can someone check my math? (paying off a loan)

[rigz]

I have a student loan that has a balance of $6500 at a rate of 2.625%. The monthly payments are $129 and they go until August of 2018.

I have $10,000 sitting around and I could pay it off. My question is, if I do a lump payment now, how much money will that save me over the life of the loan?

Here is my math:

If I pay it off now, I would have $3500 left and it would grow at .75% (online savings account) to ~$3624

If I keep paying monthly payments, I would have $10,000 - (56 * 129) = ~$2776 (56 is approximately how many payments are left until august 2018) - but this neglects the added interest the money would make itself while sitting in the same online account

Can someone help me figure out how much I would save overall? I feel like I'm close but still not exactly right.

thanks.
happy new year!

[Buyingahome]

what tax bracket are you in? that would be needed if you are going to take into account the tax deduction you receive from paying that student loan interest every year. Also, did you want to take into account the tax you'll have to pay on the interest?

without doing the math, I can tell you that it is often better to dump the debt, though your interest rate is low enough, that you can take that $10,000 and invest in a low cost fund (such as an index fund), which should off set that interest rate over the 56 months. Of course there is a very tiny risk by doing this, and paying off the debt has no risk.

[JustBill]

Using your numbers...
If you payoff SL in lump sum now, you'll save ~$724 in interest.
If you leave 10k alone and assume the rate stays @ .75%, I calculate balance in 56 months to be $10356.

However, the best move is as follows, even using the .75 rate...
(1) If you are only in the 15% federal tax rate (assume no state tax since we don't know)
(2) You need gross earnings of $152 to bring home enough money to pay the current $129 monthly payment.
(3) If you payoff $6500 balance, then increase/start your monthly 401k/403b/tIRA by $152, in 56 months you should expect to have an investment balance of $8660. (again, using .75 interest)
(4) $8660 investment balance, *plus* $3624 value of initial remaining $3500 balance (with .75% interest growth) gives you a total scenario balance of $12160.

Now, factor in any potential state income tax, and your true (likely higher) federal tax rate, and your return would be greater.

[rigz]

thanks for all the help.

its california - so unfortunately there is a state tax

we already max out all retirement account

[Retired To Win]

rigz...

If you pay off the student loan, you would have the equivalent of a SURE return of 2.625% on your money until 2018. And that would be post-tax, so pad that a little and figure at least a 3% equivalent pre-tax return. That's FOUR TIMES what you would be getting if you left the cash in a savings account while you made monthly payments on the loan through 2018.