Paying student loans vs investing?

4,757
12
Joined Nov 22, 2007
Anyone have any opinions on which option will yield the most?

I'm able to pay off my loans in like 15 months if I pay extra, and the thought of having those done with makes me lean that way... BUT, if I paid the minimums since they're at a low rate, would I be better off starting to invest that extra income and benefiting from a hurt or down market?

Any info or experiences would be great.
 
942
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Joined Aug 7, 2006
Originally Posted by nnarum

Anyone have any opinions on which option will yield the most?

I'm able to pay off my loans in like 15 months if I pay extra, and the thought of having those done with makes me lean that way... BUT, if I paid the minimums since they're at a low rate, would I be better off starting to invest that extra income and benefiting from a hurt or down market?

Any info or experiences would be great.
it depends on which option has the higher interest rate...i'm assuming your loans have a higher interest rate, so i'd suggest paying those first then begin saving/investing once you're debt free...

-waystinthyme
  
 
244
10
Joined Dec 15, 2004
I'd pay off the loans first.

My student loans are at around 5% - no checking or savings acct is going to bring in anything near that. You are better off paying off the loans imo
 
482
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Joined Apr 30, 2005
There are two factors:
1.  Strictly monetary
2.  Peace of mind

With regard to #1, you have to weigh what you're paying in interest.  Hopefully these are very low interest educational loans (and for the lurkers, this can be in the ~2.5-3% neighborhood).  If this is the case and you believe that your investments will yield more than this over the same time period, then the answer is simple: you invest.  Otherwise, it simply makes more economic sense to pay off the loans*.

With regard to #2, for many people simply having the loan paid off and done is a tremendous load off and provides great peace of mind.  If this is something that will make you feel better about yourself or your overall financial picture (or even give you a sense of accomplishment), you might weigh that into the decision.  It's tough to put a price on feeling good about yourself. 


*Some people will be quick to throw in that you get a tax deduction on the interest paid on your student loans.  While this is true, this amount is usually modest compared to your overall income and does very little to lower your taxes.  Looking at student loan interest deductions and mortgage loan interest deductions as reasons to hang on to the loans is like flying to Europe because of the free pack of peanuts on the flight. 
 
11,061
2,314
Joined Feb 22, 2008
I'd pay the loans, just because.

I paid 3 small loans off recently and it's a TREMENDOUS weight off my chest.

Now I have just big loan and I'm done.
 

balloonoboy

Banned
9,784
481
Joined Nov 13, 2009
Yea, but you don't want to take advantage of a crippled market and have your credit go down the poop chute due to some unforeseen circumstances.

Pay off your loans, bro.
 
9,266
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Joined Mar 13, 2008
I'd invest conservatively but that's just me.

I have loans that I make the minimum payments on. My student loan is at 3.5%. I also deduct the interest so I'm technically paying like 2.8%. Inflation is more than 2.8%. I'll keep on making those minimum payments and investing my cash/saving for retirement.
 
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Joined Jan 25, 2010
I'm cool with the idea of investing but if you devised a plan on paying the loans on 15 month then that sounds like the wiser decision. You'll have a lifetime afterward to invest and the peace of mind of not dealing with a debt will only benefit you.
 
4,757
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Joined Nov 22, 2007
Originally Posted by STOPIT5

I'm cool with the idea of investing but if you devised a plan on paying the loans on 15 month then that sounds like the wiser decision. You'll have a lifetime afterward to invest and the peace of mind of not dealing with a debt will only benefit you.
Yeah, I've also heard it's better to start early with the compounding interest. The other thing is, I have nothing invested so far. So I would be starting from scratch. I do have a little stash built up in cash reserves though.

Plus if I payed the loans off, I'd be out of debt completely minus the mortgage.
 
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