Graduation is quickly approaching and soon after that student loan payments will begin. I’m looking at a consolidated loan with a rate of 5.125%. I’ve been looking into whether it would be better to pay extra on the principal with each payment, or to invest what I would have made as an additional payment. If you think about it, when the loan payments are computed, it’s only done one time and your payments are fixed. If you invest the money, your return will be variable, odds are that the market will increase over the next 25 years, and your return is based on not only the monthly contribution, but the overall balance as well. I’ve run some preliminary numbers and even though paying the loan off early looks good because I’d pay less interest, I’d actually have more money if I didn’t pay off the loan early and instead invested the extra payment every month.
More to come…
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To Pay off Early or Not – Student Loans » RHANDA says:
January 30, 2012 at 1:39 PM (UTC -5 )
[...] is a follow up to my previous post. My student loans can be consolidated with a new interest rate of 5.125% over 25 years. [...]