No. of Recommendations: 2
Changing jobs, and getting ready for the next tax year - I'll move up a tax bracket and have some deductions phased out. The upshot of this is the student loans I've been intentionally slow paying (because the interest rate is low) will no longer have tax deductible interest and I'll be paying with much more expensive money, post tax, than i would have if i paid it off early.

Well, maybe. The 'much less expensive pre tax money' saves you, at most, 25% on the interest paid. However, making payments to pay student loans off over 10 years (the default timeframe for many student loans) vs. 30 years (a common extended timeframe for student loans) will require you to make payments that are 2.12 times as high from a cash flow perspective. For every $10k in loans you have, at 4%, that's a $101.25 payment per month vs. a $47.75 payment per month.

For every $10k at 4%, in the first year of making student loan payments, you will get a $99.20 deduction when paying over 30 years vs. a $96.22 deduction when paying over 10 years. That's a $2.98 tax savings. In the 5th year of making payments, the deduction benefit widens to $89.64 vs. $51.20 (a $38.44 tax savings) and in the 10th year, it widens to $80.15 vs $6.48, for a $73.67 tax savings.

At the end of the 10th year, your student loan balance on the 30 year payment timeframe loan is $7,877.15 vs $0 on the 10 year time frame loan. In the 11th year of making payments on $10k at 4% vs. making no payments on the loan paid off over 10 years, the deduction benefit is be the widest it will ever be, at $77.58

In the mean time, if you are eligible for a traditional 401(k) or 403(b) at work and are not already maxing out the contribution at $16,500/year, you could put the additional $53.50/month into the retirement plan and realize a $160.52 tax benefit, because the entire contribution is deductible vs. just the interest. And if your contributions earn 6%/year, you will have an additional $8,810.64 in your retirement account, after having realized significantly greater tax savings.

So, if you are fairly confident that over the timeframe you will be paying off the loan, you can realize a higher rate of return than your interest rate, and can get a better tax savings by investing in a retirement plan, you will come out money ahead by paying the loans slowly.

On the other hand, if you don't want to be making the payments for 30 years, and having the loan negatively impact your Debt to Income ratio when borrowing for other loans (for instance, a car or a mortgage), you might want to pay it off over the shorter period. But the tax benefit alone is not really a significant savings.

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