Repayment starts today on my $17,125 Stafford principal. (My Perkins is still in grace.)

I gotta crunch the numbers to figure out whether I should accelerate repayment.

Mind you, I may not currently have the funds to accelerate repayment even if it turns out to be advantageous, but it's still an interesting exercise to go through. While I do find it psychologically painful to be in debt, I'll stick with debt if the numbers show that it actually helps my bottom line.

As it turns out, there's no clear-cut BETTER. It all depends on how you work the situation. But let me start at the beginning, with the background on my Stafford loan.

I owe a principal of $17,125. I consolidated the interest rate at 4.75% at the end of June, and got it reduced to 4.5% by activating auto-debit. After 36 on-time payments, my interest rate drops another percentage point, to 3.5%. I do intend on this happening, since I've got the auto-debit.

I'm on the standard/level repayment schedule, which is 180 months, or 15 years. My monthly payment is $133.72. Taking the two interest rate drops into account, I'll actually pay the loan off in 176 months.

If I pay nothing but the minimum for the entirety of the 176 months of repayment, I'll pay a total of $6360.52 in interest over the life of the loan.

But say I up my monthly payment to $200, which means I pay an extra $66.28 towards my principal per month. The repayment period drops to 104 months, or 8 years and 8 months. For the extra $6870.51 I pay over those 104 months, my total interest paid gets reduced to $3652.39, for a savings of $2708.13.

But I also ran a parallel calculation, where I take the extra payment amount of $66.28, and invested it instead. Over the course of 104 months, I'll earn more money from the investment, so long as the fund's rate of return exceeds 7.35312%. If the stock market gives a long-term average return of 8%, I'll earn $3006.86, which is a few hundred more than the savings in interest.

However, there's a big catch to this. Extra payments to the loan pays down the loan itself; it's like making a future payment today. Extra payments to the investment does not pay down the loan--you still have to cough up the money for the loan itself. So actually, you want to earn back the total amount of the extra payments, AND exceed the savings in interest. I'd need to earn at least $6870.51 (extra payments) + $2708.12 (savings in interest) = $9578.64.

If that's the case, I'll need a rate of return of 18.13% to break even in 104 months. If I want to break even in 176 months instead, I'll only need a rate of return on 8.3%, which is much more reasonable.

However, there's another angle to consider. Any extra cash thrown at the loan will only result in a lump-sum savings in interest. Extra cash put into a mutual fund, however, will compound for as long as it is invested. And you can keep it invested for longer than 104 months, or 176 months. And the longer you keep it invested, the more you'll earn.

I think the conclusion to be drawn is that accelerating repayment is advantageous in the short-run (e.g. over the loan repayment period), especially if you pay a good chunk extra on the principal each month. But if you don't pay as much extra, or if you're thinking long term, that extra money is better off in a mutual fund.

I think I'm not going to accelerate repayment. I'm fine with delaying immediate gratification in favor of better long-term returns.

And it's much easier to justify not paying extra when you don't have the funds, anyway.