Author Topic: Should I pay off student loan?  (Read 7962 times)

FIPurpose

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Should I pay off student loan?
« on: July 16, 2013, 01:43:30 PM »
I'm currently 22 and planning to graduate this December with a Bachelor's in Comp Sci. I have no doubt in being able to find a job that lines up for post graduation, and the further along I have gone in my degree I have gained scholarships to more than pay for my current tuition.

I still have loans though from Freshman and sophomore year. I have already paid off about $6,000 for all the unsubsidized loans I had.
So the only loan I currently have is a subsidized loan with Sallie Mae for $11,750 with rates between 3.5% - 5.3%.

I have saved up so far about $6,000 and it is earmarked to be used to pay off the loan for after I graduate. I hope to have enough by the time I graduate that I have no debt upon graduation. Tuition for this Fall is covered and I may even get a bit of my living expenses covered as well.

My question is: What should I do with the money in the mean time? Currently I'm keeping it in case of a rainy day or moving expenses for my future job wherever that might be, and since the loan is subsidized, I'm not losing anything by keeping it in the bank instead of paying it off.

At the same time I'm a little cautious about trying to invest it at a time that I don't have any regular investing scheme and would only be a short term investment.

velocistar237

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Re: Should I pay off student loan?
« Reply #1 on: July 16, 2013, 01:59:38 PM »
If you're planning to pay off the loan in December, put the money in a savings account until then so it can earn 0.5% or so. If you won't have any other emergency-type money (like a credit card), consider carrying the loan for a few months after December. Then, pay it down over the course of 2-5 months after your job starts.

Isn't there a bit of time between graduation and when interest kicks in?

FIPurpose

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Re: Should I pay off student loan?
« Reply #2 on: July 16, 2013, 02:39:48 PM »
If you're planning to pay off the loan in December, put the money in a savings account until then so it can earn 0.5% or so. If you won't have any other emergency-type money (like a credit card), consider carrying the loan for a few months after December. Then, pay it down over the course of 2-5 months after your job starts.

Isn't there a bit of time between graduation and when interest kicks in?

Yes I believe that there is a 6 month grace period so. Repayment really wouldn't be until June or so.

sassy1234

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Re: Should I pay off student loan?
« Reply #3 on: July 17, 2013, 03:12:29 PM »
As soon as the interest kicks in pay it off in full.  Even if you don't leave yourself with much of a savings, pay it off.  Then build your savings up again. 

FIPurpose

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Re: Should I pay off student loan?
« Reply #4 on: July 18, 2013, 10:05:37 AM »
I checked and as far as I can tell the interest doesn't kick in till 6 months post graduation. So I guess the question that remains would be pay off in January or next June?

velocistar237

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Re: Should I pay off student loan?
« Reply #5 on: July 18, 2013, 10:31:36 AM »
Keeping it around would mean having a bigger emergency fund.
The savings account interest over 6 months would be about $40.
Paying it off would feel good and cross an item off your to-do list.
This is the kind of decision where the process of deciding can cost more than the benefit of making the "better" decision.
If you're still having trouble deciding, flip a coin.

mlipps

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Re: Should I pay off student loan?
« Reply #6 on: July 18, 2013, 10:40:34 AM »
I checked and as far as I can tell the interest doesn't kick in till 6 months post graduation. So I guess the question that remains would be pay off in January or next June?

Subsidized loans don't accrue interest during a grace period. If I were you, I'd apply for income based repayment during your grace period. Based on your 2013 income while a student, you should be able to get a full year of no interest if you qualify for payments of $0, which you probably do if you're only working part time. People graduating mid year can really game the system on this; I graduated in May 2011 & won't owe interest on my loans until Feb. of next year because I applied for IBR in Nov. 2011 based on my 2010 tax return. That'll give you plenty of lee way to save up an emergency fund & save enough cash to pay off the loans without ever paying a penny in interest.

