Forum Thread

Pay off student loan if can't deduct it?

TamD 48 10 April 21, 2016 at 04:15 PM

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I have about 120k in student loans @ 2.5% interest. I'm outside the income bracket to qualify for tax deduction for the loan interest, ~ $1400 in interest last year. Should I just pay it off since I have the funds? Our mortgage interest is slightly higher but at least we can deduct the entire amount of interest.

The interest rate is so LOW on the student loan that i'm hesitant to pay it off in case I need the funds for something else.. but i've been saying that for the last 4 years.




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Joined Jan 2004
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It all depends on your personal situation. I paid off my wife's because of the same reason and it has worked well for us but for others it may not.
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It's always good to pay off a loan as early as possible. You just have to make sure your cash reserves are sufficient enough before doing so. Only you can determine that and everyone's comfort level/situation is different.

Just due to the fact that you are asking, I'd probably just aggressively pay it off instead unless you have no concern about the cash being gone.
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Do you have enough $$ to pay off the loan AND have $$ in the bank for several months' expenses?

If so, can you earn better than 2.5% on that $$ elsewhere (e.g. if you invested it rather than pay off the loan)?

If the answer to both of those is yes, indications point to paying off the loan because it will save you $$ in the long run. The ultimate decider will be if you like having liquidity or not - let's say you have enough $$ for 6 months expenses and to pay off the loan. Are you comfortable with just 6 months, or is paying 2.5% worth it to have more liquidity?
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