Pay the Price

That is the question…here.

I can’t answer that for you.  I am thinking about it.

The student loan process is a lot simpler and easier than it was when I started my MBA some 18 years.  It seems to be a lot easier to get a lot of money for school and that is very DANGEROUS.  That you can get a lot of money for school doesn’t mean that you should take it.  I think the best method is to pay cash…that was until I reviewed my tax returns from 2009.

This info applies to me.

I am a struggling professional (full-time) photographer with a part-time job to help pay for grad school.  Think of the part-time job as putting food on the table, gas in the car, and rent while I pay for tuition and all my business costs from my business income.

Financially speaking: I am poor

I am not a CPA and I highly recommend you find and use a good one.

Now, looking at my 1040 I see that I have a tuition deduction of $4000 but I paid well over twice that amount and I don’t get credit for doing so.  Why not see if I can spread the cost of tuition over a longer period of time and receive the tax credit in the future.  Seems reasonable don’t you think?

This brings me to some research to determine how my future student loan payments affect my bottom line on my annual taxes.  This is from the IRS:

Publication 970 (2009), Tax Benefits for Education  (link here)

Paid with borrowed funds. You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student’s account.

Ah ha!  So it seem I can reduce my adjusted gross income (AGI) with student loans but I cannot deffer the reduction to my AGI when I actually get around to paying the loan back.  Hmmm…so much for cash basis accounting.

Should I take the loans?  Should I increase the length of my stay at my institution?

While I have been offered over $32,000 in aid for the coming school year (2010-2011) I may only accept and use about $8,000.  I’m probably going to take the direct subsidized loans for at least one semester this year.  I have already spent over 4-grand on tuition so I’ll get that deduction for my 2010 taxes.  This is a side benefit of why I’m taking a loan.  I’m planning a major surgery in early 2011 and I won’t be able to work for about a month.  Given that I’m (barely) self-employed I don’t have things like vacation time I can dip into while I’m recovering.  Taking out this loan will allow me to pay for immediate tuition expenses, and conserve cash over the next few months for the time when I can’t work…seems to be reasonable financial planning.

As always (and as everyone seems to disclaim – rightfully so) consult a tax professional about your needs.

I strongly recommend that without any disclaimer!