Hi Money Minder,
Just graduated from California and currently jobless because I’m studying to get my professional license. Got 4 student loans (Direct Grad PLUS) coming out of deferment soon, and the accrued interests are about to capitalize onto the unpaid principle.
Do you think it’s a good idea to sell some long-term stocks to pay off all that accrued interest before it capitalizes? Here’s the breakdown for you:
– I have roughly $40K in Vanguard’s VTI
– Loan 1: $16,344 Principal; $1,146 Interest; 6.28% Rate
– Loan 2: $20,094 Principal; $1,629 Interest; 7.54% Rate
– Loan 3: $5,233 Principal; $324 Interest; 8.05% Rate
– Loan 4: $8,211 Principal; $7 Interest; 8.05% Rate
How can I crunch the numbers to see if it’s better off paying capital gains taxes on the stocks compared to saving money by avoiding the interest capitalization?
Thanks a bunch,
Financially Confused Guy
Farewell!
Response from THE MONEY MINDER:
Hello There,
Congratulations on your recent graduation and good luck with obtaining your professional license! I understand the stress that comes with student loans accruing interest and potentially capitalizing if not paid off before the grace period ends. In your case, it might be worth considering selling some long-term stocks to pay off the accrued interest on your loans before it capitalizes.
Here’s a practical approach to help you decide: Start by calculating the total accrued interest on your loans and compare it to the potential capital gains taxes you’ll incur from selling your Vanguard VTI stocks. You can use an online capital gains tax calculator to estimate this. Consider the interest rates on your loans as well; Loans 2, 3, and 4 have relatively high-interest rates, so paying off the accrued interest on these loans first could save you more in the long run compared to Loans 1.
Take into account your financial goals and risk tolerance when making this decision. If you’re comfortable with selling some stocks to pay off the accrued interest and avoid capitalization, it might be a prudent financial move. Additionally, speak with a financial advisor or tax professional to get personalized advice based on your specific financial situation.
Remember, tackling your student loans strategically can set you on a path to financial stability and success in your career. Best of luck with your decision-making process!
Farewell from THE MONEY MINDER.
