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Financial Planning / Paying For College


Subject:  Re: Should I pay off my student loan early? Date:  7/31/2001  10:44 AM
Author:  LTABA Number:  4108 of 8571

"I would use the extra money to build up my emergency fund and then invest in somehting safe- like a protected growth fund or a carefully chosen stock. 6.79% will not be difficult to beat, even is the present market."

You don't have to look back that many months on this board to find voices confidently stating that 20% a year was a snap. So this advice strikes me as comparatively sane. However, the idea of safety does not bare scrutiny. A carefully chosen stock is never "safe," although there is certainly a range of risk even in one company. 6.79% return must be after-tax to match the benefit of the loan repayment, which means you will need close to a 9% return per annun (depending on tax bracket). I follow funds pretty closely, but I've never heard of a "protected" growth fund. Perhaps the writer means a value fund, or one with a more conservative bent. These funds lose money in a bear market as well, as sometimes languish, as they did during the last few years of the recent bull market. This doesn't mean that paying off the loan is the only option--but my own take, psychologically and strategically, is to fight to get in a position where your only debt is a mortgage, with its tax benefits and potential for leveraged appreciation. I know I'd want to pay it off as soon as possible.
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