How to Settle Student Loans - Either Invest or Pay Off

Passing out of the University with distinction is a cause of great joy and satisfaction for students who have toiled hard to realize their dreams. But this moment of glory can be short lived. As they step into the vicious world of stiff competition, where "Survival of the Fittest" is the catchword, the main cause of concern that they must address immediately is

• How to settle the debts on account of Student Loans and
• What is the best way to utilize excess funds if any?

Whether to pay off or make investments will come later, once the student has prioritized his loan payment schedule. The loans with high interest must be settled first. A noted Debt Consolidation and Management expert at Nellie Mae, opines that one must first make provisions to pay off debts with the highest after tax interest rates. Currently, the rate of interest for federal student loans is at its lowest in the last 30 years. Hence, the recent graduates have the opportunity to settle their loans at the low interest rates and can further request for extended time for repayments. Recent Tax Law amendments have made provisions for exemption of taxes on interests for Student Loans.

However, this is easier said than done. There are options available that can help students to reduce their debts. The students may consider the Armed Forces, i.e. The Army, Navy, Air Force, Marine Corps, and the Coast Guards that provide some of the best educational benefits. At the same time, students must decide about some effective loan payback programs. One of the better payback programs is offered by the U.S. Army that pays back up to $65000 worth of loans over a period of three years.

U.S. Peace Corps undertakes development in small and larger nations in sectors like agriculture, economy and education. In case a student has availed a Perkins Loan, then 15% of the loan amount is adjusted in lieu of every year of active service in the U.S. Peace Corps. At the end of two years of service 30% of the loan gets neutralized. In case of any other federally guaranteed loans, students are entitled to defer loan payments for the tenure of service in U.S. Peace Corps. Thus, Peace Corps can be a viable alternative to score off some debt and at the same time upgrade the resume.

An organization providing counselling services on student loans observed that the fresh investments could be made every month with the saved money after consolidation of loans. A student can take benefit of the sharp decline in interest rates by quick consolidation of several loans, thus saving money that he can further use towards loans repayment. He may even consider investing the excess funds in some meaningful venture.

Ideally, it will be best to invest excess funds in ventures that can return a higher rate of interest than the rate of interest he is liable to pay in order to square off his student loans. Similarly, it will be a good decision if the student wishes to open an Individual Retirement Account (IRA), with the excess cash left after paying off the loan.

In the true sense, there is no set answer to the question if one must consider investment or not. In any case, even if the student decides to utilize the funds for repayment of loans, he is actually making a long-term investment.

Financial Aid Online Credit Information

Consolidation Of Student Loans