Tuesday, April 21, 2009

Student Loans Underwater?

There is a loan term that has been flying around lately, "underwater" is when you owe more than something is worth. Lately, I've been hearing this term used to describe student loans- something people would have considered ludicrous 5-10 years ago. Yet here we are. I read these two (article1 and article2 from NYTimes and Slate respectively) different articles in the last two days describing the situation as the following; students who are educated and skilled cannot get jobs, have to take lower paying much crappier jobs, and can't really keep up on their student loan payments. What is worse is that student loans are FOR LIFE and BEYOND! You cannot claim bankruptcy and get out of student loans, the follow you through the bankruptcy and wait on the other side with accrued interest. What is more is that you can even DIE and they will get passed on to the closest relative. That fact still boggles my mind. 

The first article says that you shouldn't owe more than you will make in one year. After two degrees, I am happy to say that I am managing to say above that low water mark. I am sad to say, barely.

Now for the good news. I found out that all of the interest I payed on student loans (nearly $2,000 for last year alone that's $2,000 I could have burned and gotten more out of) is deductible from your income. This is deductible is in addition to the standard standard whatever $5k deduction, and in addition to the individual whatever $3k deduction. So it is possible to jack yourself into a lower tax bracket by eating rice and living in Wyoming while paying those loans off asap. This was the difference between owing the gov't and having them owe me on this year's return. Also, as the end of that second article points out, if you think that us college graduates are fucked, just imaging how the high school graduates must feel right now...but then again they didn't get sold anything...

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