Repayment Begins for Students Who Graduated in May and June - Fastweb

Repayment Begins for Students Who Graduated in May and June

Mark Kantrowitz

October 26, 2011

Repayment Begins for Students Who Graduated in May and June

Additional Advice for Student Loan Borrowers

The Student Loan Interest Deduction allows you to deduct up to $2,500 in interest paid on federal and private education loans on your federal income tax return. This deduction is taken as an above-the-line exclusion from income, meaning that you can claim the deduction even if your don’t itemize.

If you have extra money and want to accelerate repayment of your loans, send an extra payment to the lender with a coverletter that tells them how to apply the payment. The letter should tell the lender to apply the extra money to the principal balance of the loan with the highest interest rate. Write the particular loan id and “principal payment” in the memo section on the check. Paying down the highest interest rate loan will save you the most money.

Consolidating your loans will streamline repayment by replacing multiple loans with a single loan. But consolidation may not save you money. Consolidation of federal education loans will cost about the same, since the interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a point. Consolidation of private student loans may save you money if your credit score has improved significantly. This generally requires several years of making on-time payments on all your debts as per the agreement, since credit scores tend to decrease with each additional year in school.

The Quick Reference Guide on Repaying Student Loans provides additional information and advice about repaying student loans. It is especially helpful for borrowers who are entering repayment on their loans.

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