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  • amya
  • Veteran

    • 160

    • September 02, 2011, 09:55:40 am
    • Yeoju
School Loans and taxes
« on: March 19, 2014, 08:18:35 am »
I hope this is the right thread to post this on.

I just need some advice about paying off school loans. *American here

I've managed to clear out ALL of my other debt and have yet to decide how to go about finally paying off my school loans. I figured I have a few options and not being too savvy1, wanted some other people's opinions.

1. Pay off huge chunks of the loan amount monthly during the course of this year. (2014)

2. Continue to pay the minimum due on the loans. Stash the rest of the money into a savings account and pay it off come January 2015 so that it reflects on that years taxes. (I'm moving back to America in 2015 and will hopefully be working then)

3. Continue to pay the minimum due on the loans. Stash the rest of the money into a savings account and use the interest that will accrue to continue paying on the loan just in case of emergencies. (ie no job)


Thoughts anyone?


Re: School Loans and taxes
« Reply #1 on: March 19, 2014, 08:51:56 am »
As with all loans, pay of those with higher interest faster.

If you have no other loans, then compare the rate you pay on your loan to what you could earn if you saved it in a bank.  If the saving return is greater, then pay of the minimum due on your loans. Review your situation every so often to ensure that it is still the best thing to do.

If at any point the interest on your loan is costing you more than you could save in the bank, then it's time to start paying of larger chunks of your loan.



  • amya
  • Veteran

    • 160

    • September 02, 2011, 09:55:40 am
    • Yeoju
Re: School Loans and taxes
« Reply #2 on: March 19, 2014, 09:53:33 am »
Thanks for the advice! My current interest rate is 2.88%, so I need to check on the interest rate of the savings account vs how much is in there by next year.


Re: School Loans and taxes
« Reply #3 on: March 19, 2014, 10:29:29 am »
Thanks for the advice! My current interest rate is 2.88%, so I need to check on the interest rate of the savings account vs how much is in there by next year.

Should probably factor FX fees into the equation.
« Last Edit: March 19, 2014, 11:27:26 am by YoungMin »


  • amya
  • Veteran

    • 160

    • September 02, 2011, 09:55:40 am
    • Yeoju
Re: School Loans and taxes
« Reply #4 on: March 19, 2014, 10:30:41 am »
FX fees?  (I fully admit to being a complete and utter noob with this stuff, so please keep it coming!)


  • Davey
  • Moderator - LVL 3

    • 1820

    • February 01, 2010, 01:36:20 pm
Re: School Loans and taxes
« Reply #5 on: March 19, 2014, 11:24:32 am »
Thanks for the advice! My current interest rate is 2.88%, so I need to check on the interest rate of the savings account vs how much is in there by next year.

Will interest in the savings account by tax free? If not, your after-tax rate will be (savings account interest rate)*(1- tax rate).

Not sure if interest payments on student loans are eligible for a tax credit or deduction in America (in Canada they're a tax credit).

Like the other said, if the net rate earned in your savings account is greater than the interest rate on your loan, you should put money into your savings account.

However, the difference is likely to be minimal. For some, it might be more satisfying to see their student loan finally being paid off.

FX fees...the poster is referring to the transaction fees (exchange rate and wiring fees) associated with sending money home to pay off the loan or put money into your savings account. If you use KEB online, the wiring fee isn't an issue, since it's a flat 8,000 KRW. The exchange rate is beyond your control for the most part.

I assume you mean your American savings account? Not Korean?
« Last Edit: March 19, 2014, 11:32:29 am by Davey »
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Re: School Loans and taxes
« Reply #6 on: March 19, 2014, 11:32:15 am »
Ignore me. It makes no difference either way with the Foreign exchange (FX) fees.


Re: School Loans and taxes
« Reply #7 on: March 19, 2014, 11:33:28 am »
Personally I would go with option 2.  The tax credit is very nice and a shame to not really be able to reap the rewards for 2014.  This way you are staying current with your payments and have some additional savings in case of some unforeseen expense.


  • Chicagohotdog
  • Hero of Waygookistan

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    • March 04, 2012, 12:25:31 pm
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Re: School Loans and taxes
« Reply #8 on: March 19, 2014, 11:41:10 am »
I've done the first option (honestly, didn't even occur to me to think about the second option) because I just wanted the loans gone.  I've had to watch my sister kind of collapse under the weight of her debt and I don't want to have to do the same.  And my interest rate is higher than yours too.

Option two does sound like a great plan so long as you're sure that you are leaving next year.
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  • amya
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    • September 02, 2011, 09:55:40 am
    • Yeoju
Re: School Loans and taxes
« Reply #9 on: March 19, 2014, 12:05:45 pm »
Davey- I know my interest won't be tax free however I will get a credit for paying my loans. (It might be very similar to how it's done in Canada)

I guess what I really need to do is most of option 2 and 3 and then see what the interest is going to look like at the end of the year and make a more informed decision then.

