I have loans for my kids college and need advice about deductibility of the interest.?
Question:
thanks for any help
Answer:
Student loan interest reduces your adjusted gross. It is not a component of your itemized deductions. You don't have to itemize to get it. You can take the standard deduction, and still reduce your adjusted gross by a maximum of $ 2500.00. This is far less than the $ 7500.00 you paid. However, reducing your adjusted gross, effects other thresholds, e.g., medical deduction, employee business expenses. Also, Congress will most likely increase the current limit, as they have before.
There are also many benefits, you get with an education loan. The interest is usually quite low. Consolidation options, may reduce and fix your interest rate. There is a death benefit. The debt is wiped out upon your death. There are many deferment, and forbearance options that may be useful in the future.
Your best option could be a hybrid one. A solution where you pay off your higher interest loans with a second mortgage or a home equity loan, and consolidating the balance of the loans with an education consolidation loan. Remember, you annual interest will go down over time, and Congress will probably raise the threshold over time.
In the event you elect to use your home for collateral, please be sure the interest will be tax deductible. How you use the money from a second mortgage, may impact the interest deductibility. You may be better off refinancing your home, or taking out a home equity loan. You really need to secure competent tax advice before proceeding.
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