This forum is probably really overqualified for my question, but hopefully it's ok that i post it here.

So I'm about to graduate with 30k in loans at 6% interest (master's degree).

There's a loan forgiveness option after working for 5 years. In most cases it's forgiveness of up to 17,500, but in my case unfortunately I'd only get forgiveness for 5,000.

6% interest on 30k over 5 years obviously adds up to a lot more than 5k. But if I pay off say half the loan amount...then 6% on 15k over 5 years is only 4500, so the 5k in forgiveness I'd get would slightly outweigh the extra 4500 I'm paying in interest. What's my most +EV option? Or do you think the benefit of waiting is so negligible in this case that I am better off just paying off my entire loan amount asap?

Thanks in advance for the help.

You should learn how to setup a loan amortization schedule in Excel. That way you can play around with different assumptions. There are good Youtube tutorials that show you how.

The answer to your question largely depends on the opportunity cost of the cash that you put towards student loans. Debt is not necessarily a bad thing if you can generate an ROI higher than your cost of capital. If you think about it, that's the whole model of commercial banking and they generate billions per year in profits. But if you want to play it safe, pay off your loans.

Punch the loan in the face, Dave Ramsey style. Only way out is pay principal. Dont play the the fools game of arbitrage,etc. You arent dealing in millions n trillions.

On the most basic level without loan forgiveness:

Based on my math, $30k @ 6% over 5 years is a monthly payment of $579.98. call it an even $580. 580 x 60 = 34800 in total payments.

So right there, your total interest is only $4800, which of course is less than $5000 which immediately implies that you should take advantage of the offer in some way.

Guarenteed loan forgiveness is pretty awesome, it's free money. I would take advantage and maximize/optimize it, and this is what I would do. Make the exact monthly payment that would cause your outstanding ending balance to be $5000 at the end of 5 years.

This amount turns out to be $508.32 a month. Total payments = 508.32 x 60 = 30499.20 with $5000 forgiven. So you only paid 499.20 total interest.

The loan would then convert to an an equivalent loan with a rate of 0.651%, vs the original rate of 6.000%. A pretty cheap loan. Any additional money that would gone to pay down that balance early (example: the savings difference between 579.98 and 508.32 monthly) can instead go right to the bank, if we add in WishWashMan's idea of no arbitrage, to build reserves etc.

Hope this helps.