Can You Pay Off College Ave Loans Early?

Imagine waking up one day, with one less financial burden on your shoulders. That’s the allure of paying off your student loans early, especially with a private lender like College Ave. The thought of erasing years of monthly payments and high-interest accruals in one bold move is certainly enticing, but is it as easy as it sounds? And more importantly, should you?

Let's get right to it. Yes, you can pay off College Ave loans early, and there are no prepayment penalties. College Ave even encourages it, noting on their website that early repayment will save you money in the long run, as you’ll pay less interest overall. But, just because you can do something doesn’t always mean you should.

The allure of becoming debt-free faster may cloud some of the other financial decisions you should consider first. While paying off your loans early can free up monthly cash flow and ease your financial stress, it’s critical to weigh it against other financial priorities like building an emergency fund, saving for retirement, or paying off high-interest credit card debt.

Why Pay Off Early?

The benefit of paying off any loan early is simple: interest. Over time, your loan accrues interest, and the longer you take to pay it off, the more interest you end up paying. With a student loan, particularly private ones like College Ave, interest rates can range from moderate to high, depending on your credit score and whether you have a fixed or variable rate. The faster you eliminate the principal, the less interest you’ll have to pay overall.

Let’s take a look at a scenario. Assume you took out a $30,000 loan with an interest rate of 5% on a 10-year term. If you only pay the minimum, over 10 years you’ll end up paying about $8,200 in interest, bringing your total repayment to $38,200. But, if you manage to pay it off in 5 years, you’ll only pay around $3,900 in interest—almost cutting your interest payments in half.

That’s the power of early repayment.

However, even with no prepayment penalty, it’s not always a straightforward decision. There are various factors to consider when determining whether it’s the right choice for you.

What’s the Cost of Early Repayment?

Opportunity cost is one of the most important things to keep in mind. By putting all your extra funds toward paying off your College Ave loan early, you could be missing out on higher returns elsewhere. For example, if you’re putting $500 extra toward your loan every month but neglecting your retirement savings, you may lose out on compound interest that could grow your investments far beyond the savings from loan interest.

Consider the following:

• Investment returns: Historically, stock market returns average about 7% annually. If your loan interest is lower than this, your money might be better invested in the market rather than paying off the loan early.
• Tax deductions: If your student loan interest is tax-deductible (as of the most recent U.S. tax laws, up to $2,500 annually), you might save more in taxes than you would by paying the loan off early. However, this applies only to some borrowers, and College Ave loans, being private, may not always qualify.

Other Financial Goals to Consider

Before you make the leap into early repayment, think about your broader financial goals. Where do you stand with these?

1. Emergency Fund – Do you have 3-6 months of living expenses set aside for unexpected events like medical bills, job loss, or urgent home repairs? Paying off loans early without an emergency fund can leave you vulnerable in times of financial crisis.
2. Retirement Savings – If you’re not maximizing contributions to retirement accounts like a 401(k) or IRA, early loan repayment might not be the best move. The tax advantages and employer matching in these accounts can result in significantly more long-term savings.
3. High-Interest Debt – Credit card debt often carries interest rates of 15% or more. If you have high-interest debt, it’s usually smarter to pay that off before tackling student loans, especially if your College Ave loan has a lower rate.

Strategies for Early Payoff

If you decide that paying off your College Ave loan early is the right move, it’s important to approach it strategically. Here are a few tips:

1. Round Up Your Payments: If your monthly payment is $286, round it up to $300 or $350. Those extra dollars go straight to your principal, meaning less interest over time.
2. Use Windfalls Wisely: Bonuses, tax refunds, and other financial windfalls can be great opportunities to put a large lump sum toward your loan. Every little bit helps.
3. Biweekly Payments: Instead of making one payment per month, try making a half-payment every two weeks. This strategy results in 26 half-payments—or 13 full payments—over the course of a year, which can significantly shorten your loan term.

Should You Refinance?

Another option to consider is refinancing your College Ave loan to a lower interest rate. If you’ve improved your credit score or the market conditions have changed, refinancing could save you thousands of dollars in interest, even without paying off your loan early.

Refinancing won’t necessarily shorten the life of your loan, but it can reduce your monthly payments or lower your interest rate, making early payoff more manageable.

Real-Life Stories

Consider Sam, who had $40,000 in student loans from College Ave. With a 6% interest rate and a 10-year term, he was facing $13,288 in interest payments. Determined to pay it off early, Sam used the biweekly payment strategy and threw any extra cash toward his loans. In 6 years, he was debt-free and saved over $5,000 in interest.

On the other hand, Sarah opted not to pay off her loan early. With a lower 4% interest rate, she decided to put extra funds into her retirement accounts and a down payment on her first home. As a result, her retirement savings grew faster than expected, and she was able to purchase her home sooner.

Both strategies have their merits, and the best decision ultimately depends on your individual financial situation and goals.

Conclusion

The idea of paying off your College Ave loans early is undeniably attractive, especially with the promise of saving on interest and becoming debt-free sooner. But, before making a final decision, take a close look at your financial picture. Consider whether early payoff aligns with your other goals, or whether you might be better off allocating those extra funds elsewhere.

In the end, whether you choose to pay off your loan early or stick with the standard repayment plan, the key is to be proactive. Don’t just let the loan sit there—run the numbers, explore your options, and make an informed decision that best suits your future.