Guest Lorae Posted May 15, 2004 Report Share Posted May 15, 2004 a few years ago I claimed the interest on my student line of credit (from nursing school) on my tax return.... all was well, no problems. this year I was asking the people at H&R block, and the lady told me that you cannot write off LOC interest... only student loan interest. Therefore she told me it would be better for me to get a $30 000/year locked in student loan from the bank, rather then a LOC. so I'm a little confused?? did I get mistaken advice, since I actually claimed LOC interest one year with no problems (at the exact same H&R block too)...??? ??:\ Link to comment Share on other sites More sharing options...
Guest klukyboy Posted May 16, 2004 Report Share Posted May 16, 2004 I was under the impression that only interest on gov't issue student loans could be written off. When I spoke to my bank about consolidating my debt, they recommended keeping my student loans separate so I could continue to receive this benefit. Anyone, please correct me if I'm wrong, but interest on non-gov't loans and LOC's is not deductable. Here's hoping you don't get audited...:\ Link to comment Share on other sites More sharing options...
Guest Kirsteen Posted May 16, 2004 Report Share Posted May 16, 2004 Hi there, I'm no tax expert, but I've spoken with a few folks who are, over the years. I had a sizeable LOC to help fund my MBA. I was able to write the interest off on this LOC and I was counseled that I could do so under the auspices of some policy related to the fact that I had my own business. Additionally, if I recall correctly, LOC interest can also be written off if the LOC was taken out to fund an investment. It's a bit of a stretch, but technically, education is supposed to be an investment. Cheers, Kirsteen Link to comment Share on other sites More sharing options...
Guest aneliz Posted May 16, 2004 Report Share Posted May 16, 2004 By the official rules you are only allowed to claim interest paid on a government student loan (ie you already gave the government the money once as interest).... There may be other loopholes, but Revenue Canada told me, quite clearly, that "any other bank loans, lines of credit, etc, regardless of their 'designation' or use are not eligible to be claimed." Hence why many people keep their government student loans seperate rather than pay them all off with a LOC with lower interest rates. There may be some other loopholes if you 'own a business' or whatever...or maybe you just got lucky (ie they didn't audit you!).... Having been audited last year (something about a $15 000 education amounts claim looked suspicious I guess...and it was 'hunt the student' year...) you don't want to fudge things at all. Link to comment Share on other sites More sharing options...
Guest Lorae Posted May 16, 2004 Report Share Posted May 16, 2004 thanks for the heads up! Hopefully I don't get audited, but it wasn't a huge claim so I doubt it would change things by a crazy amount. When i actually go get my loans all worked out I'll ask the financial advisor, but it makes sense that only the government loan interest is deductible. thanks! Link to comment Share on other sites More sharing options...
Guest Kirsteen Posted May 16, 2004 Report Share Posted May 16, 2004 Hi there aneliz, There may be some other loopholes if you 'own a business' or whatever...or maybe you just got lucky (ie they didn't audit you!).... There do seem to be quite a few advantages to owing a business, and also, using a good accountant for income tax returns. Even though my business isn't as active, I still use the same accountant, so hopefully it's been a little more than luck that's saved me from the CCRA auditing process. Cheers, Kirsteen Link to comment Share on other sites More sharing options...
Guest Ian Wong Posted May 16, 2004 Report Share Posted May 16, 2004 Similarly, I was always under the impression that only interest from government student loans could be written off. That is the reason why people continue to keep their government student loans (with an interest rate of prime + 2.5%), instead of paying it off using their LOC money (which has an interest rate of prime only). Doing the above theoretically saves you 2.5% in interest payments each year, but then you lose that income tax deduction. The other reason you wouldn't do the above is if you are using all of the money in your LOC each year, in addition to your student loan money. If you used all your LOC money to pay off past student loan money, then you've got no LOC reserve left if you need it for CaRMS interview flights, or getting a car, or electives, for emergencies, or any number of other expenditures! If you happen to attend a school with cheaper tuition or a lost cost of living, and have extra cash left over in your LOC that you are confident you won't be using, then you need to figure out whether you are likely to save more in the long run by keeping your government student loans and keeping that deduction, or rolling all that debt into your LOC at the lower interest rate of prime. This is where you head to your MD Management office to get their financial advisors to help you out! Ian Link to comment Share on other sites More sharing options...
Guest Savedby Posted May 20, 2004 Report Share Posted May 20, 2004 may i ask if you are (or are planning on) paying the monthly interest? or are you waiting after school to pay the principal and accumulated/compounded interest? if i don't pay the interest monthly, how much money in addition to the $120,000 will i have to pay back if i borrowed 30K/yr for 4 years (if prime rate's fixed at 4%)? thanks. Link to comment Share on other sites More sharing options...
Guest Lorae Posted May 20, 2004 Report Share Posted May 20, 2004 I'll be paying the interest with the LOC... unless I have time to work a job (but I doubt I will) Link to comment Share on other sites More sharing options...
Guest McMastergirl Posted May 21, 2004 Report Share Posted May 21, 2004 Having just graduated, I am now finally looking at my options for paying back the HUGE amount of money my education has cost me! I thought I would add my two cents to the above discussion... It's true that only interest from gov't loans (eg OSAP) can be claimed on taxes... however, when deciding whether or not to consolidate your LOC with your government loans, do the math. MD Management came to give a talk to our class recently and walked us through the calculations comparing monthly interest payments with and without consolidating, and the bottom line is that consolidating is much cheaper, even WITH the tax credit included. (this is assuming you have prime rate on your LOC - OSAP's interest rate is much higher - I think they said prime plus 2.5%). As far as I know, once you have an LOC, you pay interest from day one... you can't put it off. Most med students in this situation end up paying the interest out of their LOC anyway - go figure! At least that's what I have to do (I just transfer the money into my chequing account and have the interest withdrawn directly). You can put off paying the principle until several years after graduation if you choose, depending on your bank... but you still pay the interest (and yikes! it's a lot by the end!) Hope this helps formerly, McMastergirl Link to comment Share on other sites More sharing options...
Guest DonaldKaufman Posted May 21, 2004 Report Share Posted May 21, 2004 I think I remember hearing that some people pay the interest on their LOC with money from their gov't student loans. I think the reasoning for this is that interest doesn't accumulate on student loans until after you graduate, and by doing it this way, you can stop you LOC from snowballing out of control (well, except for all of the money you take out on it to cover your expenses). I think it would save you some money, but probably not too much. Later on, you could consolidate your LOC and student loan after graduation like the former McMastergirl mentioned, and you get the best of both worlds. Keep in mind, I am just starting to look into this stuff now (I've been looking at apartments and doing a little budgeting, and I'm getting a little freaked out by my projections of my debt), but this is my understanding of how some people manage their interest payments. Link to comment Share on other sites More sharing options...
Guest marbledust Posted May 21, 2004 Report Share Posted May 21, 2004 That is the brillance of the LOCs (from the banks' perspective) - with very few medical students having other sources of income, they draw on the LOC every month to pay the interest on said LOC. And every month that payment gets bigger and bigger, for the 3 or 4 years of your program. Gotta give it to the banks, they know how to make money :smokin Link to comment Share on other sites More sharing options...
Guest Ian Wong Posted August 7, 2005 Report Share Posted August 7, 2005 Floating back to the top. Ian Link to comment Share on other sites More sharing options...
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