Hi all, I have a question about a situation involving federal income tax and student loans.
In a nutshell, I know I will owe something like $1k on my income taxes this year. That's based on doing a couple of tax worksheets and estimating. I have saved up this money, in preparation for this probability.
However, an unexpected problem: my GF, who just finished her first semester of grad school, was hit with $2k of unexpected tuition charges. We had carefully worked it out and covered her entire tuition for the year based on the school's claim that the year would cost X amount. Suddenly they tell us, "Actually, no, each semester will cost $2k more than we originally said." So we are in a pickle.
Our options:
1. We can use the money I've saved up for my taxes, plus our $1k EF, to pay the bill, then figure out next semester when it comes around. This will leave me paying a penalty for late payment of taxes, plus interest on however many months it takes me to pay off the balance on my taxes --probably 8 - 10 months based on how much I am currently saving each month. The rules on this are confusing. It looks like a 0.5% penalty on the amount, plus 0.4% each month the amount remains unpaid...but I am not sure. Anyone an expert on late tax payments??
2. We can take out what's called the "Graduate Plus" loan for $2k at 7.8% interest. This is what we will probably have to do next semester, unless we can save up $2k somehow. We are living on my single, pretty measly income currently.
Obviously, using my tax savings and our EF will clear us out pretty well. But if we pay it off we can start saving again right away, and possibly pay less interest (although I'm not sure), that is, until next semester.
Any and all help is greatly appreciated, esp. if anyone knows how much I'll end up paying in penalties/interest if I pay my taxes late. (I would file on time, so I wouldn't have late filing penalties, just payment.) That versus the 7.8% interest on the loan would probably make the decision for us.
If we do have to take out the loan, we could TRY to pay it off before she graduates, resulting in 0 interest accruing (I think). Assuming it would be a total of $4k (for both semesters), it would cost us $200/month to pay that off before she graduates in 20 months. $200 is about the total amount we have been able to save each month -- so that will be our entire savings.
Yikes!
