Does It Ever Make Sense to Keep Loans Around?

Zachary has student loans that will accrue interest on the loan regardless of when he pays it off. Short of trying to negotiate out of it, is it worth it to pay the loans off early?

QUESTION: Zachary on Facebook has student loans that will accrue interest on the loan regardless of when he pays it off. Short of trying to negotiate out of it, is it worth it to pay the loans off early?

ANSWER: There are no loans that accrue all of the interest before you pay it off. There are loans that have a grotesque prepayment penalty called a Rule of 78. Those are the rip-off finance company loans where you get the storefront finance companies, like Beneficial and those kinds of places. The Rule of 78 is a method of calculating all the interest and discounting that, but even then you don’t pay all of the interest through the whole loan, whether you do it or not. You’re mistaken.

There are no student loans like that, unless you got some kind of rip-off finance deal as some kind of vocational tech thing or something like that. But there is not a Sallie Mae loan or even a traditional private student loan that would do that. You’ve gotten bad information. You read something wrong or did the calculation on the math wrong. You need to pay the student loans off now, as fast as you possibly can, even if there’s a prepayment penalty like the Rule of 78. Get it done and get them out of your life.

There is no excuse for keeping them around. There’s no mathematical box that makes it all right to keep them around. You have not found the “one time” that it’s all right to keep student loans. I’ll give a 90% chance that you’ve misunderstood, and the interest is not calculated anywhere near like you think it is.