Pay off student loans or invest?

[sjaguar13]

I am currently looking at about $19,000 in student loans. The interest rate is 2.5%. The plan was to take the extra money and put it into a high interest account somewhere that would generate more than the 2.5%. That seems impossible now. I Bonds are 2.2% saving and checking accounts seem to top out at around 1% and usually don't last that long if are much higher anyway.

 

At this point, am I better off just paying off the loans and ending the interest?

[hegemony]

you need to adjust the SL rate for any tax deduction on the interest. 2.5% is some of the cheapest money you can borrow, especially when you put it in "real" terms as opposed to nominal (i.e., adjust for inflation).

 

that said, if this is your only debt you could figure out a repayment schedule to pay it off early. I know when I paid off my SL's early it felt very very good.

 

you probably want to max a ROTH IRA first, however, before rushing to pay off this low cost debt. Both once you are maxing pre- and post-tax retirement vehicles, paying off debt is a smart move since you know the exact return for doing so.

[snowpuppy]

SL interest is deductible on your tax returns only up to $2500 per year and it's based on AGI. As your AGI increases, your SL deduction decreases.

 

Check with your servicer to see what their terms are for paying additional payments on your loans. DL will only accept an additional one month payment (you can't send an extra $50 bucks) and you also have to notify them in writing on their form to not advance your payment schedule. If you don't specify 'don't advance', they will just say 'no payment due next month'.

 

Look at all your terms before you begin to prepay.

[jolla]

you probably want to max a ROTH IRA first, however, before rushing to pay off this low cost debt.

Agree 100%