Graduating from college can be exhilarating, ushering in a fresh beginning, a new career, and financial independence. But it also means the time has come to seriously consider how to repay your student loans, and that implies asking yourself an important question: should you pay off your student loans or invest your money elsewhere?
Before deciding whether to invest or not, it is important to arrange your loans in a hierarchical manner, starting with the loans with the highest interest rates first. One of the cardinal rules of financial planning is to"pay off debts with the highest after-tax interest rates first," said Pat Scherschel, consolidation and debt management strategist at Nellie Mae, a higher-education loan provider. High-interest consumer debt should be repaid first.
With federal student loan interest rates at their lowest in over 30 years, recent graduates can consolidate their loans to lock in the low rates and extend the amount of time over which they pay back their loans. Also, recent amendments to tax laws have made the interest for some student loans tax-deductible for as long as it takes to pay them back.
"The money that you save each month by consolidating your loans can be invested," said Brent Carlson of NextStudent, an organization providing advice pertaining to college loans.
Teresa Surichamorn, 23, graduated from college in 2001 and took advantage of the drop in the interest rate last year by consolidating her various student loans.
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