# Is this Employee Stock Purchase Plan worth it when adding my student loan into the equation?

Here are the details of my company's Employee Stock Purchase Plan:

• An automatic 5% purchase discount off the fair market value of the stock.
• Payroll deductions start on July 1st.
• The stock purchase occurs on December 31st.

I don't like holding single stocks, so I was planning on selling the stock right away for an automatic 5% profit. However, I do the math, and come up with the following:

• Because of a 25% short-term capital gain tax, that 5% profit becomes a 3.75% profit (25% tax on 5%).
• Because of the purchase period, all that money I put in (starting July 1st) will take 6 months (until December 31st) to return the 3.75% profit (which is when the purchase and immediate sale happens), resulting in about a 7.5% annual return (3.75% * 2).

On the other side of the spectrum, I have a student loan with an 8% annual interest rate I'm paying off as fast as possible.

Wouldn't putting all of this money towards repaying the student loan instead result in a slightly higher return (through interest rate savings) with none of the hassle?

What am I missing?

• You say payroll deductions start July 1st. Does this mean that there are more deductions in later months? For instance under the above analysis the July deduction doesn't make since but an October deduction definitely does. Jun 1, 2015 at 20:35
• @rhaskett Yes, you can make deductions (up to 20% of your paycheck) every pay period starting July 1st. Now that I think about it, I see where you're coming from. The closer to December 31st the contribution is, the higher the percentage of return when converted to annual returns. The annual return starts being higher than 8% in August, where the annual return for that contribution would be 9% (12 / 5 * 3.75 = 9). September -> 11.25%, October -> 15%, November -> 22.5% and December -> 45%. Jun 1, 2015 at 20:50
• @rhaskett Did I get that math right? Jun 1, 2015 at 21:01
• My knowledge of short-term capital gain taxation is too low to know how it applies here. Otherwise the only other consideration I can think of that might be missing is if your companies stock has a particularly high bid/ask spread that might eat away at that 5% profit. Jun 1, 2015 at 22:39
• Indeed, the average holding time is closer to 3 months. And the return is 100/95 or 5.26% Jun 2, 2015 at 0:09