Dear SmartYoungInvestor,
I’ve been out of college for six years and have enough in my savings account to pay off all of my student loans. I currently have $12,467 to pay off, and a little more than $16,000 in my money market account. The interest rate on my loans is less than I earn from my money market account, so it seems like it makes sense to just make my monthly payments. What do you think?
Brian O.
Reston, VA
Dear Brian,
If only more college grads had your problem. The simple answer to your question is: it depends. I’m guessing the difference in interest rates between your two accounts is .5-2%. Let’s say it’s 2% (which I’m guessing is high). That means you are earning at the maximum $200 a year from keeping things the way they are. More realistically, the difference in rates is 1% or less. So you are probably earning yourself $100 or under. To earn that amount of money, you have to constantly pay attention to your loans and make sure they are made on time each month. If this is all automated, or is very convenient for you, by all means keep things as they are. But if it’s a bit of stress that you’d rather not have to deal with, pay off the loans now. You might pass up a few bucks, but it will certainly make you feel better.
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