If you could pay off your student loan would you?

[lostnotyetfound]

I have $10,000 in a bank account that earns 4.5% interest. And an IRA with about $2500. Due to certain circumstances that will never present themselves again I was able to save a lot of money.

I have $8500 in student loans and my interest rate is 2.65%.

For some reason I feel the need to have a lot of money in the bank in case I ever need it. I still feel that I need to have more money at my disposal just in case. I know it sounds nuts but its because of certain childhood issues etc...

Is it in my best interest to pay the loans? Or keep my money and just make my monthly payments. I could never part with $8500 all at once but perhaps I should pay $2 or $3 thousand for now? Although I am unemployed so maybe I should hold off on that.

[winneythepooh7]

I wish I owed that little!

In any event, I don't think it's wise to drain your savings. As long as your student loan payments are current, this is not really debt that is "held against you".

Maybe set a goal that you would like to put X # of dollars towards your loan each month to pay it off in a year or two. Pay more per month than the minimum.

[sparky88]

which would make you feel better? Earning a bit more interest in the long run by keeping your money in a bank account, or freeing yourself from debt now? Or perhaps invest the money in a high-growth option for 5 yrs and then use it to pay off the remaining student loans (by putting it in a CD, etc)?

If I were you I would put the cash out of reach somehow (don't depend on it to get through unemployment) Pretend it does not exist, at all. Find a job, then reevaluate the decision. there's no rush to pay off student loans, they are the last thing you need to pay down.

[nikorock28]

It makes no financial sense to pay off a loan that is 2.65% with savings that are earning 4.5%. Just make the monthly payments on your loans. However, if it will give you a sense of accomplishment to pay the loan down faster, then you might consider it for the emotional/psychological rewards... but, remember, if you do this, you are losing money.

[redav]

If I were in your situation, I would continue to pay off the student loans per the normal schedule rather than paying them off immediately. Here's why:

- You are earning more with the cash than you are paying in interest.
- Since you have the ability to pay that debt at any time, it is not exactly a burden. You can, at any point in the future, decide to pay it off. However, if you do, you cannot undo that decision.
- You do not know what tomorrow brings. How long will you be unemployed? Will something bad happen to you that costs a few thousand? In other words, you don't know if will you need the money in the future. If you do, and if you paid off the student loans, you MAY not have enough left to prevent you from having to go into debt again. If that happens, you definitely WON'T be paying less than your savings account.

If you are uncomfortable with the debt (and that is perfectly fine), then I would suggest figuring out a reasonable amount to keep in reserves in case of "bad" things happening and use the excess cash to pay down the debt. I would not tap the IRA for funds, so it should not be included.

[MsClear]

I would continue to save. If it were credit card debt, I'd endorse you paying it off right away. However, this is a different kind of debt.

Better to have that emergency fund.

[slimjim]

do reason to pay off the loan. Your current situation is cash flow positive and you should also be able to write off the student loan interest.

[SmilesSoSweet]

Right now my current student loan debt is $1300. It was $15k when I graduated almost six years ago.

If I take all my savings and add them up, it well exceeds the $1300. My interest rate for my savings is higher than my interest rate for my student loans.

I never feel like I have to pay off my student loans even though I have the money to pay off that remaining amount. I do pay more than my minimum. I think my minimum payment was $41/month and I'm able to pay $175/month.

Although it's still a debt, student loans are looked at as good debt. Credit cards are the ones that don't look too well.

I do have steady employment as well, and I don't feel that I need to pay it off either. My savings is my emergency fund, though I do enjoy splurging on things every once in awhile.

Just pay off more than your minimum payment. And until you find a job, I wouldn't bother trying to pay it off completely. If you have any credit debt, definitely pay that off first.

[nikorock28]

If I were in your situation, I would continue to pay off the student loans per the normal schedule rather than paying them off immediately. Here's why:

- You are earning more with the cash than you are paying in interest.
- Since you have the ability to pay that debt at any time, it is not exactly a burden. You can, at any point in the future, decide to pay it off. However, if you do, you cannot undo that decision.
- You do not know what tomorrow brings. How long will you be unemployed? Will something bad happen to you that costs a few thousand? In other words, you don't know if will you need the money in the future. If you do, and if you paid off the student loans, you MAY not have enough left to prevent you from having to go into debt again. If that happens, you definitely WON'T be paying less than your savings account.

If you are uncomfortable with the debt (and that is perfectly fine), then I would suggest figuring out a reasonable amount to keep in reserves in case of "bad" things happening and use the excess cash to pay down the debt. I would not tap the IRA for funds, so it should not be included.

excellent points redav. another thing is that if you continue to make the payments per regular schedule, you will be paying the loan back (years from now) with dollars that are not worth as much due to inflation every year. this is an added advantage of the fixed payment schedule of a duration of say, 10 or more years.

[AshleyJordan]

I agree with all of the others-- don't pay it off too quickly. . . you'll make a better return by investing the money at a higher interest rate!

[lostnotyetfound]

I have good credit, no credit card debt, so the only debt I have is my student loan. I figured it was a better idea to just keep my savings and continue making monthly payments. Although I hate the concept of owing anyone money. Hopefully when I find a job it will be making a lot more than I have been and I'll be able to pay more than the monthly minimum.

[cache]

Sometimes psychological well-being is worth far more than a couple points of interest, though...

[Trillian42]

I have $10,000 in a bank account that earns 4.5% interest. And an IRA with about $2500. Due to certain circumstances that will never present themselves again I was able to save a lot of money.

I have $8500 in student loans and my interest rate is 2.65%.

For some reason I feel the need to have a lot of money in the bank in case I ever need it. I still feel that I need to have more money at my disposal just in case. I know it sounds nuts but its because of certain childhood issues etc...

Is it in my best interest to pay the loans? Or keep my money and just make my monthly payments. I could never part with $8500 all at once but perhaps I should pay $2 or $3 thousand for now? Although I am unemployed so maybe I should hold off on that.

I understand your urge to have this "debt" paid off (I am the same with my mortgage), but this is what is called "good debt" because it is low interest.

In my opinion you should absolutely NOT pay off more then the monthly payment on your student loans for two reasons:

1) You need to have 4-6 months living expenses available to you in case you lose your job and it takes awhile to find another

2) Your savings account earns 4.5%, your student loans cost 2.65%, every dollar you pay off on you student loan, you would be losing 1.85%.

If your student loan was a higher interest than your savings, you might consider paying some off (keeping enough for 4-6 months emergency), but even then, you would be better off with another investment that earned more than the interest you are paying.

[Dude]

I agree with others, pay the student loan month by month. However, just to clarify, you should not be comparing the 4.5 interest rate to the 2.65 rate. Don't forget that you have to pay tax on the money you earn from your savings account and that you can deduct the interest you pay on your student loans up to $2500 assuming your salary is in a specific range.

[jjross]

I borrowed $2500 in 1988 and my loan is now $8000. I dropped out of school the first year and never have done anything with my life. I am an alcoholic and have been homeless for years. I am trying to put my life back together but I am afraid if I start to draw a paycheck it will be garnished. The loan is in default and was turned over to a collection agency years ago. They periodically call my brother. This same brother would be willing to help me pay a lump sum and then I could pay him back. He won't pay $8000 however. Does anyone know if these loans can ever be negotiated. Say by offering them a lump sum pay off?