I would also like to point out that 2% interest rates on student loans are a THING OF THE PAST. These days, your lucky to get to 5.5% (the majority of mine are at 8% right now). So I don't blame the OP for wanting to get rid of them.
I work with pharmacists ALL THE TIME that have their loans at 2%. **** at 2%, I wouldn't bother busting my butt to get rid of them either.
But 8% is much different. I want them gone and then I can have some financial peace knowing that my paycheck is mine.... ALL MINE (to invest or waste however I see fit) and I think that's probably how the OP feels as well. Some people just aren't comfortable having debt, even so called good debt.
I agree, private loans are different. I'm not sure I would classify a "non-traditional" student loan as good debt, simply because the terms are awful. The interest rates are variable, with no maximum, and there is likely no forbearance clause in a private loan. I would want to pay off any non-fixed interest loans as quickly as possible, as they are a liability (even 8% is historically pretty low for a private loan, so you can count on it going up).
This is definitely not the case with Federal Stafford Loans. All Stafford loans are currently fixed at 6.8% interest, and depending on your lender and the deal they cut with you, this rate will be less in repayment...or they will give you a percentage lump sum payment against your principle at graduation, or some combination thereof. Through Sallie Mae, my current loans will be at 5.5% in repayment.
The terms of these loans are the kicker though. Say you have an emergency and you don't want to make payments on your loan for a few months...just give your lender a call (you have up to 3 YEARS of forbearance). Now interest will still be accruing during forbearance, but try to call your bank and ask if you can stop paying on your mortgage for a few months, or a car loan...they'll have a good laugh!
The subsidised stafford loans are also interest free as long as you are enrolled at least half-time at an accredited college or university. A friend of mine, whose loans are in repayment, takes online classes every semester at a local community college, enough to be considered half-time. The amount he pays for classes is about half of the interest he saves in a year! (legal, but not ethical as
we pay his interest in taxes)
Bottom line is, a fixed rate Stafford loan is not a loan anyone with finacial good sense is going to want to pay off early. By paying off my loan early, I would experience the opportunity cost of not having invested that extra money at a higher rate of return. I would also have the opportunity cost of not paying down the loan with inflated future dollars (remember a dollar today is worth more than a dollar tomorrow).
Example:
A $150,000 loan @ 5.5% ammortized to 10 years would cost you $20,000/y. If you kept investing $20,000 per year at 8% interest, after you paid your loan in full, in 15 years you would end up with
$543,042
If you instead ammortized the $150,000 loan to 25 years, it would cost you $11,200/y. By taking the difference of $8,800 and investing it at 8%, in 25 years you would end up with
$643,332
In this case, paying early ultimately COSTS you an extra $100k
. Such is the power of compounded interest...
i IM'd this to my accountant friend and she had a good laugh
