Author Topic: Should I pay off my 2.25% cosigned student loan?  (Read 3118 times)

greenbanana

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Should I pay off my 2.25% cosigned student loan?
« on: May 09, 2014, 09:00:37 AM »
Hi all, I'm looking for some advice on a moral quandary I'm facing. Back when I was a financially naive student, I took out loans to cover my tuition, room, and board. I was fortunate enough to have an aunt and uncle with good credit cosign one of my loans, so the interest rate is pretty low (~$13000 at 2.25%, variable). The loan is not yet in repayment because I'm still a student (PhD, and hopefully less naive now!), but my husband and I now earn enough money that we could pay back the loan pretty quickly. My husband's opinion is that we should just invest our money because we will get a much better return in the market. However, I feel a bit skeevy about letting the loan hang around while my aunt and uncle are on the hook for the money if anything goes wrong with us.

I've looked into getting the cosigners released, but Sallie Mae won't allow that until the loan has been in repayment with on-time payments for something like 6 months, and it seems like they won't put it in repayment while I'm still a student (which will be the case until summer of 2015). And I've thought about getting another loan to pay off this loan, but I doubt we'd be able to get such a good rate (although I could be wrong about this). What say the mustachians?

The Money Monk

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #1 on: May 09, 2014, 09:21:51 AM »
Personally I agree with you: with somebody else on the hook, I would not be comfortable until it was paid off, even if they didn't mind.

jonchappelle

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #2 on: May 09, 2014, 09:55:35 AM »
I have the same situation, ~20k @ 2.25-2.50% interest, cosigned by my parents. Chances are if you drop the cosigner, your rates will increase.

I chose to invest everything last year instead of paying this off, and made mad money in the market. Sure that won't happen every year, and yes there's a chance to lose money. I can always cash out some investments if I had to pay it off fast. Your net-worth will quickly grow past 13k, so it isn't a significant risk to the cosigner. Not to mention the extra tax advantages from maxing 401k/IRA's is already better than 2.5% interest. Whenever I think about doing something stupid and getting into debt, I have my student loan to look at as a nice deterrent.

However, with 200$/month payments, it will take a lifetime to be free. So at some point you just have to get rid of it. My plan is to use cash windfalls, bonuses & tax returns, to pay it down faster.

My priorities were high interest (6-7% stafford) loans first, max 401k/IRA, taxable account, remaining 2% loans.
« Last Edit: May 09, 2014, 10:04:15 AM by jonchappelle »

Dezrah

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #3 on: May 09, 2014, 10:41:15 AM »
Even bringing up the question shows you're a good person who's considerate of the people around her.  My guess is you will always try to make it right even if the worst should happen.   

I think you should go ahead and invest for now.  Then draw up a will that leaves the first $13k of any insurance policies, bank accounts, etc. to your aunt and uncle first before distributing the rest to your preferred beneficiaries.  Perhaps discuss this plan with your aunt and uncle to confirm they're not held back in any way by you keeping the loan.  If your net worth grows quickly enough, then there really is no risk to your relatives.

The people who really get screwed by cosigning are the people who cosign for a student who then dies or becomes a bum.

greenbanana

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #4 on: May 09, 2014, 12:26:53 PM »
I think you should go ahead and invest for now.  Then draw up a will that leaves the first $13k of any insurance policies, bank accounts, etc. to your aunt and uncle first before distributing the rest to your preferred beneficiaries.  Perhaps discuss this plan with your aunt and uncle to confirm they're not held back in any way by you keeping the loan.  If your net worth grows quickly enough, then there really is no risk to your relatives.

Thanks, Dezrah, I like this approach. My husband and I don't have a will yet, but this sounds like a good reason for us to make one!

SDREMNGR

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #5 on: May 09, 2014, 03:57:51 PM »
FINANCIALLY: Keep the loan, invest the money elsewhere.

MORALLY: Pay off the loan ASAP.

Pick whichever feels right to you. 

Cassie

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #6 on: May 09, 2014, 04:23:41 PM »
They were very generous in co-signing for you and I think you should reward that by paying off the loan ASAP. 

SDREMNGR

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Re: Should I pay off my 2.25% cosigned student loan?
« Reply #7 on: May 09, 2014, 06:59:59 PM »
Maybe throw in a thank you card and some money for a nice meal as to repay for the interest rate savings you got from their risk taking on your behalf.