Student Loan Refinancing

[Student loans Nightmare]

I have a private student loan with a variable interest rate. I am considering refinancing to a fixed interest. What are the factors/ implications that I should consider?

[Carl]

Basically, what you have right now is a "qualified" student loan (most likely) which you receive a 1098-E for each year, so you can claim/deduct the interest paid on that loan. If you refinance the loan, that basically means you take out a "new" loan and use the proceeds from that new loan to pay off the qualified loan. So the new loan would no longer be a "qualified" student loan, meaning the interest is not deductible.

Now with the interest, that is an itemized deduction that gets claimed on SCH A. until all of your itemized deductions exceed your standard deduction, itemizing your deductions makes absolutely no difference to your tax liability. Therefore, if you did NOT itemize on your 2018 taxes, most likely you will not be itemizing on future tax returns until you have a major change in your financial life that will cause your itemized deductions to actually exceed your standard deduction. For most, that's not gonna happen until you purchase your first home, or you have a financially catastrophic medical situation.

The standard deductions for 2019 are:

single and MFS - $12,350

MFJ - $24,700

Head of Household: $18,350

Now with the current $10K limit on SALT (State and Local Taxes) deductions, for many it will take quite a lot to exceed the standard deduction - especially for a married couple.  Take note that if a married couple files MFS, then the SALT deduction each can take is cut in half to $5K each.

[NCperson]

Carl - can you please reference your response to TT or the IRS documentation to validate its accuracy? 

student interest is deductible up to $2500 outside of schedule A (with a phase out based on MAGI)

a) personal interest is not deductible! So why would anyone be able to deduct their interest on Schedule A? 

b)  if you refinance student debt that the interest of the new debt does not quality for the up to $2500 student interest expense deduction (outside of Schedule A)

My advice: since the current loan is a private loan (i,e, not government insured), it is really a a'peace of mind' decision whether the fixed rate loan will yield less interest over time compared to the variable rate environment.  If the fixed rate is lower than your current variable rate, GO FOR IT, as it unlikely variable rates will fall much from here.

there is no difference in the tax deductibility  of the interest.  it's refinancing of a private loan with another private loan, so no difference (there are big differences if going from public / government insured loans to private loans!)  You will be able to deduct $2500 of interest (depending on MAGI),  Note that if you are married, you must file joint to secure the deduction as it's not permitted if you file married - separate. 

https://www.irs.gov/taxtopics/tc505

here is the TT response on the refinance question

https://ttlc.intuit.com/questions/2923177-if-i-refinance-my-federal-student-loans-with-sofi-will-i-b...