I have the option to do a private graduate student loan with a 4.9% interest rate or take 2 federal loans (Stafford with 6% interest and Grad Plus with a 7% interest). I was wondering, when it comes to writing the loans off on taxes, do the federal loans return a larger amount? I can t see many positives to taking either federal loan over private ones and thought that maybe I’m missing something…
For more background, I’m not deferring payments and will pay it off a year after graduation, but I will do that with savings and parents help. I will not generate income during my time in school as I am quitting my job.
Interest for a qualified loan is tax deductible. It doesn’t have to be a federal loan and there is not tax advantage to the federal loan. I would go with the lower rate as long as that is a qualified loan also.
Writing off a loan means that the lender has decided that the loan is not collectible, which is near impossible with any student loan. You are asking about the interest deduction from your income for tax purposes.
In addition to the interest rate, check to see any other costs that may be associated with the loan–original fees, closing costs, etc. to be sure you know exactly how much you will be paying to borrow the money.