Thanks for helping me!


  • ciannagh
  • Super Waygook

    • 275

    • March 03, 2014, 06:34:16 pm
    • Korea
Re: School Loans and taxes
« Reply #10 on: March 19, 2014, 12:09:36 pm »
I came here for student loans as well (along with nearly every single other American here).

I have about $26k right now, and $18k of that is one giant loan with a pretty terrible interest rate.

Obviously, I want to get rid of that, but I do want to save some money for when I go back home.

I'm paying off about $900 a month in loans, and putting $200 a month into savings. I just want a bit of money to get me back on my feet when I arrive back in the states, and I'd much rather just see my loans decrease rather than pay it all off in one go. I feel that if I had a massive amount of money to spend I'd be tempted to put it towards something else other than loans. When I get my severace at the end of my contract I'm putting it all towards my loans.



Re: School Loans and taxes
« Reply #11 on: March 19, 2014, 12:16:59 pm »
Def. Option 1

US govt. Has been increasing interest rates on student loans lately. Better not wait. What will u get on a CD deposit anyway? 3%? Seriously Im on my very lastvpayment next month. Feels great. Dont hesitate.  Pay as much as you can and be done with it.


Re: School Loans and taxes
« Reply #12 on: March 19, 2014, 12:22:45 pm »
It's going to be hard to find a savings account with a higher rate than your student loan rate. Long term CDs or money market rates may yield a higher rate, but that requires a large initial principal and should be locked away for a few years. I would recommend a large monthly payment. As large as you can afford. Paying the minimum will only cover the interest and the principal will be untouched.


Re: School Loans and taxes
« Reply #13 on: March 19, 2014, 02:51:04 pm »
It's going to be hard to find a savings account with a higher rate than your student loan rate. Long term CDs or money market rates may yield a higher rate, but that requires a large initial principal and should be locked away for a few years. I would recommend a large monthly payment. As large as you can afford. Paying the minimum will only cover the interest and the principal will be untouched.

This.  Even better though, make the minimum payment and send an extra $xxx.xx  to your loan with a.) the highest interest or b.) the lowest amount.   I recommend you take option B. The reason is that your minimum payment usually covers just the interest with a small amount going to the principal.  If you make a large payment, that extra is just spread over all your loans in small amounts.  HOWEVER,  if you have a couple of smaller loans in your payment mix (i.e. under $1,000) you can kill those off  and then plow your extra payment(s) into the loan with the highest interest rate or balance.

Finally, I agree with many others.  Put some money aside for you, for certain.  But you want to get that student loan cut as much as possible.  the more you cut now, the better position you will be in when you go home.  You could use your time here making faithful payments to qualify for a lower interest rate or refinance your loan for a lower payment/interest rate.
You are never guaranteed happiness, only the right to pursue it.  So, what are you waiting for?  Get going!


  • Davey
  • Moderator - LVL 3

    • 1820

    • February 01, 2010, 01:36:20 pm
Re: School Loans and taxes
« Reply #14 on: March 20, 2014, 05:00:53 am »
Davey- I know my interest won't be tax free however I will get a credit for paying my loans. (It might be very similar to how it's done in Canada)

I guess what I really need to do is most of option 2 and 3 and then see what the interest is going to look like at the end of the year and make a more informed decision then.

Thanks for helping me!

However, after doing a bit of reading, in order to be eligible for a tax deduction on student loan interest, you need sufficient taxable income. While the the interest earned on your US savings can be considered taxable income, it won't large enough for the deduction to make a difference. Thus, the after-tax rate on your loan will be the same (i.e 2.88%).





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Re: School Loans and taxes
« Reply #15 on: March 20, 2014, 07:31:02 am »
Thanks for the advice! My current interest rate is 2.88%, so I need to check on the interest rate of the savings account vs how much is in there by next year.
I'd kill for that interest rate...! I took out about half private and half federal loans.  :cry:

A rate that low I assume is federal, so remember most government loans are eligible for forgiveness after you pay them on-time for so many years.


  • amya
  • Veteran

    • 160

    • September 02, 2011, 09:55:40 am
    • Yeoju
Re: School Loans and taxes
« Reply #16 on: March 20, 2014, 10:42:43 am »
Thanks for the advice! My current interest rate is 2.88%, so I need to check on the interest rate of the savings account vs how much is in there by next year.
I'd kill for that interest rate...! I took out about half private and half federal loans.  :cry:

A rate that low I assume is federal, so remember most government loans are eligible for forgiveness after you pay them on-time for so many years.

I didn't know that. I've been paying on my loans for 10 years now. I should check in on that.