Personal Investment & Financial Planning Q`s/Loan Repayment/Savings
I am a 1st year college student who has a $5,500 unsubsidized loan at a 3.86% interest rate. I don't have my first payment due until 1/10/2017 (which is odd because I won't have finished college at that time). In any case, I am wondering how I should handle this. Between my parents and I along with scholarships, I don't have trouble paying the remaining school bill. I will likely use this loan each year.
Through tutoring, I'm able to make a bit of extra money on the side. This goes toward my loan repayment. I just paid $1300 toward it. My question is...is there a better way? With an interest rate of only 3.86%, is there some bond I could get into with an interest rate around 6 or 7% and eventually have enough in it so that the interest I receive is greater than the interest I owe each 6 months (or however often I get a bond payment)?
I don't have extensive finance background, I was simply thinking about it mathematically today and thinking that if I can be above the minimum payment by the time I have to start repaying, I could pay it off and still have the principal. Just looking for your comments on if this is possible or wouldn't work.
Thanks for your time,
Your question is a good one. To first address the comment you made about your first loan payment being due on 1/10/17; when did you enroll in school and take out this loan? Depending on the type of loan, the first payment is often times not due until 6 months after your expected graduation date (i.e. 4 yrs and 6 months after you start). In any instance, back to your question; at a 3.9% rate on the loan, there is no easy way to instead invest money and expect to make more than this without taking on risk. With interest rates on the rise, I would not suggest simply taking $$ and putting into bonds funds as getting a 4% + return is of no guarantee. Of course, you could invest $$ in a diversified portfolio of stocks and bonds, however, you then run the risk of the market going down at the inoppotune time of you needing the $$ and you would then be forced to sell at a loss. Its a tough call, but if it were me, I would simply continue paying the loan off at a pace you feel comfortable doing so and you will then be happy with a reduced amount of debt you will need to pay off upon graduation. I hope this helps!