Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Smeyely wrote:

I am just beginning to make payments on a 30 year student loan (close to $500/mo). The current interest rate is 6.79%, which dropped between June and July from 8.25%. Is this a variable interest rate loan?

My big question is, should I try to pay off the student loan early by making larger payments, or should I invest that extra money?


Yes, it's variable, or the interest rate wouldn't have dropped. The interest rate on a fixed rate loan, by definition, never changes. When you sign up for a fixed rate loan, you are betting that the rates will go up and that the bank is going to bear that risk. When you sign up for a variable rate loan, the opposite is true.

The answer to the next question depends on a number of factors:

1) Can you reliably earn more than the loan's interest rate on your money in the currently flat economy?

2) How certain are you of keeping your job and being able to make that $500/month payment every month for the next 30 years?

3) Is having this debt closing off other possibilities for you? Such as buying a house or starting a business?

4) You can't write off student loan interest the way you can mortgage interest. You get the Hope Credit or the Lifetime Learning Credit, neither of which is very big, and both of which are limited depending on your AGI.

Given my experiences in the previous recession, I'd pay it off as soon as possible. You never know what may happen in your future and it never hurts to be prepared.

But, of coure, this is your call.

CCSand
Print the post  

Announcements

Paying For School Guide
Trying to Tackle Tuition? The Motley Fool's Guide to Paying for School will help you fight those rising education costs.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.