Student Loan: Left over sum?

[dazraf69]

I have about 10k of a student loan that I ended up not using. What would be my best bet?

-pay back the sum of 10k

-invest the 10K in say an index fund and just make payments over the next 10yrs at a 6.8% rate of intrest

-Any other suggestions anyone might have. I am not going to use this money for anything as far as personal use. My only intrest is if I can actually profit from the 10k invested as opposed to just pay it back? Seeing how the market returns more than the 6.8% (over 10yrs) I was hoping to gain from an investment.


Here is the breakdown:

Loan Balance: $10,000.00
Loan Interest Rate: 6.80%
Loan Term: 10 years

Monthly Loan Payment: $115.08
Number of Payments: 120

Cumulative Payments: $13,809.66
Total Interest Paid: $3,809.66

[black_russian]

hard to beat 6.8% after taxes....pay it back

[dazraf69]

If I am not mistaken, the intrest on student loans is tax writable correct? Does this change what I am asking about any?

[geormiet]

i believe that student loan interest is off writable. main problem with this plan is it even worth the effort given how much you stand to gain? you stand to make maybe 2-3% on the money.

[ayamaguc]

A few years ago I consolidated at < 4%. If rates move that way, I wonder if there's an edge here..

Regardless it's small though. Paying it back is probably the way to go, unless you want to build credit history (which I did, and which has helped a lot)...

[stinkypete]

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main problem with this plan is it even worth the effort given how much you stand to gain? you stand to make maybe 2-3% on the money.

[/ QUOTE ]

the simple answer is "it depends". are you willing to accept the variance involved for an expected return of about 3%? i'd probably prefer to put it in an index fund myself but if you can't handle a 20-30% drop i'd just pay it back.

[black_russian]

Yes it does change it and it is tax decuctible so long as you dont make around 6 figures. But in my opinion it is not worth it, you just dont stand to gain that much. Like someone else said, if it went down 20-30% which is possible if you invest it, could you handle it? A few year back, people were consolidating at 2-3%, then it would be a good move. My advice is save the money you would have been paying the loan with and invest that....just my opintion....

[MrX]

1. Invest 8k of the $ in your Roth for 2006 and 2007
2. Pay 2k back
3. Set up autopay for the student loan with your bank account and further establish your credit history by paying it back.

[dazraf69]

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i'd probably prefer to put it in an index fund myself but if you can't handle a 20-30% drop i'd just pay it back.

[/ QUOTE ]

My intent was to put it in an index fund. I was planning to set up an accoutn with vanguard and place the whole sum there and contribute to it when I can. As for the potential risk, I am a firm believer that in the long run ( over a 20yr period), an index fund will return a positive gain as opposed to say a bond. I have a high telerence for variance and realize that the market is volatile but in the long run profitable.

[ QUOTE ]

1. Invest 8k of the $ in your Roth for 2006 and 2007
2. Pay 2k back
3. Set up autopay for the student loan with your bank account and further establish your credit history by paying it back.

[/ QUOTE ]

Just curious why you suggest 8,000 instead of the full 10k? As for the student loan I have a larger sum that I must pay back (grad school = $$$) and have set up autopay. And as for the credit, I am fortunate to have very good credit and that aspect right now is not an issue.

Thanks for everyones suggestions. I do not know that much about a ROTH but will look into that. As for consolodating for less than the 6.8 I am at right now..this is being worked on as we speak and looks to be able to get reduce to somewhere in the ballpark of 4.5%. SO again is this a worth while move? The risk seems to be worth it in the long run.

[DanS]

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Just curious why you suggest 8,000 instead of the full 10k?

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It's because $4,000 is the maximum yearly individual contribution for the Roth.