Question : is it better to pay off interest on loans while in grad school? or save it for post-graduation tax shelter?
my current loans have a 4.75% interest. would it be better to try to pay off what i can in terms of interest now, or save it as tax shelter for once i graduate (assuming that the average starting salary is 70-100K)?
- asked by jc
All Answers:
Answer #1
If you pay off a loan that is only 4.75% interestwhat you are doing is investing that money at thatinterest rate. In other words, if you get $1,000as a present and you put it towards your 4.75%loan you are only getting 4.75% return on yourmoney. What you should do is find something thatwill return higher than 4.75% invest in that andthen use the spread to pay off higher interestrate loans first. So if you have money availableto pay down debt you should find an investmentthat will return a rate higher than what you arepaying and use the income to pay down the debt.This is how banks conduct their business. Borrowfrom the savers at a minimum interest rate andthen loan it to the borrows are a higher rate. Usethe income to pay back the savers and keep thespread.
- answered by Aaron M
Answer #2
The only thing that Aaron M left out is to makesure you consider tax implications since intereston student loans is tax deductible- sobject tocertain limits, while income on your investmentswill probably be taxable.
- answered by JW
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measure and fulfill your financial needs
