Comments on: Student Loans: How to Pay Them Off and Build Wealth

By: 25 Financial Terms Students Should Know Before Taking Out a Loan - Best Colleges Online

Wed, 14 Mar 2012 14:24:37 +0000

[...] Principal: This is the base amount of the loan. Defaulting on a loan is so terrible because the lender will take what payments you are able to make and apply it first to interest and fees, and principal last. You have to pay off the principal to make progress toward paying off your loan. [...]

By: Katie

Katie — Sun, 01 May 2011 23:13:08 +0000

That 11% ROI will require lots of risk. You may just as easily end up with a -11% ROI.

I graduated in 2008 with 73K in debt (abt 6K of that was capitalized interest). In February this year I realized I was putting away a lot of money into my savings acct, earning 0.3% interest, while I was paying 6.8% interest on some of my federal loans. Plus, I will be unable to claim any sort of tax credit this year. So, since then (without dipping into my 6mos emergency fund), I’ve taken my student loan debt from 61K down to 53K. And I’m hoping to pay off my $6700 loan at 5% by this time next year. The rest of my loans will most likely be waiting a bit longer. B/c between 1.75% and 2.5%, I’m not going to kill myself to pay those off now.

By: Rob

Rob — Fri, 15 Apr 2011 07:08:34 +0000

I don’t want to beat a dead horse, but as stated above this issue depends on each persons financial situation. I have about 13k in loans (started with 19k) and graduated 3 years ago. My interest rate is 6.5%. I understand I may make 1.5% more (on average) investing, however the transaction costs would likely match the rate of return on my investment.

I am of the believe that student debt is still debt. The upside is we get a little stipend from Uncle Sam for our interest paid, but the major downside is that while we have debt we are not using the best vehicle available: Time value of Money.

Therefore if the spreads are marginal and the debt is lingering. Like me, let’s get rid of it ASAP and reap the rewards after. Plus its a good feeling to have when it’s all paid off.

By: Todd Kindred

Todd Kindred — Sun, 27 Feb 2011 04:33:28 +0000

Hmm, first, you are investing in some very risky investments to return 11%. Highly unlikely. Second, isn’t interest earned by Jane taxed as earned income? While interest paid on student loans is tax deductible?

By: BD

BD — Wed, 23 Feb 2011 08:27:37 +0000

So how do we account for inflation?
Let’s compare paying off a loan total of $27k today verses, let’s say $47k over the course of 20 years. You have to consider than 20 years from now currency will most likely have inflated… Can someone else more knowledgeable in economics make a comment?

By: CJ

CJ — Wed, 09 Feb 2011 19:04:53 +0000

whether it has been said in any of the comments posted so far or not, the solution is simple: if the interest rate on your loan is greater than your expected return on any investments you may make with the extra money, then put as much extra toward the loan as you can! it’s a guaranteed return on your money…finance 101: opportunity cost!

By: Magdalene

Magdalene — Fri, 16 Jul 2010 17:26:25 +0000

I absolutely agree with the author of this article. I have 100,000 in student loan debt. I am not a doctor or a lawyer. In fact I got my degree in liberal arts. I am not killing myself trying to pay more than the minimum on my student loan payments, which total about $1,100 a month. Here’s what I am doing:

-My company matches 50 cents on the dollar so I am contributing the maximum to my 401K. It’s free money. Always take advantage of this.
-I am contributing to a Roth IRA every month
-And I am making sure that I get that tax deduction for having student loans
-I am saving to purchase a condo in three years.
-I sell stuff I have around the house to make a few extra bucks on ebay
-I use couponmom.com to save on my grocery bill. This website is free and gives your great tips on how to use coupons to save. It has changed my life.

I used to get so depressed at the amount of my student loan debt but it is not the end of the world. I have done my research online and know that there are other people out there in the same situation. My advice to recent college grads is to negotiate the salary for your first job. I got my degree in sociology. I was the first in my family to go to college and I really did not know what to study. Looking back, I wish I would have gotten a degree in business or marketing. But I have learned that if you market yourself right and get some experience, you can get any job you want. Believe me, I used to feel so alone and depressed but I have done my research. Reading other people’s experience and seeing what they are doing has really helped!

By: Dale

Dale — Wed, 26 May 2010 19:25:02 +0000

I believe it’s extremely important to not get Unsub loans since these loans begin to accumulate interest as soon as funds are disbursed. I’ve learned thru the process and inform teenagers heading to college to only accept the amount needed (avoid the UNSUB LOANS), accept only partial amounts enough for paying tuition and textbooks. I wouldn’t recommend bank loans since now every bank only offers variable % rates. I believe every situation is different. Every loan institution is different. Payments usually get applied to any outstanding interest first, then to the principal. I strongly believe paying it off sooner is better…good luck all.

By: Vic

Vic — Fri, 14 May 2010 07:23:13 +0000

Thanks for the reply, Ryan. There’s nothing fuzzy about the computation, it’s just incorrect. A more parsimonious explanation than yours: The balances are negative. QED.

By: Ryan

Ryan — Fri, 14 May 2010 02:08:20 +0000

Vic your fuzzy math is backward, you flipped the arithmetic. Joe had $21,744 in expenses and $16,728 in earnings for a net outflow of . Jane paid out $24,240 but earned $21,700 for a net outflow of . Yes, Jane had to pay more interest on the loan, while Joe saved some money on interest by paying back the loan quicker. But Jane still had twice as much b/c of the power of her compounding returns, which proves the author correct.