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Need advice: student loan repayment

Hello all… looking for some advice, as I have read multiple articles all with conflicting advice.

Details: I currently have ~22,000CAD worth of student debt with a low interest rate (~6%).

- I have no other debt and am currently still living with parents while working fulltime (I just graduated last year and am aiming to move out next summer).

- I can afford to repay my student loan in full, however will not have much saving left after doing so

I am debating between making the minimum payments for the next 5 years, or completely paying it off now and begin to save again for my move. I want to have the debt paid off by the time I move out, so that what I am currently paying each month can be put towards rent.

Any opinions or thoughts would be greatly appreciated.

Thanks!

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6% is unfortunately not a low interest rate, though it might be in the world of student loans.  Mortgage rates are 4% or lower. Auto loans are near 0%.  Id pay off the loans and then move on and start saving.  Every month you can delay moving out and save what you would have spent on rent is extremely valuable. 

Is your saving account earning an interest of more than 6%? Probably not. If you don’t have a good use of your savings you should pay off the loan. You can also deleverage and pay off some debt to reduce interest cost. 

pffft

put all your money in ASHR - in 10 years your account will be so huuuuuuuuuuuuuuuge you will repay your loan and still be able to afford a lambo and a g6

"You want a quote? Haven’t I written enough already???"

RIP

Thanks for the replies, guys. No my savings account is not earning anywhere near the amount of interest on my student loan. Are there any other factors I should be considering before I pour everything into paying that off? 

I would strategically default, except I don’t think you can with these loans. So just pay it all off, and never borrow money again, ever.

OP - you mention having read articles with differing views.  I’m curious as to the reason(s) given for not repaying the loan given that you already have the resources to pay it off and your cash on the sidelines is earning a much lower rate close than that you’re paying in interest.  The only “reason” I can think of is it just hurts to write such a large check, but just know this is a short term pain and you’ll be much better off in the long run.

Ask your parents to take out additional mortgage to pay back your student loan and just give you parents your money to pay it off at lower interest rate. This way you just swapped much more expensive low for a cheaper loan, but look at the loan underwriting fee to see if it’s worth it. 

These are a few of the articles I was referencing. Majority of them basically state that it’s good to have some money incase of emergencies, and instead of repaying it I should find ways to earn more than I pay in interest. 

BVal - you’re right, it will hurt to pretty much empty my savings account… I guess that’s the only reason I have as to why I haven’t done it yet.

I forgot to mention I do have a few thousand in an RRSP that is holding index funds… so I would have that to cash in, if it comes down to it. That won’t obviously be my go-to, but a worst case scenario.

http://www.marketwatch.com/story/dont-pay-off-your-student-loans-yet-201...

https://studentloanhero.com/featured/is-paying-off-student-loans-early-t...

Rule of thumb is to have 3-6 months of living expenses in your savings account. You’re living at home so your monthly needs = $0. You don’t need savings. You have a lot of debt at a high interest rate. 

How is this a real question? Pay it off and go to /r/personalfinance and brag about it.

all comes down to if and when you plan on buying property. if its in the near-term and the money you have saved is the difference between paying CMHC insurance and not paying CMHC insurance, don’t pay the student loans. if buying property is far in the future, pay off the student loans.

ummmmm…..what?  Despite the ambiguity in this advice, I’m confident in saying this is not a good strategy.

^not sure what happened there…was quoting klaudnine

I had a $16,000 (USD) balance after graduating college (9%, 10 years, -202 pmt). A good chunk of that $202 was interest in the early years.

I made the usual monthly payments for a few years (was in grad school so didn’t have the option to pay off the whole balance). I paid a lot in interest as a result. Thankfully I added no further debt after college.

As soon as I had a little bit of dough saved up I paid off $10,000 and the interest component of the $202 became very low (like 15 bucks or something). If I could, I’d have done this much earlier.

Since you have the option, you should pay it off. Like others said, it’s unlikely you’re earning a bigger return somewhere else, and given that you have basically zero monthly expenses (no rent) you don’t really need the emergency fund that badly yet. The emergency is more necessary for guys who have a family and mortgage to pay with no backup support like a rich uncle to fall back to.

 

klaudnine wrote:

Ask your parents to take out additional mortgage to pay back your student loan and just give you parents your money to pay it off at lower interest rate. This way you just swapped much more expensive low for a cheaper loan, but look at the loan underwriting fee to see if it’s worth it. 

Now that I think about it, with ~3.5% mortgage rates (maybe sub 2% after tax deduction), we probably should be perpetually in debt, even if we don’t have to.

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A, not getting a cash out refi at 3.5%, even if you have 95% equity in the home.  B, add in the thousands of dollars in closing costs to shift this $22K in debt to a lower rate and it becomes an awful strategy.

This is like back testing an investment strategy and forgetting to incorporate trading costs into the equation.

Huskie87 wrote:

A, not getting a cash out refi at 3.5%, even if you have 95% equity in the home.  B, add in the thousands of dollars in closing costs to shift this $22K in debt to a lower rate and it becomes an awful strategy.

This is like back testing an investment strategy and forgetting to incorporate trading costs into the equation.

So go to a mortgage broker that rolls the closing costs into the loan. Problem solved.

Paying off your loan is a 6% return with zero risk other than opportunity cost of using that money for something more productive than 6%.  Even if you were to find something returning more than 6%, you’d be assuming the total risk of that new asset and only gaining whatever it returns less the 6%.

So paying off 6% returning debt in a low-expected returns environment like the present is a good decision.

STL has a good point about ensuring you have an emergency fund, although it looks like your parents may be in a position to bail you out in a true emergency.

I’d say:

1) Save enough for an emergency cushion (parents might bail you out of major emergencies, but there are also minor ones), whatever you think that amount should be given your circumstances.

2) Pay off as much of the loan as you can with the remainder of your savings

3) If the loan isn’t completely paid off, then pay off the remainder of your (now substantially reduced) loan in monthly payments as you are doing presently

4) Once the loan is paid off, continue to make monthly payments, but now make the payments to your own savings/investment fund.  Do not use the change in cash flow to fund increased consumption.

If your payments are tied to the size of your current balance, you should use your current monthly payment size as your baseline for the minimum you contribute to your savings/investments once the loan is paid off.

You want a quote?  Haven’t I written enough already???

avoiding cmhc insurance on potential property purchase is the #1 priority. the difference between an $80k down payment and a $100k down payment on a $500,000 house/condo is $7,600 in mortgage insurance costs. if he wants to buy a house in the next five years, don’t pay off the debt.

that said, if he keeps the loan he should take out an unsecured line of credit, which currently has a 4.2% rate at TD right now, and pay down a large chunk of the 6% debt.

You know, sometimes it’s too hard to save that money for studying

I’ve been turning back my credits for a university degree for a couple of years…still, the one thing that was helping me was the credit card.)

when it expired, I decided to try out something different, because I was dependent on that.

I get used to saving money and live without credits, and sometimes just asked some services like webmoneyloans.com/ for a small sum) they also have fees, but they are not so big

the one thing I want to tell you is that better get a degree and work hard for a few years, but at the end, you have a big experience and better proposals for a job