Author Topic: Paying off a foreign student loan - should I? Math problem  (Read 2137 times)

flashpacker

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Paying off a foreign student loan - should I? Math problem
« on: August 24, 2014, 06:52:23 PM »
I'm having a dilemma about whether it makes sense to pay off my New Zealand student loan given that I'm now resident in the US.  The loan is around $35,000 NZD. While resident in New Zealand, student loans are interest-free making it a no-brainer to get the max loan, pay off only the minimum required and keep the rest in an interest bearing savings account (or otherwise invest it). The rate on the savings account I currently have it in is 3.45%. With a bit of hoop jumping I could have it in a 4.25-4.5% savings account.

However, now that I have recently moved to the US, I'm being charged 5.5% interest on the loan plus a $40 a year admin fee.

I could pay it off, saving $1925 interest + $40 admin fee.  However, the interest will be tax deductible on my US taxes and if I ever return to New Zealand for at least 6 months, it will return to being interest free.  If I decide to definitely NOT pay it off, I can plunk it into a savings account or CD that will net at least 3% after tax. There is no currency risk since both the loan and the bank deposit are in NZD. 3% of 35,000 = $1050, plus let's call it the value of the tax deduction $1950*.25 = $487.  That brings the cost of keeping the loan to only around $400 a year.  I don't plan to go back to live in New Zealand for at least 4-5 years, which means it would cost me at least around $2000. However, then it would become interest free again. Even just keeping the cash in the bank, I could recoup that $2000 approx 2 years after moving back.

The main uncertainty is if I will go back to NZ or not.   

What are people's thoughts? I could pay off all of it, half of it, or just keep paying the minimum which is $3000 a year. I don't have any other debt and our home is paid off.

goodlife

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #1 on: August 25, 2014, 07:24:40 AM »
F*!k the math and pay it off...and spend your time on something more useful than figuring out an irrelevant math problem. Seriously, just pay it off and you will never ever have to think about this loan again...if I were you, I would just get rid of it and then it's totally irrelevant whether you move back or not. Seems the money differential is not significant and you could just get yourself some peace of mind...I'd wire the money yesterday...

nereo

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #2 on: August 25, 2014, 07:36:35 AM »
If you can pay it off, you should pay it off.

Timmmy

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #3 on: August 25, 2014, 07:48:35 AM »
Add another to the "pay it off" vote. 

Seriously, what is the possible gain in all this? You might go back to NZ and then you will be able to earn enough interest to recoup the $2k?  Then you can earn some more interest on the interest rate difference?  I just don't see enough of a potential outcome to make it a worthwhile choice. 

Dicey

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #4 on: August 25, 2014, 08:17:09 AM »
I'm #4 on the Pay It Off team.

You simply don't want this hanging over your head. So maybe you decide you want to go somewhere else after a few years, do you want to be unable to do it because you have to go back to NZ for a few thousand bucks? Don't paint yourself into that particular corner. No debt = freedom.

James

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #5 on: August 25, 2014, 08:19:58 AM »
Pay it off... :)

flashpacker

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Re: Paying off a foreign student loan - should I? Math problem
« Reply #6 on: August 25, 2014, 04:25:36 PM »
ok team, it seems you are in agreement. I guess I will pay it off :) thanks folks