Ask Money

Student Loans

Chris Farrell Jan 9, 2008

Question: A few weeks ago you advised a woman with a college-age daughter that there was not a big advantage to paying off her student loan early. I have a related question.

I recently went back to graduate school and had three separate loans for about $18,000 each, one for each year I was in school. I consolidated the first two years into one loan at an interest rate of about 3.5% but didn’t consolidate for the final year because that year’s interest rate was already getting very high. So I now have two repayments of about $250/month, one for the first two years, one for the final year by itself. I was considering an early repayment of that final year’s loan which is currently at about 5.5%, higher than the average savings account interest, and which I assume will go higher.

But your earlier advice made me wonder if that was wise in my case, or did it only apply to college loans? Thanks! Becca

Answer: Every situation is slightly different. If I remember the earlier question right, it involved a short-term trade-off between husbanding savings and paying down debt. In your case, my impression from your question is that it’s a savvy move to get rid of the higher interest rate student loans. As you know, it’s always a relief to get rid of debt.

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