DanBrewMan

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Re: Should I pay off student loan?
« Reply #7 on: July 18, 2013, 01:58:19 PM »
I wouldn't worry much about that money not doing any work for you.  I wouldn't go any further than throwing it in a money market account to earn a few bucks, but is it really worth it?

Another thing to consider is that you'll need some cash out of college for an emergency fund, moving expenses, and furniture.  Just food for thought.

FIPurpose

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Re: Should I pay off student loan?
« Reply #8 on: August 13, 2013, 12:52:46 PM »
This probably belongs in another section, but i thought it would do better to throw up a update here.

I recently came into more money than I expected and my savings is equal to my loans plus about 3 months worth of expenses. Even though it has no monetary consequence, it is definitely very tempting to go ahead and have that loan stricken from my name. I may wait and see what my moving expense estimates may be when I receive a job offer hopefully around Oct/Nov.

homeymomma

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Re: Should I pay off student loan?
« Reply #9 on: August 13, 2013, 02:16:23 PM »
Wait until your first day at your job, then pay it off in celebration! Numbers will only get you so far here - I agree that it will be a huge boost emotionally to just pay it ASAP.

tomsang

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Re: Should I pay off student loan?
« Reply #10 on: August 13, 2013, 02:33:11 PM »
Keep the loans and invest the money.  At least keep the loans that are below 4%.  You get a tax benefit, you get money at inflation levels, and you are safer with the money in investments vs. having the loans paid off. 

CrochetStache

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Re: Should I pay off student loan?
« Reply #11 on: August 13, 2013, 03:15:41 PM »
Pay these loans off when you graduate before the interest starts accruing as you currently have planned.

I did what Tomsang suggested and was paying my loan off as per the contract with Automatic Withdrawals to also receive the discount. My student loan servicer changed because of a provision in the Affordable Care Act.

After 9 years of perfect payments, Mohela decided to simply not take out the required amount from my account, then pull out a reduced amount each month and it has been a nightmare ever since! It has involved lawyers, nasty letters FROM the DoE Ombudsman, the Consumer Financial Protection Bureau and what Mohela claims is a default on my student loan!!

After 11 months the DoE Ombudsman has finally realized that Mohela has been lying to her =0

Avoid my nightmare, pay it off ASAP as per your original plan. 7 years of bad credit when I have done every step required to fulfill my contract is not worth the few measly dollars you may save using the the Fed Tax deduction.


 




tomsang

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Re: Should I pay off student loan?
« Reply #12 on: August 13, 2013, 03:39:31 PM »
Pay these loans off when you graduate before the interest starts accruing as you currently have planned.

I did what Tomsang suggested and was paying my loan off as per the contract with Automatic Withdrawals to also receive the discount. My student loan servicer changed because of a provision in the Affordable Care Act.

After 9 years of perfect payments, Mohela decided to simply not take out the required amount from my account, then pull out a reduced amount each month and it has been a nightmare ever since! It has involved lawyers, nasty letters FROM the DoE Ombudsman, the Consumer Financial Protection Bureau and what Mohela claims is a default on my student loan!!

After 11 months the DoE Ombudsman has finally realized that Mohela has been lying to her =0

Avoid my nightmare, pay it off ASAP as per your original plan. 7 years of bad credit when I have done every step required to fulfill my contract is not worth the few measly dollars you may save using the the Fed Tax deduction.

That is kind of unfair.  You didn't pay off the loan.  You did not keep track of your finances, didn't realize they were not taking the money, and got sideways.  I also would think that they would have sent you some letters, saying, "Hey, you owe us some money please pay within 30 days"  So either those letters got lost or you failed to act on them.  You could have a story like this about anything for one off situations.  I tried investing, and lost money, so I decided to just store my money under a mattress. This does not fly.  At the interest rates we are talking about, he would be financially be better off investing the money, taking the tax benefits, and gaining networth.  If he chooses to pay them off it is based on emotional reason or fear based vs. mathematically sound.  It is safer to have investments and debt vs. no investment and no debt.  You can in an emergency get a deferrment and use the investments to survive or make minimum payments.

