I need some advice on what to do with student loan debt.? -

I have $15,000 in government student loans at 5.5%. They go back into repayment in 6 months. I m just entering the work force and I m thinking about doing a graduated repayment plan, it will rise as I make more and inflation rises. I have $20,000 saved in my bank account from work and saving. One friend of mine told me to use half of the $20,000 towards my loans before I consolidate making my loans at $5000, but that is money that didn t come very easy for me and not very easy to make back since my income is currently low. Another friend told me to put my loans into repayment and invest my $20,000 I have saved and use my student loan interest tax write off to put towards taxes I have to pay from my investing. Use the money earned to pay my student loan monthly payments. I have no credit card debt, mortgage payments or any other debt besides a small car loan. Any advice towards this situation would be great. If I should invest I m open to investment advice, I m not familiar with investing and I know the stock market is a mess at the moment. Thanks for your time.|::::|The only issue should be the size of your emergency fund. If you paid nothing on the student loan, you would pay $825 in interest. This $825 could be used to reduce your income...at 15% tax, you save, what a whopping $125. You still pay $700 in interest. Meanwhile, your $20,000 of investments make, what, .4% in savings account and get you $80. After tax, you make $68. Or, say you invested $20K at the beginning of 2008 in a mutual fund, lose $10,000 after the meltdown.... Yeah, spend $700, save $68. Works for me. (I was told the same thing. My loans were 7% and I had zero other debt. After ensuring I could pay my bills, I bumped up my payments and got rid of the loan in 4 years.)|::::|The rate at 5.5% is not a bad rate. I would pay the loans off slowly. Keep them current. There is no hurry to pay them off. I would invest the money in guaranteed return investments until this market gets back on it s feet.|::::|Pay off your student loan first. You get a 5.5 % return on your investment. You can not get a guaranteed investment like that anywhere right now. Interest rates are 0 % now. Sure you get a tax write off with the interest but since you are earning very little money your tax rate is low so the tax refund will be low. Once the student loan is paid off start investing your monthly loan payment into a retirement fund. Regarding investing that is something to do very carefully ideally with the advice of a financial planner not your friends. So pay off your debt and put the balance of your savings in some secure (but very low interest) investments for a rainy day or to help buy a home.|::::|I like the idea of being debt free, but this is a time to have liquidity. I would be very careful about investing in anything right now. The stock market is very volatile. You have a 6 months window in which you can decide what you want to do. I would not rush into anything. I expect the markets to be very unstable over the next several months. I would wait to see what interest rates are going to do over the next several months. You may be able to consolidate at a much lower interest rate before having to start repayment. If you pay off your student loans you will still have $5,000 left to invest or use as a cushion. I would hold on to some of my money during these troubled times. Stay away from any debt. It is much better to pay cash for what you want. The reason so many people are in trouble today is due to high debt.|::::|Paying down your student loans would leave you without any kind of emergency fund, and you can t get that money back if you need it. If I were you, I wouldn t prepay the student loans, but I wouldn t stretch it out, either. The tax benefit only gives you back about $.15 for each dollar you pay. I also recommend you keep six month s expenses in a liquid savings account and invest the rest. The stock market is a bargain right now. Assuming you were a traditional student, you would be in your 20s right now. You have the most to gain from the depressed stock market. In the next 20, 30 or 40 years, the gains are likely to be significant since you re starting to invest in a down market.