What lenders are consolidating private student loans rowupdating event is
But if you’re older, wiser, and deeper in debt, how do you attack those student loans?Specifically, if you find yourself with extra cash, should you pay down student loans early? I recorded this video to very quickly answer why: We’re going to get into the pros and cons of repaying student loans early versus hanging onto that money for things like an emergency fund, retirement, a home, or even just having fun.What they’ve done seems cool so far; I’m not sure it’s necessary if you only have a couple of loans, but if you have a half dozen or more this may definitely help keep them straight. You probably know by now that if you stop paying a credit card bill, your credit score goes down and it will be difficult to get new credit when you need it.The bank will send your account into collections and you’ll get lots of phone calls and letters until you pay up.This is another reason I prefer hanging onto extra cash and investing instead of paying off a student loan early.There is, however, one big advantage to Investment B: The return is guaranteed.Although you might squeeze average annual returns of 12 percent or more out of the stock market, you can’t count on it.This is where the decision gets tricky: It all depends on the average annual return you expect to earn from your investments and how that compares to your student loan interest rate.
If you default on student loans guaranteed by your state’s finance authority, there may be additional consequences such as suspension of your professional license (for example, to practice law or medicine) in that state.So even a small difference in expected return and loan APR can add up to big money over time.In Scenario 2, the high 10 percent loan APR is quite a bit higher than the seven percent expected return, and investing instead of repaying the loan early means losing nearly ,000 over 20 years. In our final example, the loan and expected annual investment return are the same.Here are three examples: In this scenario, you have student loans at 5 percent and have a conservative expected annual investment return of 7 percent.Over 20 years, the difference between repaying your loans early and using that money to invest adds up to ,000.
The bottom line is that repaying student loans is an obligation. Fortunately, if you’re having trouble paying, there are built-in protections like reduced payment plans, grace periods, and forbearance—an extreme program in which you may be able to suspend payments for a brief period of time. “Bad” debt is bad because it either has a wicked interest rate or is designed to pay for depreciating assets like a car.