CrochetStache

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Re: Should I pay off student loan?
« Reply #13 on: August 14, 2013, 03:25:09 AM »
Tomsang -

Unfair you say? Google Mohela and you'll start to see what the problem is.

Plus I live overseas and know that mail can be unreliable so I SPECIFICALLY had my account set to receive notices via email. NEVER rec'd any emails. After a month went by after the payment was not withdrawn did I start to receive written notices.

PLUS, I am hearing impaired. Mohela refused my written request for an email address to a direct person. They asked me to call their 1-800#

Interesting you picture me as the villain and not paying when Mohela has not complied with the contract and withdrawn the money which is still in my account waiting for them to fulfill their contract. I have repeatedly sent messages in writing to fully pay off the loan with the removal of any negative notes on my credit report, in a single payment however they have been repeatedly ignored.

Interesting, don't you think that, I, who have complied with the contract and wants to pay this off ASAP is unable to? If I could walk up to the steps of the DoE and give them the money directly I would.

All of my evidence in writing, my lawyer agrees with me, the Consumer Financial Protection Bureau agrees with me and the DoE ombudsman finally sees that I have complied with my contract.

The original poster should have all the information available to them to make an informed decision, even the outlying information. But as you'll see if you google Mohela, it isn't so much an outlying data point.
Do you really think I should have to deal with 7 years of bad credit when I have complied with my contract?

tomsang

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Re: Should I pay off student loan?
« Reply #14 on: August 14, 2013, 07:22:54 AM »
CrochetStache your situation is what is called an outlier. I am not saying you are a villain, just that using your situation to justify something is probably not the most financially beneficial.

If you would have said that if your loan services is through Mohela, you live over seas, you are hearing impaired, and don't check your bank account on a monthly basis then it would be best to pay off your loan immediately then I would have no problem with your recommendation.

Credit scores are meant to determine the likelyhood of getting paid on time, with little hassle and little costs to the financial institution. Your situation does not fit this definition. Of course, some fault lies with them, but you also failed to notice that the payments were not coming out of your account because of their fault. I have had banks fail to pull money out of my account. I called them up within 2 weeks and had the situation corrected with their assurances that it would not impact my credit.  I took down their name, direct number, and other pertinent information. It has never been a problem. Flawless credit history.  I have had friends where something like this has happened and they saw it as a windfall until the notices came in and then they spent hours, day, weeks, months trying to fight the system and restore their credit. The moral of the story is monitor your assets and your liabilities on a monthly basis. People using Mint or other services will not have this issue as it will be caught before the account becomes delinquent. Fortunately, it sounds like you won't have to wait 7 years of bad credit as the ombudsman will help get this removed.

Again your story is an outlier and I am sure has cost the financial institutions thousands of dollars to resolve. It was their fault for not pulling the money out, your fault for not noticing and following up, and it will get resolved. I am sorry you had to go through this. If you google any financial institution you will see stories like this, which is a good lesson to monitor your debt on a monthly basis.

Rebecca Stapler

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Re: Should I pay off student loan?
« Reply #15 on: August 14, 2013, 07:34:50 AM »
Honestly, the extent of CrochetStache's problem may be an outlier, but bad / negligent acts on behalf of student loan servicers are the norm -- particularly when the servicer changes, which is happening a lot this year because a lot of servicer contracts have not been renewed. If you have a student loan, you should expect to be on the phone with your servicer an average of one hour each year in order to resolve an issue. This is amplified if you're on an income-sensitive repayment plan, or if you look at your bill before and then after it changes servicers -- they seem to always fuck it up.

velocistar237

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Re: Should I pay off student loan?
« Reply #16 on: August 14, 2013, 09:13:48 AM »
Honestly, the extent of CrochetStache's problem may be an outlier, but bad / negligent acts on behalf of student loan servicers are the norm

We pay our monthly student loan bill manually to make sure they don't mess anything else up. When we switched over, we had to contact them multiple times a month for several months to sort things out. Mohela was not prepared for the transition.

I know I should check every month to make sure every bill was paid correctly, but I often don't.