Student loan

[bigsaver]

Anyway, the amount I owe on my student loan from undergrad and graduate school is $160,000 at an interest rate of 3% on the unsubsidized part which is about $100,000. I am already consolidated. Since I am allowed to defer the loan for another 2 and a half years, I am doing so since I feel that whatever money I earn now I can earn a larger interest rate than that 3%. But, when I have to start paying back in 2 and a half years, my plan was to pay it over 30 years which I am allowed to do. I was thinking about using the emigrant credit card since I would get 1.4% back. Does anyone have a better plan as to how I should go about doing this? Thanks.

[Daylily]

How is it that you are allowed to defer for another 2-1/2 years? Is interest accruing during that 2-1/2 years? My loan payments started 9 months after i finished school. If interest is accruing during this deferment, then I wouldn't defer. I'd start paying as soon as possible.

If interest is not accruing during this time, then I suppose it is really a matter of choice. However, $160,000 is a hefty debt that will be around for a long time so the sooner you start working on it the better. I started out 10 years ago with somewhere around $30,000 and I am now down to just under $5,000. Even though the payments have always been small compared to my mortgage and car payments, I still feel that the student loan debt is a burden and it is something that I want to get rid of.

How will you feel in 20 years when you are still paying on the debt. My vote is for paying it off sooner rather than later.

One other question, does the interest rate change over the course of the repayment period? Mine just bumped up to 7.14% which is higher than either my mortgage or car loan so I am even more eager to get the thing paid off.

[bigsaver]

The loan is consolidated. It will always be 3% since it is fixed. Actually, I think once I start paying it back and if I make 36 consecutive payments, it goes down by about 0.5-1%, I can't remember for sure. I personally don't really care if I am paying a loan back at 3% 25 years from now. Obviously, if interest rates were to go down to 1%, I probably would pay that loan back quicker, but for now I prefer having the money in my pocket for emergencies as I don't see I am losing money since I can keep it in MMAs and CDs and not lose money on the deal. I can defer this loan without paying it for another 2 and a half years as I am a medical resident. Once finished, then I have to pay it back for which I can do over a 30 years at the 3% rate. It is currently accumulating interest at 3% for $100,000 of the $160,000; the rest of it is subsidized by the government so that interest does not accumulate. I do know of others that are paying their loans right away, but I believe with inflation and high interest rates I come out ahead by deferring paying back this loan as much as I am allowed.

[Broken Arrow]

That logic seems sound to me....

I don't envy that balance though.

[disneysteve]

Been there, done that. I graduated med school in 1990 with $102,000 in loans. I started repayment in 1993 when I finished residency. From then on, I paid as much as I could each month (while still funding retirement and general savings). My goal was to be paid off in 10 years but due to a job change, it took me 12, which stil wasn't bad.

Yes the interest was low, but I hated having the loans. I also couldn't see putting myself in the situation where I would still be paying off my own education when my daughter was in college, which is what would have happened if I stuck with the minimum payment.

My advice is to pay off that debt. And definitely don't defer it if interest is still accruing, even at 3%. That just means your debt load is growing steadily during the deferment.

My partner graduated 4 years before me. He deferred his loans for the maximum time allowed. Even though he has been making extra payments, he is still not debt free even though he has been out for 4 more years and I finished 3 years ago.

Don't forget, when you consider that MMAs or CDs are paying higher rates, that income is taxable which brings down the true yield.

[bigsaver]

I will probably be a grandfather, maybe even a greatgrandfather by the time I finish paying back my student loan. You are right about paying taxes on the MMAs, but I still come out ahead and that 3% goes down to 2% once I start paying it back after 36 straight payments. But for people I know, they prefer to have the loan paid off. For me, I prefer having the cash around more of as security just in case I need it.