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View Poll Results: Student loan payoff: what would you do?
Pay off the 2.65% student loans - there's no way to know how long these low interest rates will last, and you're losing money each day, fool! 6 35.29%
Keep the money in the bank, high inflation is coming our way and soon those 2.65% loans will look beautiful. 7 41.18%
Split the difference: pay down some of the loans, keep some of the cash in the bank, and see where we're at this time next year. 4 23.53%
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Poll: Payoff low-rate student loans?
Old 11-12-2010, 05:43 PM   #1
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Poll: Payoff low-rate student loans?

I have some Federal Govt student loans left over with a "low" interest rate of 2.65%. A while back, instead of paying the loans off, I dumped an equivalent sum of money into a savings account linked to the loans via auto-payment, and up until lately the money in the savings account was earning a higher interest rate than the 2.65% on the loans, so it didn't make sense to pay off the loans -- I came out better just by having the money in savings/CDs. But in my mind, the loans were "paid off."

Now that the interest rate on the savings account/CDs is so low, I'm getting ready to pull the trigger on just paying off the loans for real. (Of course, when I do, I'm almost bound to kick off the inflation that everyone is talking about, thereby foolishly letting go of my nice "low-rate" student loans.)

What would you do in my shoes? I realize that this is a nice "problem" to have, and that this is more of an emotional issue than a financial one, i.e. letting go of my "dream" of never paying off these "low-rate" student loans early.
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Old 11-12-2010, 05:48 PM   #2
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I have a small stafford loan left from grad school that is locked at 1.XX%. Don't plan on paying it off early.
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Old 11-12-2010, 08:09 PM   #3
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The only thing about carrying balances like this is it's one more account to keep track of. I'd pay it off just for that reason. I like simplicity. One less email/snail mail account status notices, one less online login id/password to keep track of, one less payment to be aware of. But if you're comfortable with the automation, I'd bet on inflation/rising interest rates :-)
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Old 11-12-2010, 10:53 PM   #4
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I wouldn't keep the payoff in cash. If that's the choice I'd just pay it off and take the implied 2.65% return. But, if the loan period is long enough I'd put the payoff money into equities instead. I have 2.5% loan money in equities now, so my money is where my mouth is.

And, as I said in a previous post, I have pulled cash out of equities recently that I will use during the next year. I'll pay off much of the HELOC loan with that cash, then borrow it back out of the HELOC as I spend it, making 2.5% on my cash. That works for a line of credit, but a student loan payoff would be permanent, so I probably wouldn't want to do that.
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Old 11-14-2010, 10:58 PM   #5
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Quote:
Originally Posted by Animorph View Post
I wouldn't keep the payoff in cash. If that's the choice I'd just pay it off and take the implied 2.65% return. But, if the loan period is long enough I'd put the payoff money into equities instead. I have 2.5% loan money in equities now, so my money is where my mouth is.
That's probably a good bet over the long term, but I want to consider these loans paid off, with certainty. Holding the payoff money in FDIC insured accounts is about as far as I want to stray from actually paying them off. So that's why I'm limiting myself to FDIC insured stuff.

Quote:
Originally Posted by glippy View Post
The only thing about carrying balances like this is it's one more account to keep track of. I'd pay it off just for that reason. I like simplicity. One less email/snail mail account status notices, one less online login id/password to keep track of, one less payment to be aware of. But if you're comfortable with the automation, I'd bet on inflation/rising interest rates :-)
Yeah, the loans are on cruise control with auto-payment and I never really have to think about them at all. I am just aware of the fact that I'm now earning less money on the cash than I'm paying out in interest, and it's bugging me like a tiny pebble in my shoe.

Maybe that means I should just pay off the darn things and embrace the coming inflation :-)
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Old 11-14-2010, 11:24 PM   #6
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If its bothering you, and you easily can (and it sounds like you can) than just go ahead and pay them off. But, for what its worth, I voted for keeping it in the bank. Although a savings account is only paying 1 percent or so right now, you can probably go ahead and put it in some longer term CDs to get you closer to the current rate of the loan for now. And who knows where interest rates will be in a couple of years...
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Old 11-15-2010, 09:09 AM   #7
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i voted to just pay it off. it's nice to have them behind you. i used to lay in bed at night calculating how i could squeeze out a couple more dollars and how much that would accelerate my payoff. i came into some money and i made my move almost 2 years ago. it feels good.

i understand it's not a financially wise thing to do, but it helps me sleep at night! and it's nice to just focus on savings (and the mortgage).
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Old 11-15-2010, 01:08 PM   #8
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I also voted to pay it off. I am a big fan of maximizing cash flow. We are paying down our student loans right now. Currently we are getting through some higher rate ones (6-8%), but we'll continue on to the lower rate ones when these are finished. This is partly because we are trying to minimize our mandatory expenses. We will likely be moving to a single income in a couple years so we are preparing for that.
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