

If you have zero income, there is nothing to deduct the interest from. In other words, if you don't pay any taxes, you can't deduct to pay less taxes. 

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This is something I am interested in as well, Specifically the first part regarding interest payments while in school.  It seems counter-intuitive to borrow money because you need it and somehow pay interest on it at the same time.  I know you save money in the long run.  Can anyone comment on whether they deferred interest while in school or payed interest?  And for those who paid interest, can you give an example of how much, on ave, it cost and when you had to pay it?  I imagine I'll have to borrow close to $150K over the length of my program.

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Here's the deal.  Interest accrues on the amounts you borrow while in school, but payments have not started yet, so that interest is put in a separate pile and not added to the principal of the loan.  So you are getting charged interest on only what you borrow, not the principal PLUS the interest every month.  

 

In other words, if you borrow $10,000, the monthly interest is based on the $10,000 every month and set aside.  "Deferred" interest.

 

Once you enter repayment, your loan interest amount is "capitalized" or added to the principal to become your new principal.  Which you are charged interest on.

 

This means that if you borrowed $10,000 and were charged a total of $1,000 in interest over the course of your deferment, the day your loan is capitalized, and you enter repayment, your new principal is $11,000 and you will be charged interest on the $11,000 from now on.  Not $10,000.  

 

Capice?

 

So it makes a boatload of sense to pay down your interest on your loans while in school, if you are able.  Because over time, the life of the loan, getting charged interest on a lower amount to start adds up to thousands in savings down the road.

 

EDIT:  I see I missed your point.  Oh, well...anyway, you can pay any amount of your loan back any time you like.  You don't have to enter repayment - just go to the website and it is all laid out for you.  You can choose where the money goes.

 

I did this several times, and paid the interest on some of my loans to zero, just because it looked and felt good.  I don't think it matters whether you pay principal or interest, since they become one on the day the loan is capitalized.  

 

Paying anything against your loans when you can has a huge impact later if you plan to make payments for a few years.  There are any number of calculators for that, a few seconds with the Google should hook you up.  

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Here's the deal.  Interest accrues on the amounts you borrow while in school, but payments have not started yet, so that interest is put in a separate pile and not added to the principal of the loan.  So you are getting charged interest on only what you borrow, not the principal PLUS the interest every month.  

 

In other words, if you borrow $10,000, the monthly interest is based on the $10,000 every month and set aside.  "Deferred" interest.

 

Once you enter repayment, your loan interest amount is "capitalized" or added to the principal to become your new principal.  Which you are charged interest on.

 

This means that if you borrowed $10,000 and were charged a total of $1,000 in interest over the course of your deferment, the day your loan is capitalized, and you enter repayment, your new principal is $11,000 and you will be charged interest on the $11,000 from now on.  Not $10,000.  

 

Capice?

 

So it makes a boatload of sense to pay down your interest on your loans while in school, if you are able.  Because over time, the life of the loan, getting charged interest on a lower amount to start adds up to thousands in savings down the road.

 

EDIT:  I see I missed your point.  Oh, well...anyway, you can pay any amount of your loan back any time you like.  You don't have to enter repayment - just go to the website and it is all laid out for you.  You can choose where the money goes.

 

I did this several times, and paid the interest on some of my loans to zero, just because it looked and felt good.  I don't think it matters whether you pay principal or interest, since they become one on the day the loan is capitalized.  

 

Paying anything against your loans when you can has a huge impact later if you plan to make payments for a few years.  There are any number of calculators for that, a few seconds with the Google should hook you up.  

Thanks for the feedback.  This part of the puzzle I am familiar with but I appreciate the explanation regardless.  What I am looking to get a sense of is paying interest while in school.  I know it's beneficial but I am trying to understand how much it'll actually be and when I'll have to pay it.  

