Is there any reason to pay more than the min payment on my school loans?

[pX]

Title says it all.
I graduate grad school in a couple weeks, I have 34k in subsidized loans from my 6 years in school. The interest is something like 3% if my memory serves me correctly. However, I'm making more than that in my savings account (and can probably make even more if I put money into something more aggressive).
Is there any reason to not just make the minimum payment on the school loans?

 

[FoBoT]

i didn't pay my SL's off faster than required. it took 9.5 years

when i was down to $300 (4 months left) i paid the last one off

my interest rate was very low the whole time, so i paid my $ onto other things

 

[CPA]

Actually, your effective interest rate is probably lower since I assume you are using the loan interest as a deduction on your taxes.

 

[EXman]

Just to eliminate your debt, but that is about it. Some people just don't like debt.

Mine is at 3.125 and the wife has 2.75% we switched ours right in May last year. She was not in repayment yet so she got a discounted rate.

 

[HomeAppraiser]

I paid off the last could thousand before I bought my first house to lowers my total monthly Debt to Income ratio. It meant having less of a downpayment but qualified me for the loan. Sucked because back then SL was 5% and the new mortgage was 9.5%!!!

 

[huberm]

by paying them off you are automatically getting a 3% return. 3% of 34k is over $1,000 in interest in the first year alone.

I would suggest saving enough for an emergency fund (if you don't have one already), then paying down the student loans and/or other debt.

 

[DaShen]

Originally posted by: huberm
by paying them off you are automatically getting a 3% return. 3% of 34k is over $1,000 in interest in the first year alone.

I would suggest saving enough for an emergency fund (if you don't have one already), then paying down the student loans and/or other debt.

Yes, so if you have any extra money that you don't put in emigrant. pay off your loans quicker. One thing is certain, nothing is certain. (Except this... and this... and this...) You could lose your job tomorrow and then have trouble with your loans. Paying it off a little quicker is just insurance on that.

**EDIT**
You do make more money off of emigrant in principle though, because the interest paid off is deductible from the interest gained. and you make an interest and pay less tax, but again it is a risk to leave any debt IMO although this is the norm in America.

 

[DBL]

Originally posted by: huberm
by paying them off you are automatically getting a 3% return. 3% of 34k is over $1,000 in interest in the first year alone.

I would suggest saving enough for an emergency fund (if you don't have one already), then paying down the student loans and/or other debt.

Huh? There is no reason to pay it off any earlier. Take any excess amount and deposit it at 4.5% into a savings account.

 

[piasabird]

If you pay down the principal faster, you pay less interest every month. However you probably pay more on something like a House or a credit card. If you have a credit card at 21% then it might be wiser to pay that off. It really depends on the size of a school loan and how much money you make. You might make more money by investing in stocks or in real estate.

 

[NogginBoink]

Originally posted by: huberm
by paying them off you are automatically getting a 3% return. 3% of 34k is over $1,000 in interest in the first year alone.

I would suggest saving enough for an emergency fund (if you don't have one already), then paying down the student loans and/or other debt.

Wrong.

If he's putting money in a money market account that's earning more interest than he's paying on the loan, the best financial move is to only pay the minimum on the loan.

Tax deductions for loan interest, as previously stated, also put more money in his pocket.

 

[Epic Fail]

If you make enough, you will have to pay tax on the interest from ING, but you should come out ahead by not repaying the student loan.

 

[DBL]

Originally posted by: yamadakun
If you make enough, you will have to pay tax on the interest from ING, but you should come out ahead by not repaying the student loan.

Yes. 1.5% ahead if you have a 4.5% savings account.

 

[dullard]

Student loans are the best common loans in the world. Get as many as you legally can and then don't pay them off early.

Use that money to fund other things that (A) cost more interest or (B) earn more interest. For example, if you have a house mortgage at 6.5%, a car loan at 8%, or a CC loan at 19% then it is stupid to pay off the ~3% student loan. Or if you can earn more than ~3% elsewhere, do it. Earn 4+% it at a place like ING or the stock/bond markets.

The only financial reason to pay it off is if you need to reduce your debt to get a mortgage.

<- Sad I got through my PhD and only borrowed $8k in student loans. I wish I had more now. Of course I don't get the student loan tax deduction, and of course it would have been illegal for me to take more loans than I needed. But I can dream can't I?

 

[Epic Fail]

Originally posted by: DBL

Originally posted by: yamadakun
If you make enough, you will have to pay tax on the interest from ING, but you should come out ahead by not repaying the student loan.

Yes. 1.5% ahead if you have a 4.5% savings account.

Not exactly, after tax on the interest from ING, it will be less than 1.5%.

 

[DBL]

Originally posted by: yamadakun

Originally posted by: DBL

Originally posted by: yamadakun
If you make enough, you will have to pay tax on the interest from ING, but you should come out ahead by not repaying the student loan.

Yes. 1.5% ahead if you have a 4.5% savings account.

Not exactly, after tax on the interest from ING, it will be less than 1.5%.

It's almost a wash. You get to deduct student loan interest also.

I believe inflation was over 3% last year. Paying your loan back early (ignoring other methods of using the extra funds) will actually cost you money in the long run. Of course, this assumes inflation will stay the same or rise but all signs point to this being the case in the near term.

 

[BlueFlamme]

Originally posted by: huberm
by paying them off you are automatically getting a 3% return. 3% of 34k is over $1,000 in interest in the first year alone.

I would suggest saving enough for an emergency fund (if you don't have one already), then paying down the student loans and/or other debt.

Random number time:

Student Loan : $20,000
Rate: 3%
Length: 10 years
Minimum Monthly Payment: $193.12
Total Cost: $23,174 ($3174 above cost of loan)

Case A: Paying off additional $100/month towards student loan
Monthly Payments: $293.12
Pay off in 6 years and 3 months (75 months)
Total Cost: $21,984 ($1984 above cost of loan)
Savings over minimum: $1190

Case B: Investing additional $100/month into savings
Rate: 4.5%
Length: 10 years
Investment: $12000
Final Balance: $15354
Earnings: $3354
After Tax: $2700 (using WAG 20% taxes)

So Case A saves $1190 over the minimum payment, however Case B earns $2700 (after tax) which is clearly larger than the savings made by Case A. So it is obvious that at a killer 3% for the student loan, your money can be put to better use elsewhere.

 

[randomlinh]

i hate my student loans.. it's too spread out half locked in at 3%, the other half private.. and basicaly at prime