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If you can get someone to lend to you for what are historically very low rates (like 5.2% or even 6%), my personal opinion is always go for the longest payback period possible. Some people can't tolerate the debt "hanging over them", and so they say take the shortest-term available. Also, other folks say to get the thing down, 'cause it affects the ability of the borrower to qualify for other lending (like mortgages).

Let me explain my view of it:

When the lender lets you carry a balance at 5.2%, you are able then to take any money that doesn't have to go to the lender and put it someplace else that may yield you a return greater than 5.2%. (I know there are always tax effects in this, but I am leaving them out here for the sake of clarity.)

For example, I know of a student loan borrower (not from these boards) who is paying on the note "as much as possible", while at the same time ignoring her employer's large fractional match in a 401(k) plan. (Say, a 50% match.) It is a sound company that matches in stock, true, instead of in cash, but still, the person is giving up obviously free something of value in return for knocking down what is today an 8% loan, and could be under 6% next week.

It is no stretch of the imagination to foresee that at the end of 5 years, say, a person could save up enough that the 401(k) balance (with tax deferment, matches and gains) is as big as whatever the normal-payment (or extended payment) student loan debt balance would be. ($50,000 401(k) balance vs. $50,000 debt.) In a pure finance sense, I say the loan is covered for, even if it isn't paid off. In fact, it probably can't be paid off, cause the 401(k) can't be broken open without taxes and/or penalties. But at least there is an asset with some expected growth on one side of the balance sheet, matching the declining principal balance, with interest growing at a rather small 5.2%.

(This is close to my own personal situation, except I am in stocks that go up and down. I hit "even" on a mid-5 figure debt in only 20 months, believe it or not, coincident with the tech bubble, but since then have bobbed up and down over that break-even line. I could stop putting into 401(k) if I wanted to, and use that money to pay Direct, if I had to, and still be assured that I had an asset sitting somewhere that is expected to grow more than the interest that I'm paying Direct.)

Also, I imagine there are situations where people are having great jobs and making money that they are using extra to pay the student loan, and then one fine day they lose their jobs and income! Now, they have a nice low student loan balance, and no emergency money. They end up borrowing on credit cards that cost three or four times as much as the student loan debt did. And even though it's great that the student loan has deferments just for this kind of situation, there's still no cash to put food on the table!

Had they just chilled about the student loan balance, and paid the minimum required, they might have built up a fund that could be used for "the unexpected". And not just "the unexpected", but any opportunity that comes along that allows you to save more than the 5.2% interest you are being charged at Direct---and those opportunities abound in our investment-driven society.

I have a real tough time with this phrase "hanging over your head" to describe debt, that you did not use but is commonly used. I look up, and nothing is "hanging over my head". In fact, the thing is sitting as a paper contract in a drawer, below me. It's in there, with other tools. And as long as I take care of it, like other things I have, it should be useful to me for a long time. After all, the education I got is going to last me a lot longer than 10 years, so . . .
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