Should I pay off my student loans? (1 Viewer)

Dougd

Guest
Joined
Apr 14, 2005
Messages
1,998
Reaction score
37
Age
43
Location
kenner to dc
Offline
I have an .825% loan for x thousand dollars. I have a 3.0% savings account for 2x thousand dollars. The GF keeps saying I should just pay off my loans and in the long run I will save more money. I keep arguing that I am pocketing a 2% difference in interest plus the tax deductibility of student loan interest. Can some one help me out here?

My argument makes sense to me, but usually she is smarter than me.
 
I say stay in debt. It's what everyone is doing around school.
 
The responsible thing to do would be to pay off the debt, then gamble what you have left in savings until your winnings match what you paid off in the loan, so you never have to second guess yourself. If you run out of money gambling, take out another loan.
 
It's a credit union. It's a 3.25% checking account. Sorry.

So, you've got twice the amount of money is an interest bearing checking account than owed on a student loan.

You're not going to find many loans that are as flexible as student loans. The interest rate is below 1% as it is, so it doesn't really make sense to make additional payments. On top of that, you can get a forbearance on your payments if you run into trouble in the future.

My advice would be to continue to pay the minimum amount on the student loans and use the excess money for other investments, such as 6 months stash of cash in the event of an emergency, saving for down payment on a house, investing in a Roth IRA for retirement, etc. You could also leave your money in the checking account to get a 3% return.

I don't see why you would want to pay down the student loan any faster than is required.
 
So, you've got twice the amount of money is an interest bearing checking account than owed on a student loan.

You're not going to find many loans that are as flexible as student loans. The interest rate is below 1% as it is, so it doesn't really make sense to make additional payments. On top of that, you can get a forbearance on your payments if you run into trouble in the future.

My advice would be to continue to pay the minimum amount on the student loans and use the excess money for other investments, such as 6 months stash of cash in the event of an emergency, saving for down payment on a house, investing in a Roth IRA for retirement, etc. You could also leave your money in the checking account to get a 3% return.

I don't see why you would want to pay down the student loan any faster than is required.

This. It makes absolutely NO sense to pay off that money at such a low rate. A rate that low costs you what? Assuming you have $100k in student loans (probably way high) it costs you less than $1,000 in a year. If you have twice that much in savings you could do much better things with that money than put it on those loans. And yes, if you paid them off you'd be losing money b/c your savings you use to pay them off would no longer be making you 3%.

If someone offered you all the money you wanted to borrow at a rate of 1% and another person offered you a return rate of 3% on all money placed with them, you'd be foolish to not borrow as much as you possibly could. It's called an arbitrage opportunity, and essentially means you are making free money.

I have a bunch of student loans at about 1.5% and I will ride those babies until they expire. No way I am going to pay them off unless I could potentially borrow money at a lower rate. I have a few small student loans that are at about 6% and I'm not really fussed about paying them off either even though I have the cash more than ten times over.

Tell your girlfriend to just go make you another sammich.
 
If that doesn't convince her, show her the interest statements you get next month from the loan and your savings. If you average savings balance was twice your loan balance the interest earned should be more than 6 times the interest paid. Hard to argue with that.
 
you may also want to mention to her that if you take certain public-sector, education-industry, or non-profit jobs and stay with them for 10 years, the student-loan debt can be forgiven.

http://www.finaid.org/loans/publicservice.phtml

(Only payments made after 10/01/2007 count towards the 120 required before forgiveness.)

i concur with all the other people who state that earning 3.25% on your $2,000 is smarter than paying off your <1% student loan, the interest on which is tax-deductible if you itemize on your return.
 
The only reason to pay them off is to have the peace of mind that you're debt free. It may not be the most financially advantageous thing to do, but it may be worth it if she won't stop hounding you.
 
I have an .825% loan for x thousand dollars. I have a 3.0% savings account for 2x thousand dollars. The GF keeps saying I should just pay off my <a href="http://www.bcduplication.com" style="color: rgb(0, 0, 0) ! important; text-decoration: none ! important; cursor: default ! important;">cd duplication</a> and in the long run I will save more money. I keep arguing that I am pocketing a 2% difference in interest plus the tax deductibility of student loan interest. Can some one help me out here?

My argument makes sense to me, but usually she is smarter than me.

Plain and simple - life is always easiest with no debt. Get it payed off.
 
The only reason to pay them off is to have the peace of mind that you're debt free. It may not be the most financially advantageous thing to do, but it may be worth it if she won't stop hounding you.

She's a GF not a wife. If she's hounding you that much now, how much will she hound you when you marry her.. I'd show her interest paid, versus interest earned..

Your interest rate on the loan is less than that of inflation, so you are basically getting free money as it is. I also try to stay debt free, so if you can pay it off it might make sense from a debt perspective not to have that debt, but as others have said. Student loans are the most forgiving loans. You'll never get another one like it, especially at that interest rate.
 
For me, as a big picture guy, the key part of the decision would be how big "X" is. If I have a student loan for $1,000 and I'm paying .825 interest, and I've got $2,000 in savings making 3%...I'm probably gonna pay off the student loan, since my net gain in interest is $20 a year. I'd give that up to keep peace of mind.

If I've got $100,000 in student loans, and $200,000 that I'm making 3% on...then my net gain in interst is $2,000 per year.....then it might make sense to keep the loan...Even though if that was the case, I'd probably be making enough that $2,000 a year isn't all that much to worry about anyway.
 

Create an account or login to comment

You must be a member in order to leave a comment

Create account

Create an account on our community. It's easy!

Log in

Already have an account? Log in here.

Users who are viewing this thread

    Back
    Top Bottom