Thoughts - paying off Student Loan early?

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Forums › Finance and wealth management › Thoughts - paying off Student Loan early?

nzkiwiman

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#168590 19-Mar-2015 12:24

In 2003 I graduated after spending 4.5 years at Polytechnic and then University, leaving with a $30k loan (blame student living costs)
In 2006, I went and did a certificate in IT Service/Support and added $5k to the loam

Since 2007 (with a small break in 2011/2012) I have been paying it off and as of start of March 2015, I owe $14k

I currently have $14k available in my bank account and have thought to myself - should I pay off the loan, giving myself an extra $245 a month pay increase
OR am I better to keep the $14k in my bank account and continue to grow it, while paying off the student loan monthly (taking 5 years to do so)

Anyone else been in a similar situation?

nathan

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#1262333 19-Mar-2015 12:26

is the interest on the loan more than what its earning you sitting in the bank, there's your answer I think

johnr

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#1262337 19-Mar-2015 12:31

I paid off my student loan early then about 5 years later I got a letter from the IRD saying I owe 4 cents (yes 4 cents) and if I don't pay it ASAP they will contact my employer and take it direct from my wages,

nakedmolerat

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#1262343 19-Mar-2015 12:35

johnr: I paid off my student loan early then about 5 years later I got a letter from the IRD saying I owe 4 cents (yes 4 cents) and if I don't pay it ASAP they will contact my employer and take it direct from my wages,

So did you pay 4 cents or 5 cents?

OP: I would pay any debts early (that's my preference).

khull

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#1262347 19-Mar-2015 12:36

There was an earlier post about student loans. You'd be mad paying off debt that incurs 0% interest. I don't know how to justify it any other way other than 'it looks and feels good not having debt that is incurring 0% interest'

dacraka

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#1262349 19-Mar-2015 12:38

What stage of life you are at currently? Young possibly about to buy a house, or?

johnr

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#1262352 19-Mar-2015 12:39

nakedmolerat:
johnr: I paid off my student loan early then about 5 years later I got a letter from the IRD saying I owe 4 cents (yes 4 cents) and if I don't pay it ASAP they will contact my employer and take it direct from my wages,

So did you pay 4 cents or 5 cents?

OP: I would pay any debts early (that's my preference).

I called IRD and they told me not to worry about it, Heard nothing since and have not been stopped at customs to pay it

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slingynz

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#1262354 19-Mar-2015 12:41

khull: You'd be mad paying off debt that incurs 0% interest.

Inflation is your friend

rendezvous

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#1262366 19-Mar-2015 12:54

Yes, inflation is your friend.
If you have other debts that incur interest, pay those off first. That will save you money over time.
If you don't have other interest incurring debts, paying off your student loan early won't save you money. In relative terms it will cost your less if you pay it off at the minimum amount. However, if it's paid off, you get more money in your hand each week after tax, so that money can go to other uses.

khull

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#1262371 19-Mar-2015 13:03

Again, I'll reiterate for the sake of repeating (assumption is you are in NZ with 0% interest) the order you should do this:

1. Pay of all your debts starting with the highest % interest rate first - close your eyes as it does not matter how many digits you owe across all your debts
2. Declare bankruptcy
3. DIE (note you can swap this with #2 above depending if you can't stomach #2)
4. Pay off your student loan

If it is not obvious, your loan is tied to you and only you - that means you should die first before attempting to make any additional repayments. If loans could be transferred (ha) people would just end up transferring to an entity that does not incur any income which would get around the repayment threshold. Does not work like that.

If you have money - save it, invest it, sell it as a >0% interest loan to someone who will gladly buy it off you and hope and pray every day that the Government will threaten to introduce interest charges back.

lxsw20

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#1262388 19-Mar-2015 13:18

Chuck it in a term deposit or other low risk investment if you don't need it right now.

mattwnz

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#1262395 19-Mar-2015 13:29

There was another thread about this same topic not long ago. But the conclusion by the majority was to put the money aside where it earns interest for you, if you are not having to pay interest on the loan. If you pay it off early, all you are doing is letting the government have that interest you are making. Plus inflation will reduce the debt over time as the buying power of the dollar decrease, although as inflation is nearly zero at the moment, that doesn't really apply at the moment.

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nzkiwiman

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#1263525 19-Mar-2015 16:22

Some good thoughts in this thread and it seems as if I should just slowly pay off the loan (at $245 a month), and use my $$ for other things
I have no other debt aside from this loan, and not enough income a month to take on any more (I need a new car and a house ... both unobtainable at the moment)

eXDee

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#1263593 19-Mar-2015 17:37

Use the money to buy AAPL.