Tax year for realizing student loan interest deduction

[vickx038]

I'm beginning grad school this May and am trying to decide whether to pay for tuition with savings (currently invested in 90/10 stocks/bonds) or with a student loan (federal direct unsubsidized with 5.31% interest rate and 1.069% origination fee). To me the decision seems like a wash between paying 6.379% on the loan (interest + origination) and an average return of the market of ~7%. I plan to pay back the loan in my first year of work (either through employer assistance or a combination of sheer willpower and previously mentioned savings). I know that I can use the student loan interest deduction in my first year (I will make below the $65k phase-out), but wondering how much of the first year's interest I can claim (assuming origination + May - December monthly interest). Would appreciate anyone's perspectives who's had to make a similar decision or other smart mustacian perspectives.

[FIPurpose]

Honestly, if it were me and I had the cash, I would probably just pay out of pocket. Even if the interest is deductible, it's also a loan that you can't get rid of through bankruptcy. And that's a pretty hefty interest rate. If you have cash, can you get an unsecured loan with a lower interest rate? It wouldn't be deductible, but if you could get a regular loan at 3-4% somehow you would come out ahead. I'm assuming that you're going to grad school for only 2 years?

[vickx038]

Fair point on the sanity factor of paying up front. I am going for a one year program so will be working again summer 2018. I have looked a bit into SOFI for a lower rate but seems to be a lot of extra work to apply so decided to ask the forum first.

[FIPurpose]

Or if you're school let's you pay with CC, get new CC, get $300-500 cash bonus.

[vickx038]

Unfortunately they do not accept CC, would have been a churner's paradise

[Proud Foot]

I'm beginning grad school this May and am trying to decide whether to pay for tuition with savings (currently invested in 90/10 stocks/bonds) or with a student loan (federal direct unsubsidized with 5.31% interest rate and 1.069% origination fee). To me the decision seems like a wash between paying 6.379% on the loan (interest + origination) and an average return of the market of ~7%. I plan to pay back the loan in my first year of work (either through employer assistance or a combination of sheer willpower and previously mentioned savings). I know that I can use the student loan interest deduction in my first year (I will make below the $65k phase-out), but wondering how much of the first year's interest I can claim (assuming origination + May - December monthly interest). Would appreciate anyone's perspectives who's had to make a similar decision or other smart mustacian perspectives.

For claiming the interest deduction you will be able to claim however much interest was paid during the tax year up to $2,500.  If you have the cash I would either pay for it up front or set up a payment plan through the school.

[vickx038]

I'm beginning grad school this May and am trying to decide whether to pay for tuition with savings (currently invested in 90/10 stocks/bonds) or with a student loan (federal direct unsubsidized with 5.31% interest rate and 1.069% origination fee). To me the decision seems like a wash between paying 6.379% on the loan (interest + origination) and an average return of the market of ~7%. I plan to pay back the loan in my first year of work (either through employer assistance or a combination of sheer willpower and previously mentioned savings). I know that I can use the student loan interest deduction in my first year (I will make below the $65k phase-out), but wondering how much of the first year's interest I can claim (assuming origination + May - December monthly interest). Would appreciate anyone's perspectives who's had to make a similar decision or other smart mustacian perspectives.

For claiming the interest deduction you will be able to claim however much interest was paid during the tax year up to $2,500.  If you have the cash I would either pay for it up front or set up a payment plan through the school.

Ooohhhh Thanks. My income will very likely be above $65k next year so I won't qualify for the deduction. Sounds like the best path is to pay as I go.