You just graduated from the University of Arizona. Unfortunately, you have also accumulated a $35,000 student loan over four years. Now you need to start paying it off. Suppose the interest rate on the loan is 5% and you need to pay off the loan in 20 years with equal annual payment every year.
Figure out what the equal payment amount should be every year. Also figure out a payment schedule of interest and principal payment every year for the 20 years.
As we know, the interest on student loan, up to $2,500 each year, is deducted from your gross income to figure out your adjusted gross income (AGI). Suppose your marginal tax rate for the first ten years is 20%. Please figure out how much this deduction can save you in federal personal income tax every year for the next twenty years.
Please say in a few sentences why federal government should allow you to deduct student loan interest payment from your income to calculate your tax liability.