Author Topic: Keep or Pay student loan?  (Read 1640 times)

typisk

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Keep or Pay student loan?
« on: February 25, 2014, 12:09:55 PM »
Hello!

I'm a 24 year old living in Norway, working 100% and studying part time. I would like some advice on what to do with my student loan, which I'm now pumping into the stock market.

Short facts:
Income after tax: $58.000
Debt (only student loan): $53.000
Net worth: $92.000

So, right now I'm receiving 1200$ per month and the loan is interest-free as long I study (so I have the inflation working with me for now). Interest rate is 2.6% when I'm starting to pay back and the interest rate on savings account is 3.5%. My student loan debt will be around $82.000, but since I'm investing all the cash my net worth is not shrinking due to increased debt.

Should I keep taking the loan and pump it into stock market or stop the "free money" and begin to pay it back? Any other suggestions?

sherr

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Re: Keep or Pay student loan?
« Reply #1 on: February 25, 2014, 01:08:42 PM »
I don't know anything about the specifics of Norway, but if you want the mathematical answer then it's only better to pay off the loans if the interest rate you'll get from your investments is lower than the interest rate of the debt. Since you say you can get a savings account that pays 3.5% and your student loans only cost 2.6% eventually (and 0% now) it sounds to me like it will never be mathematically advantageous for you to do anything other than pay the minimums on the student loans.

That being said, I think there's certainly some additional benefits in terms of peace-of-mind that come from not having debts. If I were you I wouldn't worry about that until after you've graduated though. I would say to keep doing what you're doing and investing what you make.

mh1361

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Re: Keep or Pay student loan?
« Reply #2 on: February 25, 2014, 01:20:22 PM »
Logically it makes sense to wait to pay off the loans since your return would be better elsewhere. Psychologically, it depends what you're comfortable with. Seems like you're content with what you're currently doing, so I'd say go for it. If you were less financially aware, then it would be smarter to pay it off sooner.