Graduate from college and then pay off your student loans

Graduate from college and then pay off your student loans

With some trepidation, I paid off the remainder of my student loans from business school this week.  With this (fairly large) payment, I am now debt free with the exception of my mortgage.  And given the recent refinancing that I completed, the odds of us actually selling this house are slim, even if we move.

This will free up some monthly cash flow that I was sending in to the fine folks at the department of education, but it was a large chunk of change out of my checking account.  This money was planned to make its way over to Prosper, but I’ve hit the level of funds that I want to test for a while, and thus needed to do something with this money.  My wife suggested paying off the remainder of my student loans.  I hadn’t been in a big hurry because the interest rate was consolidated some time ago and was around 2.7%, or thereabouts.

I excited by this, as paying off remaining debt is almost always a plus, and with the current interest rate environment, I wasn’t missing much in the way of interest by paying off my student loans, even though they too were at very low rates.  The driving factor for this for me was really just to simplify things.  This is one less debt, one less account, and one less monthly payment that I needed to worry about.  Again, I probably did hang on to this debt too long, but the low interest rate made other uses for cash more attractive, whether that was the stock market, person-to-person lending, my cash reserves, or just about anything else.  So given that I’ve maxed the amount I want to send to Prosper for the time being, our cash reserves are fully funded, and the stock market looks to be rolling over, I decided that now was as good as time as any.

Did your college debt help erect a new building?

Did your college debt help erect a new building?

This is the remaining loans from my graduate school, which I completed 6 years ago.  Both my wife and I’s undergrad loans were paid off prior to this.  The total amount I borrowed for business school was somewhere in the area of $25,000, so not a huge amount by any means.  I quite proud of self-financing the majority of my schooling myself, but when the government offers you free money for a few years, and then you can consolidate at less than 3%, it’s awfully hard to turn that down.  At the time I was in graduate school, my MBA program worked in such a way that it was the same cost for all credits taken between 8 and 18.  Being a bit of a nerd, loving being in grad school, and a bit cheap, I often took extra classes, both while I was working full time and later when I was at school full time.  I graduate with a significant number of extra credits beyond what I needed to graduate, but I did that because I wanted the education and knowledge, as mentioned above it didn’t cost anything, and I did end up graduating a quarter early, though I could have graduated even another earlier.  My reasoning was that the odds of me having another extended break from my career was slim, so I wanted to make sure I made the most of it, took all the classes and professors that I wanted, and had a well-rounded education in business.

This education certainly helped me make the transition from software engineer to business, finance, and management, one which I couldn’t have done without the degree.  Plus I had a fantastic time.

Now we could have some great debate about college, student loans, community college or trade schools and the like, but my personal opinion is that college trains you to do something in the world.  But you get out of it what you put into it.  Maybe another post.

Readers, if you’ve attended college, did you take out loans, and have you paid them back yet?  What do you think are the pros and cons of paying off debt versus doing something else with the money?

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21 Responses to Paying off student loans

  1. Jason @ WSL says:

    I took out loans for college plus a bunch of things on top of that (living expenses, party money, etc). We’ve been working on paying our loans back over the past 6 years and we still have about $40k left to go. :/ annoying.

    Paying off the loans is the smartest route. Sure, you could have taken on some risk and tried to outpace the interest you were being charged, but you earned yourself a guaranteed 2.7% rate by paying them off. That’s what I would have done.

    • Karl says:

      I certainly think that in a low interest rate environment such as this, paying off those loans is certainly the surest way of getting a return risk free.

  2. Congrats!!! Other than my mortgage, my student loans (also from grad school) are my only remaining debts – they total about $13,000. Like you, my interest rate is so low (1.75%) that I’m not sure I even see the point; I did the math about a year ago, and when I saw it wouldn’t even save me $1,000 in interest to pay it off early, I opted to put the money into a Roth instead.

    • Karl says:

      Wow, at 1.75% I don’t think I could do it. I didn’t really want to pay off mine at 2.75%, but I did just to make life easier. I think you did the right thing.

  3. Well congratu-freaking-lations on paying off the rest of that debt! Awesome! It’s nice to free up money, even if your rate was pretty low. Also, I’ve been wondering for awhile about the benefit about paying the minimum on a loan in order to fill my Roth every year, and this post helped me see the obvious answer… do the math! 🙂

  4. Modest Money says:

    Sounds like it was the right time to pay off those student loans. I paid my student loans off fairly early, but I didn’t know enough about investing to consider other options. I just wanted to free myself of that debt. It’s a good feeling knowing you don’t have to keep making those payments.

  5. AverageJoe says:

    I felt like it took 104 years to pay off my student loans. But, like you mentioned, looking at the low interest rate, I couldn’t stand paying them off while my investments were doing better. In this economy, paying off the loans will probably turn out to be the correct choice!

  6. Congrats on paying off the loans!

    I have debt from undergrad, but it is deferred right now as I’m in grad school. If it were anything above 0% interest I would have paid it off, even though I realize better returns could have been obtained elsewhere. As it is at 0% though, we are trying to get some return on the money we earmarked to pay it off before I graduate and payments would start coming due.

    • Karl says:

      One of the stranger things that happened to me was I took an EMT class just because I wanted to know, and it counted as full time schooling (8 credits). For the next year or so, I would get letters from the department of education saying I was in deferment. Then another saying I was out of deferment a week later. Then one saying I was in deferment. That happened for months.

  7. jefferson says:

    Congrats, Karl.. That is an awesome achievement. Another 25k paid off, and only the mortgage to go.

    Just curious.. If you had it all to do over again, would you have gotten the advanced degree? Has it benefited your career significantly?

    • Karl says:

      I certainly would do it all over again. I was specifically going to get my MBA to make a career change, and it let me do that. So from that perspective it was very successful and I couldn’t really ask for more with the exception of not having financial Armageddon occur so soon after I stopped consulting…

  8. JAMES says:

    There is no better feeling than paying off a loan. When I paid off my car and had an extra $300 per month for myself, I was elated.

  9. Nick says:

    I took out way too many loans. I have the money to pay them off, but we’re house hunting, so I’ve kept the $$ for a larger down payment. (SLs are at 2.5% and disappear if I die, so I’ve kept them as a (not-too-small) life insurance policy and would rather have my house paid off sooner. The plan is to attack the house and then SLs quickly after buying the house though…. we’ll see.

  10. Congrats Karl! I’m very debt-averse and would probably pay off student loans even if I could make a little extra by investing it. In 2 months I’ll be joining you in the debt free minus house club. Can’t wait to start a new chapter in my financial life.

  11. Congratulations! As someone who has just received her MBA loan letter, this is so inspiring. I am hoping to wipe out my MBA loans within 1-2 years of graduation. I think the lowest interest rates we can get right now are 7.8% for unsubsidized Stafford Loans.

  12. Nice job paying off your loans. You seem to handle your money very well, so this isn’t a huge deal, but like you said it’s one less thing to worry about. My student loan from undergrad ($6K) was paid off less than 9 months after graduating. I have a student loan of another $6K from a graduate program I didn’t finish. The interest rate is higher than yours, at 6.25%, but it’s still in 2nd to last priority, as I am focused on paying off my huge credit card balances first. I definitely think once the cards are paid off, I will put a few large payments towards this loan.

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