Unsubsidized Stafford Loan - pay interest while in school?

[Uptown *2*L]

The answer to OP is:

YES, if you're planning on working BIGLAW (or making well into six figures) after graduation AND you can afford it.

Student Loan Interest is deductible, up to $2500, but is phased out above $105k and COMPLETELY phased out after $135k.

This means that it makes Good Fiscal Sense to pay your SL interest out of your SA earnings (or savings), while in school. You get the double-bonus of deductability and not having the interest capitalized. IMHO, the extra boost of having the deductability makes this worth it, though I'll admit I haven't actually run the numbers...

http://www.irs.gov/faqs/faq-kw187.html

[qmmm]

First of all, a tax deduction while your making essentially nothing at the beginning of law school does you little good.

Secondly, between graduation and Dec. 31st, even if you are working biglaw, you won't make six figures.

The following is a slight elaboration on the 'you can afford it' presented by the previous poster. I do agree that if you have a lucrative 2L SA position making a $2500 interest payment does make sense.  It doesn't make sense to pay more if you will have to take out more loans for your last semester or bar study.

[lru22]

ok....i'm confused so is it better to pay interest while in school?

[P.U.S.H]

lru22 From what I understand and how qmmm put it, the answer is no.

If you have that much left over every month in your budget to pay the interest, per the advice above, put it in an account, accrue interest, and pay it off when you get your first bill with that instead of your first paycheck.

Sounds about right to me

[qmmm]

ok....i'm confused so is it better to pay interest while in school?

It depends. 

I've mentioned some reasons to not pay. LDPYYKM mentioned some reasons to pay. 

Not every situation is the same because everyone is taking of differing amounts of debt, already have differing amounts of preexisting (UG, car, credit card) debt, and have different potential incomes while in school.

If you have no savings and no source of income, in my opinion, you should not make interest payments.  Once you have established some savings, you can then consider whether interest payments makes sense for you.  This goes back to the 'Can you afford it?' question.

There's another issue that hasn't really been mentioned explicitly; some people make all of the financial decisions based entirely on what will cost them less, while others are willing to pay a bit of a premium for less tangible benefits like financial flexibility. 

Establishing some savings in an intangible benefit that will cost some money in the long run (see me example above).  To me that flexibility is worth the extra cost.

If you are really having a hard time figuring out whether paying the interest while in school makes sense for you, I think that you should contact to professional financial adviser that can go over in detail your particular situation.

[lru22]

ok....thanks for clarifying it for me.In my situation, pay no interest while in school. Thanks.

[lindenksv]

I could be wrong, but you're also not losing anything by saying yes to paying interest payments while in school. It gives you the option to, but you are not under obligation to do so. So if you change your mind and don't pay or don't pay for a particular month, it has no effect on you than if you had said no from the get-go.

[qmmm]

I could be wrong, but you're also not losing anything by saying yes to paying interest payments while in school. It gives you the option to, but you are not under obligation to do so. So if you change your mind and don't pay or don't pay for a particular month, it has no effect on you than if you had said no from the get-go.

I'm not sure that you can claim that you are 'not under obligation' to make the interest payments.  I suspect that this is strongly dependent on the particular lender and you may be obligated to pay or suffer some sort of penalty.  I further suspect that for private loans, especially those that tie your interest rate into your repayment plan, you would be obligated to pay on time.

Besides, if you say that you won't be making interest payments while in school, you certainly are 'not under obligation' to pay.  However, the lender will always accept payment.  In fact, most loan agreements that I have investigated contain a clause that if you return part of a loan payout within 120 days from the time of issuance, it will be as if you had never taken out the money in the first place.  That is effectively a 4 month interest free loan for the portion returned.

[The Law]

tag.... this is all quite informative

[LBChic]

Minor point, and I'm not trying to be romantic, but what if you end up getting married in LS? The year I got married, our combined incomes were just enough to knock me - and my husband - out of being able to deduct SL interest.
 

I will probably be paying interest on mine while in school.

First of all, a tax deduction while your making essentially nothing at the beginning of law school does you little good.

Secondly, between graduation and Dec. 31st, even if you are working biglaw, you won't make six figures.

The following is a slight elaboration on the 'you can afford it' presented by the previous poster. I do agree that if you have a lucrative 2L SA position making a $2500 interest payment does make sense.  It doesn't make sense to pay more if you will have to take out more loans for your last semester or bar study.