Time to consolidate your student loans?
Posted by admin on July 8th, 2009
A good way to think about consolidating student loans is protection. If you have variable-rate federal student loans, you can convert your variable interest rate to a fixed interest rate. By consolidating and fixing your interest rate, you have protected yourself from future interest rate increases. You’re unlikely to catch the exact bottom so don’t try. Consider the long term ramifications of a variable or fixed rate loan in your financial plan and consider alternatives.
The current fixed rate consolidation loan rate is 2.5%, historically low. In addition, don’t be in a rush to pay off the loan if you have alternative investment options available. For instance, let’s assume you receive a bonus of $20,000 (after tax) and are looking for things to do with that money. After booking that cruise you’ve always wanted to do, look around at your investment and debt repayment options. If you are carrying credit card debt and your interest rate is greater than 9%, that’s probably a good place to put some of that bonus money to work. You’ve effectively earned a 9% return on your money by not having to pay future interest to the credit card company. How about a car loan? Pay it off and use the old car payment as a monthly savings plan into your 401k or IRA. Before paying off some of the 2.5% student loan, consider investing in a good growth mutual fund by opening a Roth IRA and saving $5,000 plus all future earnings are tax free. If you believe an investment in an IRA will earn you more than 2.5%, you’re ahead of the game.
Tags: college, college student loans, degrees online, student loans
This entry was posted on Wednesday, July 8th, 2009 at 4:57 pm and is filed under Online Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
