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Die, Student Loan, Die!

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Make fun of the so-called "professional students" all you want. You know, the ones who, unlike the TAs, remember the original Dukes of Hazzard TV show. But would you be in a huge hurry to check out of the ivory tower and into debtors' prison?

More and more, recent graduates are trading their sheepskins for student-loan debt payments. Plenty of college grads face five-figure debts, and for those with professional degrees, loans of $100,000 or more aren't uncommon.

But what if you had the means to wipe the student-loan slate clean? Those who are fortunate enough to get good-paying jobs out of school may accumulate savings rapidly enough that they can pay off their loans early. If you can choose, which should you do: Kill off the loan, or keep cash in the bank? Well, it depends.

Wipe out that loan ASAP if:

  • You're stuck in a high-interest private student loan. Private loans aren't subject to the same interest-rate limits that apply to many federal loans, so even if you consolidate your loans, you may end up paying more than you should. If private loans are a necessity, be sure to shop around to see whether you can get lower rates.
  • The interest you're paying is not tax-deductible.
  • You are flush with cash -- or at least flush enough to pay off your loans and still have money left over to start your emergency savings account.
  • A sweet job with an even sweeter salary awaits.

Sit on your student loan if:

  • You locked in a low, fixed-interest rate before the July 1 deadline.
  • You're able to deduct the interest from your taxes.
  • You have other higher-interest debt looming -- for example, if you paid for your college textbooks with a credit card, and those books are still sitting on the balance.
  • You're unsure of your future income.

When it comes to paying off debt, do a side-by-side interest-rate comparison of all of your loans to see which one you should knock off first.

More reading to get smart about student loans:

In addition, our Paying for College discussion board is a good place to ask questions you may have. The Motley Fool's Guide to Paying for School by Robert Brokamp is also a handy resource.

This article was originally published on Aug. 8, 2005. It has been updated.

Dayana Yochim is all paid up for her degree from the University of Kansas. Rock Chalk, Jayhawk! The Fool has a disclosure policy.


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