Author Topic: Need Your Advice - Paying Foreign American Student Loans with Canadian Currency  (Read 1136 times)

frugalchic

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I am a fellow Canadian living in the US. I have a dilemma about whether I should repay all of my student loans at once.
 I recently completed my degree in the US and incurred 50,000 in debt. However, I have a little over 100,000 in savings ---in Canada. With the exchange rate so bad right now, is it better that I keep my money in Canada and make monthly payments on my loans (I have a job in the US and can probably pay about 2,000 a month on my loans) or should I take the exchange rate hit and transfer money to pay for my loans all at once?
« Last Edit: February 04, 2016, 04:19:08 PM by frugalchic »

bobechs

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Ceteris paribus, if you expect the earnings on your Canadian money plus any positive movement of CDN vs. USD (or minus any negative if that's what you forsee) expressed as a percentage to be greater than or equal to the interest rate on your student loan you should leave your money there.  If your Canadian money earns less than the ongoing cost of money you borrowed here, bring it in to pay off the loan. 

It does not matter at all what the exchange rate used to be; it does matter to some extent what it will be -but you are going to have to call that without my help.



nereo

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frugalchic - what are your rates?
We're looking at a similar situation in 18 months... we have a few SL in the US that will come out of deferment but currently we are earning all of our income in $CAD

FWIW most forecasts are pretty pessimistic on the loonie coming anywhere near parity with the $USD - but long term forecasts are often comically wrong. There's a case to be made ofr it getting even worse over the next 1-2 years. 
If your interest rates are high I'd consider biting the bullet and just paying them off. 
My thinking goes like this (yours may be different):
Above 6% - pay them off instantly with CAD savings
Between 4-6% - pay them off aggressively with US income (just over a 2 year proposition based on your numbers)
Below 4% - pay the minimum and invest as much as you possibly can.

frugalchic

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Thanks for the reply. Interest is around 6% and I have about one more month left until it comes out of deferral. The loans (about 50k total) vary in that some are government of ed and others are (were) Sallie mae so the interest varies on both, but average at around 6%. I was considering consolidating the loans and refinancing the 50,000 with Sofi (MMM has a link on his blog about this) and possibly get the interest down to 4-5%. I can certainly pay this amount in about 2 yrs with US income in hopes that the CA exchange rate gets better. The downfall with this is that if you get laid off you cannot file for deferment with Sofi (or similar companies) but you can with Navient (who manages both loans). Hmmmm...its a tough one.

nereo

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Thanks for the reply. Interest is around 6% and I have about one more month left until it comes out of deferral. The loans (about 50k total) vary in that some are government of ed and others are (were) Sallie mae so the interest varies on both, but average at around 6%. I was considering consolidating the loans and refinancing the 50,000 with Sofi (MMM has a link on his blog about this) and possibly get the interest down to 4-5%. I can certainly pay this amount in about 2 yrs with US income in hopes that the CA exchange rate gets better. The downfall with this is that if you get laid off you cannot file for deferment with Sofi (or similar companies) but you can with Navient (who manages both loans). Hmmmm...its a tough one.
In your situation you have the assets to pay off a refinanced loan, so I wouldn't worry about that restriction when refinancing..  I'd look into how your post-refinancing rate might change if you decided to pay off one or two of the highest interest loans.

As for the exchange rate - today's news: US added some more jobs, Canada lost some more jobs.  No idea what it will mean a year from now but at present it doesn't look like the loonie will suddenly jump 10+.