You should also take into consideration that you could get a tax deduction for interest on student loans Student Loan Interest Deduction
To break down the numbers, say you borrow $30,000 and pay it off over 10 years.
You will pay monthly payments of $345 which includes $250 repayment and $95 interest.
After 10 years you will have paid $41,400, which is $30,000 of the loan plus $11,400 of interest.
You annual interest expense will be $1,140.
If you are in the 15% bracket (making below $70K a year), that means a tax savings of $171 a year ($1,710 over 10 years).
That means you are paying a net interest (incorporating the tax savings)
of 5.85%.
Still not worth keeping a savings earning 1%.
If you are in the 25% bracket (making above 70K a year), that means a tax savings of $285 a year ($2,850 over 10 years).
That means that you are paying a net interest (incorporating the tax savings)
of 5.21%.
Still not worth keeping a savings earning 1%.
