pay early, or invest?

Anonymous · ‎05-12-2014

I'm currently in grad school and plan on being in school for some time (another master's and then a PhD). I have a lot of student loans, but will not be taking out much in the upcoming years (getting most of my schooling paid from here on out). Does it make more sense for me to put money into an investment savings account each month and then use that money to pay off the loans once they come out of deferrment (and after earning several years of interest), or to just pay off the loans right away? I think I know the answer, but wondering what others think.

Jazzzy · ‎05-13-2014

What is the interest rate on your school loans?

Anonymous · ‎05-13-2014

Deferred interest until I graduate.

Jazzzy · ‎05-14-2014

If the interest is deferred, I assume it is accumulating? Is that right? Is it accumulating at 2+% for example, or 6+% ???

The interest rate makes a huge difference on whether you would pay early or invest.

Anonymous · ‎05-15-2014

No interest is charged on the account until after I'm out of deferrment. That is why I think it makes sense to take the loans and invest them now. Then I can use the interest in my investments to pay the loans when I finish school in ... say 25 years or so! haha

omgtain · ‎05-24-2014

How I thought student loans and deferrmet worked (and sorry if I'm wrong) was while interest isn't being charged to your account currently, it is still accumulating, and at the end of deferrment it all hits at once. Kind of like you financed a big purchase for 6 months of no interest, but if you don't pay it off in 6 months you're charged interest for those 6 months.

personally I'd pay it off, I wouldn't want to worry or think about student loans for x amount of years. It might be unlikely to find a savings that could give you a comparable interest rate and the stockmarket could screw you. In some years you'll have extra money from not paying out the butt in interest, so paying off your loan is an investment itself.

laz98 · ‎05-24-2014

@Anonymous wrote:
No interest is charged on the account until after I'm out of deferrment. That is why I think it makes sense to take the loans and invest them now. Then I can use the interest in my investments to pay the loans when I finish school in ... say 25 years or so! haha

Federal subsidized loan? Then interest does accrue, but the government pays it for you. There won't be a "Gotcha!" once your loan comes out of deferment, but it is accruing interest in the meantime. Hope that helps!