My wife's grandfather has offered to loan me money for law school at 4% interest. This interest rate is obviously less than the standard government loan rate of 7%, however, my first question is: am I able to deduct the interest of the loan from my grandfather (because its an educational loan) like I would be able to from the government loan? If I am not able to deduct the interest then does the interest from my grandfather's loan make it more expensive even though its at a lower interest rate? Which do loan do you think is the better option?
Don't know whether you'd be able to deduct the interest from the grandfather loan. That said, the answer to that question doesn't matter, because the deduction for student loan interest is fucking pathetic. It has a cap of $2,500, and phases out completely far below biglaw-level income. You get some benefit from the deduction for your stub year, but that's about it. (The fact that you're considering a loan from a family member makes me assume you're going to a school where biglaw is a high-percentage outcome; if you are not, you shouldn't take his money, because you do not want to have to deal with deferring *family* loan payments--assuming he would let you defer, if you needed to.) You should also keep in mind that the loan from your grandfather won't be eligible for PSLF, if you go that route.