 

My program and area of residence will be pricey so lets say I am borrowing $20K a trimester for a total of 7 trimesters.   This will be a blend of stafford (20.5K) and grad Plus.  Since the bulk will be Plus loans and assuming the current interest rate (which it wont be I'm sure) of 6.31%, will I be paying $1262 per trimester in interest?  I'm just throwing out numbers here but I'm really interested in knowing if this is the way it would work and if so, is this paid monthly, one time payment each trimester, etc?  I am in my 30's so unlike many of my younger classmates, I have some money saved and some retirement I can potentially liquidate to pay the interest if it is a reasonable amount and wont make my cost of living suffer more.  If anyone did pay interest while in school and would be willing to share how their's worked, it would be very helpful.

Thanks again.

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Thanks for the feedback.  This part of the puzzle I am familiar with but I appreciate the explanation regardless.  What I am looking to get a sense of is paying interest while in school.  I know it's beneficial but I am trying to understand how much it'll actually be and when I'll have to pay it.  

 

My program and area of residence will be pricey so lets say I am borrowing $20K a trimester for a total of 7 trimesters.   This will be a blend of stafford (20.5K) and grad Plus.  Since the bulk will be Plus loans and assuming the current interest rate (which it wont be I'm sure) of 6.31%, will I be paying $1262 per trimester in interest?  I'm just throwing out numbers here but I'm really interested in knowing if this is the way it would work and if so, is this paid monthly, one time payment each trimester, etc?  I am in my 30's so unlike many of my younger classmates, I have some money saved and some retirement I can potentially liquidate to pay the interest if it is a reasonable amount and wont make my cost of living suffer more.  If anyone did pay interest while in school and would be willing to share how their's worked, it would be very helpful.

Thanks again.

 

It will be a LOT.  I attempted for the first few semesters when interest was a few hundred dollars but 2 years in and my interest (quarterly) is likely several hundred/over a thousand (honestly I haven't even looked because I know I can't afford to pay it).  At that point to try and pay like $5k in interest per year just isn't feasible (for me) while living on loans.  

 

My personal thought is, if you have the money to pay off that much interest....why not just take a smaller loan?  To be fair, though, I haven't done the math on the two options to see if one is significantly more beneficial than the other.

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My program and area of residence will be pricey so lets say I am borrowing $20K a trimester for a total of 7 trimesters.   This will be a blend of stafford (20.5K) and grad Plus.  Since the bulk will be Plus loans and assuming the current interest rate (which it wont be I'm sure) of 6.31%, will I be paying $1262 per trimester in interest?  I'm just throwing out numbers here but I'm really interested in knowing if this is the way it would work and if so, is this paid monthly, one time payment each trimester, etc?  I am in my 30's so unlike many of my younger classmates, I have some money saved and some retirement I can potentially liquidate to pay the interest if it is a reasonable amount and wont make my cost of living suffer more.  If anyone did pay interest while in school and would be willing to share how their's worked, it would be very helpful.

Thanks again.

 

Don't forget to figure in loan fees, aka the money you pay just to borrow the money in the first place. 

 

From https://studentaid.ed.gov/sa/types/loans/plus:

 

Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed, as shown in the chart below.

Loan Fees for Direct PLUS Loans

First Disbursement Date

Loan Fee

On or after Oct. 1, 2015, and before Oct. 1, 2016

4.272%

On or after Oct. 1, 2016, and before Oct. 1, 2017

4.276%

 

 

Aka my $30k Grad PLUS loan costs $1,300 just to borrow.

 

 

The whole reason I started this thread was because one of my classmates mentioned that she was making interest payments and was going to deduct them on her taxes, however, @loliz made this point:

 

If you have zero income, there is nothing to deduct the interest from. In other words, if you don't pay any taxes, you can't deduct to pay less taxes. 

Which pretty much answered my question.

 

Though, it does make sense to pay off the interest while you are in school, if you can, as it will capitalize when you enter repayment and allllll of that unpaid interest will be added onto your principal.  That's when you start paying interest on interest.  Thank you US Gov!

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