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)?
2006-06-27 11:49:27 · 2 answers · asked by jc 1 in Business & Finance ➔ Taxes ➔ United States
If you pay off a loan that is only 4.75% interest what you are doing is investing that money at that interest rate. In other words, if you get $1,000 as a present and you put it towards your 4.75% loan you are only getting 4.75% return on your money. What you should do is find something that will return higher than 4.75% invest in that and then use the spread to pay off higher interest rate loans first. So if you have money available to pay down debt you should find an investment that will return a rate higher than what you are paying and use the income to pay down the debt. This is how banks conduct their business. Borrow from the savers at a minimum interest rate and then loan it to the borrows are a higher rate. Use the income to pay back the savers and keep the spread.
2006-06-27 11:57:03 · answer #1 · answered by Aaron M 2 · 0⤊ 0⤋
The only thing that Aaron M left out is to make sure you consider tax implications since interest on student loans is tax deductible- sobject to certain limits, while income on your investments will probably be taxable.
2006-06-27 12:21:00 · answer #2 · answered by Homer J. Simpson 6 · 0⤊ 0⤋