6.30.2013

Erika Needs Advice- Pay Student Loans or Keep the Cash?

Hi guys! So this post is long overdue, since I've been meaning to make this decision for awhile now.

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The other day I asked on Twitter whether I should just throw $20k at my student loans instead of keeping it in a "high-yield" savings account earning ~1% interest. Vanessa, Debt Blag, Evan, and Kathleen sparked up a conversation, resulting in differing views. Vanessa, Evan, and Kathleen thought it would be better for me to keep the cash instead of paying down my student loans, while Debt Blag thought that I should pay down my student loans instead of keeping the cash.

My initial thoughts lean towards Debt Blag's advice on paying down the debt instead of keeping the cash. The interest rate on one loan is 7.9% fixed and there's about $28,000 on that loan, with interest accruing everyday (unsubsidized grad plus loan). The benefits of keeping the cash is for emergencies and also to live off of after law school (graduating in May 2015).

However, I also understand why having the money as a safety net makes a lot of sense. The future is still uncertain, and I'm not sure if I will get a paying job next summer, or even as soon as I graduate. The BF has said repeatedly that I don't have to worry since he has a job, but we can never be too safe. I also know that my parents could help me out if I needed it, but I don't want to rely on any of that since something could happen and I want to be responsible for myself.

Currently I don't pay rent since I live at home in northern CA while I attend school, and I also don't pay rent in San Diego since I stay at my BF's place (I'm in San Diego for a summer internship but I go back to school in August). I minimized the loan amounts to just barely cover tuition and I rely on savings throughout the year. I'm very fortunate to have my family help me out with other items like groceries and gas during the school year. I do help out a lot at home as well - I drive my brother and sister everywhere, help out with cleaning and laundry, and tons and tons of errands, so I think both my parents and I are both benefitting. :)

Ideally I would like to purchase a condo as soon as possible (when I get my first stable job after graduating), and that's what I was saving the $25k for. It's what I actually saved it up for in the first place. But I also don't know if we will qualify for a mortgage at that time since I'll have more debt to add.

However, if I got to pay down this loan, it would save me a lot - 7.9% interest, potentially more since interest during deferral is added to the principal and interest is based off of that higher amount.

What would you do if you were in my situation? I'd love to hear your thoughts!

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