How fast is too fast? Repaying Student Loans

Anonymous
I was very fortunate in college and was able to use my inheritance from my grandfather to cover $157k in tuition. My dad insisted that I take a Stafford loan for the last $3k as a credit builder after I graduated. How fast is too fast to pay it off and still get the benefits? The interest rate is 6.8% so it's far from a long term burden, but my personality says to pay it ASAP. I have a great credit score already so it's not really an improvement thing, but I want to play it as best as possible with the economy standing how it is.

Ideas/experiences welcome
Anonymous
Just put yourself on one of their pre-arranged payments plans (pick the shortest or lowest interest rate, of course) and just make the monthly payments.
Anonymous

Do you own a home already? I understand that this comes to bear in terms of figuring out mortgage risk. I was going to stagger payments for my own student loan burden because, like you (or your Dad, really), I felt like building a payment history was important.

We have a house and being debt free feels good. I may encounter some negative consequences in the future, but so far nothing.

I may also be a bit older than you, too. So, I have at least a year of payments to show. You do want to show twelve consecutive months.



Anonymous
OP, are you me? I also took out a $3K loan after college was all paid for (academic scholarship) for a buffer when I studied abroad.

I paid it all back immediately as soon as the 6-month grace period for no interest ran out. $3K was pretty easy to save up, since I was working part-time and still living like a student at the time (cheap meals, cheap rent, most of my money going to things that were ultimately non-necessities).

I highly recommend this -- it is nice to start your adult life with no debt. 6.8% isn't usurious, but will you get a better return from other investments if you stretch out the repayment and keep the $3K? Probably not, so just pay it off
Anonymous
OP here: I don't want to do the $50 monthly payments because it's like 8 years and an extra $1000. If i had a more average loan (~$20k) I would go that route, but for 3k I don't see the point in paying that much more.

I do not own a home. My Aunt and Uncle own a 4 family flat and I live in one of their units. I honestly don't see this arrangement changing unless I move into one of their other properties down the line. It's a great arrangement in a great little area and we own a bar that I regularly walk the 6 blocks to.

I am starting a new job on Monday that will give me quarterly bonuses. They aren't huge bonuses by any means, but a few hundred every couple months could definitely take care of the loan in no time. I also have had 2 credit cards for the last 6 years that I keep at about 30% of my total credit and have never missed a payment on, so I've got that going for me.

My main goal right now is to buy a new car after the loan is paid off, but to make a 25% downpayment on it. My parents were HORRIBLE at money when I was little, so they really tried to make me and my siblings money conscience. Apparently it made me a money freak

Anonymous
I'd just pay it off if that's what you are most comfortable with. It is a very small sum.
Anonymous
As it seems like you are aware, there is some risk to paying it off too soon. You won't have enough of a credit history for more substantial things down the line. If I were you, I would save for the car while paying off the loan incrementally. Once you have your 25% downpayment for the car, plus enough to pay off the student loan, take out the car loan and then once your loan has gone through for the car pay off the student loan.

My DH's parents had him take out a student loan but then paid it off 100% for him as a graduation gift. When we went to buy our house, his only credit history was a credit card that he always paid on time and the mortgage brokers we talked to all said this hurt his credit score and thus increased our mortgage interest rate. It sucks paying for interest on any loan, but far better to do it on a $3K loan for a short amount of time, then to have a higher interest rate on a much bigger ticket, longer term item like a car or house.

Anonymous
Thanks 13:03. I think I'm going to do a combination on some of the advice here. I'll do the monthly payment and save an equal amount for the car downpayment, but I will also pay more when I have it. I'd be okay doing a year of payments and then be done with it. In all reality, I have a nice car that just hit 100k miles and I work on myself so I really should save even more to put down on the new car in a few years after I've really run this one down. It's not worth the trade in price to do it anytime soon.

Thanks to all the replies!
Anonymous
If you already have credit cards in your name, and are planning to take out a car loan soon, then just pay off the student loan now - the credit cards plus the car loan plus the small amount of time you had the student loan will be enough to build your credit score.
Anonymous
pay it off immediately, because 6.8% is too high of a rate to be not paying down immediately, (because other savings vehicles are less than that right now) Once you've paid it off, it will show as paid on your credit score, so even better.
Anonymous
If (1) you have the cash on hand and paying off the loan isn't going to decimate your cash on hand, (2) your future cash flow will continue, and (3) you can't find a return higher than 6.8% elsewhere, then pay it off.

Your credit rating will be fine, as you pay off your credit card each month, and you will have the car loan to improve your rating. Ditto for your car -- if you can pay it in cash, you might be able to get a nice deal
Anonymous
Anonymous wrote:If you already have credit cards in your name, and are planning to take out a car loan soon, then just pay off the student loan now - the credit cards plus the car loan plus the small amount of time you had the student loan will be enough to build your credit score.


This plus paying off the loan asap (interest rate too high!) is great advice. You earn credit all sorts of ways...you could even buy a small electronic with an interest free policy if paid off within a certain amount of time and still improve credit.
Anonymous
Anonymous wrote:OP here: I don't want to do the $50 monthly payments because it's like 8 years and an extra $1000. If i had a more average loan (~$20k) I would go that route, but for 3k I don't see the point in paying that much more.

I do not own a home. My Aunt and Uncle own a 4 family flat and I live in one of their units. I honestly don't see this arrangement changing unless I move into one of their other properties down the line. It's a great arrangement in a great little area and we own a bar that I regularly walk the 6 blocks to.

I am starting a new job on Monday that will give me quarterly bonuses. They aren't huge bonuses by any means, but a few hundred every couple months could definitely take care of the loan in no time. I also have had 2 credit cards for the last 6 years that I keep at about 30% of my total credit and have never missed a payment on, so I've got that going for me.

My main goal right now is to buy a new car after the loan is paid off, but to make a 25% downpayment on it. My parents were HORRIBLE at money when I was little, so they really tried to make me and my siblings money conscience. Apparently it made me a money freak



If you're a "money freak" you should be saving SERIOUS cash, since apparently your family is very well-off and has given you many things for free (college education, free home(!), etc). You're starting out way ahead of the curve, make good use of your advantages. I have seen too many friends in the same position think they're good with money, but in reality their advantages turn into weaknesses (since they never felt the money pressure early in their lives). Good luck!
Anonymous
I think it's a bit strange that you're asking about these things on a forum for DC parents. Are you a parent? Do you consider this community your surrogates?
Anonymous
Anonymous wrote:I think it's a bit strange that you're asking about these things on a forum for DC parents. Are you a parent? Do you consider this community your surrogates?


Have you REALLY not clued in to the fact that this site is regularly used by non-parents? Do you think all of the nannies are parents? The use is far broader than the name implies. I'm a parent but I don't think I have exclusive claim to the site.
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