I have just under $100k in savings and $18,000 in student loans at a very reasonable rate of a fixed 4.5%. I have over 10 years to pay it off at a very minimal payment of $150 or so per month.
some people have said that your rate is fairly low for a student loan so paying off doesn’t make sense and rather invest in market. Same thing with an attempt to refinance. Plus it’s loans from undergrad so actually my longest time period credit account so removing it would lessen my average credit length and possibly reduce my credit score as well.
Personally I plan to make down payment on an apartment when I hit $120k mark sometime by the end of this year.
let me know if any advice. I have enough savings to pay off the balance but the rate and monthly payment are pretty low to the point where I don’t even feel it when it gets deducted. And paying off a chunk of $20k would feel.
how to think about this?
Still in undergrad but thought about this a lot as I pulled out student loans to invest.
Anything over 4% is where I would start paying it off early. Sure, the stock market returns 7-10% but that's a 4% risk free return. Anything under 4 and I'll try to never pay it off. Adjust depending on your risk tolerance
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I'd wait considering all the talk going around with regards to some amount of student debt cancellation, legislation, etc. Wouldn't even factor opportunity cost of investment gains at this point as the potential for some level cancellation could be quite likely unless I'm missing something obvious. I'm sure one of these older types will swoop in here and shame you for "relying on the government" when have you six-figures of savings, ignore it and do what's best for you. Never know what the future holds and $18,000 isn't just anything.
^ This
I paid mine off as quickly as possible a few years back. Many of my friends have refi'd and continued to make minimum payments while investing or just spending the rest and living well.. They're all hoping for some sort of cancellation to come through with Biden in office. Regardless of political affiliation, it would be pretty nice to have some portion, if not all of it waived/cancelled.
My recommendation would be to continue to make the payments as you have been, while saving. When it comes time to buy the property, if the outstanding debt is an issue with qualifying for a loan, consider paying it off, but I doubt that small of a payment will be material. If/when the time comes, there will likely be some qualifications and you may or may not be within the group that receives the assistance. At that point, make the decision to pay it off or not
It really depends on what you plan on doing with the $18k you would pay the loan off with. Savings account earning 0.02%? Pay off the loan. IRA/401k in a stock index fund? Invest it and pay the minimum. Taxable brokerage account? A little more complicated because it depends when you plan on taking the money out, your marginal tax rate, etc. I'd opt for a split for that, pay double or triple your monthly payment to accelerate it but still invest some.
That's all discounting the psychological effects of having debt. If it's really weighing on your mind just close it out and live with one less monthly payment, the few hundred bucks of interest you'd be missing out on might be worth the peace of mind.
You asked this same question 6 years ago, and the existence of your question today tells us that you chose to invest rather than pay down the debt. Particularly with the material probability that student debt is discharged by executive order or law over the next 10 years, it doesn't seem wise to pay it down today either.
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