#1
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investing with student loans
I have about 20k in student loan debt with an interest rate of about 7%. Payments and capitalization start this summer, when I will also be starting my first full time job. I just discovered that the interest payments will not be tax deductable due to my income level.
I have about 20k saved up right now. I could just pay off all the student loan debt. However, I also could put the 20k in an agressive portfolio. Assuming the investments make 10%+, I should theoretically take as long as possible to pay off the student loans while that 20k makes a few more percent than the interest accumulating on the loan. Is this reasonable? What practical factors might make this a bad idea? Thanks. |
#2
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Re: investing with student loans
is the 10%+ guaranteed? or are you just assuming you'll make this?
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#3
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Re: investing with student loans
[ QUOTE ]
is the 10%+ guaranteed? or are you just assuming you'll make this? [/ QUOTE ] The 10%+ is not guaranteed, but it is the expected long run return. Is this a reasonable expectation for an aggressive, stock-heavy portfolio? |
#4
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Re: investing with student loans
[ QUOTE ]
Is this reasonable? What practical factors might make this a bad idea? Thanks. [/ QUOTE ] It's way too risky to effectively borrow money @ 7% to invest in an aggressive portfolio. Unless you have more expensive loans on credit cards etc - just pay off this loan first. I have student loans outstanding at 4% but have the cash in a tax free savings account earning 6%. This is risk-free. |
#5
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Re: investing with student loans
Hm, where are tax-free savings?
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#6
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Re: investing with student loans
Aside from being a horrible idea, you are also ignoring taxes.
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#7
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Re: investing with student loans
Bad idea. I probably wouldn't pay off all the loans though. Pay off enough where you aren't strapped for cash.
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#8
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Re: investing with student loans
Your idea is sound.
A 10%+ return after taxes is optimistic. It's so optimistic, that I would pay off the loans if I were in your shoes. If you feel comfortable playing tiny edges, go ahead. |
#9
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Re: investing with student loans
Note that you're going to be taking on a ton of variance relative to your expected return. Your StD is going to be about 10x your return. For a normal investment in say a total stock market fund, StD is prob. closer to 2x return.
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#10
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Re: investing with student loans
I have some very small student loan debt ($3000 or so) that I just acquired, and am wondering if I should just pay it off in full or make payments.
My question is this: I have never had a car or home loan, so all of my credit history is stricly credit-card usage, which I pay off in full every month. I've had a card for about 5 years. Is it worth slowly paying off this student loan to build up my credit score, or just pay it off right away? (employer reimbursed almost the full amount anyway). The current rate is 6.7% (which is pretty sucky). |
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