The Truth About Student Loan Interest Deduction

It's Tax season! Considering deducting Student Loan Interest from your income? Please read this!
In recent years, about 80% of the college students graduated with a student loan (http://www.asa.org/policy/resources/stats/default.aspx), with the average loan amount at about $25K.  With the average amount owe by students trending upward and the average income for college graduates staying relatively flat, young individuals are carrying bigger baggage than ever.

When you consolidate your loans, the lenders give you all the benefits of deducting the interests you'll pay when you do your taxes, so that your "real interest" is much lower than 4.93% (assumptions) and you should pay interest as long as possible. Sounds about right?  Here are some facts that you might find interesting from a conversation I had with a friend who went through this, the truth is probably surprising to some people.

Let's call my friend John Doe.

John is similar to every regular college graduates, spent 4-yr in college, got some scholarships and took out some loans (about $35K).  After college, he was fortunate enough to land his feet on a decent job and company. He consolidated his student loan at 4.25% for 20 years, which made the payment only a little over $200 per month.  With a "fact" given by the loan associate that "you can deduct loan interest when you file your tax" and "after 3 years of on time payments we will award 1% deduction from the interest rates", and also with a "tip" from his friend - "20 yrs? With inflation $200 is NOTHING after few years! You should save those money and invest in the stock market", he thought it was great and took the deal.  With a stable job and decent pay, the monthly payment was rather affordable. John is also a responsible debtor - he had never missed a payment, in fact he set up automatic deduction from his checking account each month.  At the end of each year, he received a 1098-E form from the creditor for deductible interest.  It was not too bad for John - even though he was mostly paying interests in the first few years, he was getting some money back.

That might sound just about normal,  as John continues to work and made more money, $200 is more affordable than before. Until recently, when he was checking his tax returns prepared by the accountant, he noticed that the line for Student Loan Interest Deduction didn't look right - it was ZERO.  He then called his accountant to see if the guy forgot to fill it in.  "Nope," the accountant replied, "Your income is over $75K and you're not eligible to deduct your student loan interest. In fact when you were above $60K the interest deduction had started to phase out."

That was news. John was a little upset about this, but after some research he found what qualifies him to be eligible for Student Loan Interest Deduction (IRS Topic 456):

• You paid interest on a qualified student loan in tax year 2011
• You are legally obligated to pay interest on a qualified student loan
• Your filing status is not married filing separately
• Your modified adjusted gross income is less than a specified amount which is set annually, and
• You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

John qualifies for everything except bullet point #4, for the modified adjusted gross income  (MAGI), the limit for full deduction is $60,000, with $2,500 maximum deduction allowance.

For MAGI of $60,000 - $75,000, the deduction is phasing out or modified, the formula is as follows for single:

Reduced Student Loan Interest Deduction = Interest - Interest * (MAGI - 60,000)/15,000

and MAGI $120,000 - $150,000 for married couple filing jointly:

Reduced Student Loan Interest Deduction = Interest - Interest * (Combined MAGI - 120,000)/30,000

John looked at his remaining balance, he had probably paid 20% of the principal after all, and still has years of payments to make.  In contrast, the stock market hasn't gone up too much since his initial investment, and the bank account interest rate is significantly lower today vs the loan interest rate.  John decided to cut this loan short and has paid it off altogether.  He says that he is now debt free and worry free - not having a financial burden is a great feeling.  While I feel great for him, I also hope that you'll think twice before taking interest as an advantage, it's never an advantage but a way to prolong your life in debt and to give you endless worries.

There's a bible verse that has great intelligence about borrowing, whether you are religious or not:
The rich rules over the poor, and the borrower is the slave of the lender. ~ Proverbs 22:7

Disclaimer: I am not providing any tax advice here, please consult with your Accountant for the best advice concerning your financial situation.

My New Facial Cleanser pt. 2

After introducing my new facial soap yesterday from Cle' de Peau,  I would like to share with you my favorite exfoliating system - the OLAY Professional PROX series.  

I have been struggling with blackhead since I was a teenager and tried different brands (probably more than 20 pharmacy/luxury brands) to get rid of blackhead with not so much success.  I've also tried the nose strip, nose peeling mask, nose masks that claimed to 'melt' blackheads, small electrical scrubber, nose exfoliating pad, you name it etc.  I've had enough of trying for the first few times and say, "I think I finally found something that works!" and then didn't work so much afterwards.  The nose strips are probably works best for sticking blackheads and peeling off, but too much peeling make your pores look bigger.  After hearing about the hypes on professional scrubbing tool - I wanted to give it a try, but even the reviews were great, I hesitated to invest in this. Until maybe last year, I saw OLAY PROX professional cleaning system in a pharmacy and it's only $30 retail, I thought it's worth trying.  

As you might have read from a reputable publisher - effects of OLAY's anti-aging cream is comparable to those that sell for $200+. Although I had not tried the ant-aging cream, but this little scrubber does look simple to use and works gentle on your face.  All you'll need is two AA batteries (included) and an exfoliating scrub (sample size included). The scrub has two speeds, I like to use the fast one on my nose, cheek and chin area; but for forehead and outer areas of eyes, I use the slower movement and scrub gently.  I love the result - and the good thing about this product is that you can bring it to your oversea travels as well since it uses batteries.

After using it, I recommend using a hydrating mask as a follow up - after scrubbing off some skin cell, it's good idea to replenish the skin with some moist as the layer gets thinner, and when you skin is clean it absorbs the benefits of skincare the best. 

Now I use it in conjunction with my new facial soap, my skin stays smooth all the time.  

Happy Scrubbing!

Source: http://www.amazon.com/gp/product/B0043OYFKU/ref=oh_o00_s00_i00_details 

My New Facial Cleanser

After trying numerous of facial cleanser brands, I finally found one that I am really satisfied with - Cle' de Peau Synactif face soap. It successfully remove a lot of dirt, oil and dead skin cell on my face, is extremely mild and makes my skin feels smooth after rinsing. In the other brands I've used in the past, some were good and some were average - most of the time I liked it in the beginning and felt like it didn't work as much as I expected after few weeks.  I've been using the sample of the soap for a few weeks from my best friend, and I love it! It is a little pricey after all but I thought it is worth trying. 

If you're not familiar with this brand, it is the luxury brand product of the Shiseido brands, which you might have heard of. It is a reputable company and the products work on sensitive skin like mine.

For someone with visible pores like me, having clogged pores or blackheads is a big concern, this face soap is great for cleaning some of those nicely. For deep exfoliation, I will  share some tricks in my upcoming post.  Stay tuned :)

I love Häagen-Dazs Ice Creams!

If you're an ice cream fan like me, you had probably tried many flavors of the Häagen-Dazs ice cream.  For some reason I had always prefer non-fruity flavors, like chocolate, vanilla, coffee to mango, banana, raspberry etc.  

Recently I have been absolutely crazy for their limited edition new flavors (pictures below), they are really good with hitting the market in correspondence with the food trend - such as salted caramel, I can't say how much I've seen this twist on dessert menus;  I particularly like that and Vanilla bean espresso, try it out and let me know which is your favorite!

 

First Post!

Hi this is Catty! It's my first post here. I would like to share some joys and fun on my life, relationships, work, travel, food, beauty tricks with all of you. Hope you'll find some information helpful and share my thoughts :)