I would never go out and borrow money ( even at 3-4%) to go invest it in the stock market. Even if you could refinance to a lower rate it makes more sense to me to pay off the debt. I had over $40,000 in student loan debt also when I finished school. It was such a freeing feeling to get that paid off. Nothing beats being debt free! My advice - write the check and don't look back. You'll be glad you did.
Just got a pile of cash; should I pay off student loans?
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Interest on student loans is tax deductible.You don't need to itemize - it's an above the line adjustment. At a 25% marginal tax rate real interest cost is 5.1%.
Student loans are an excellent way to build a strong credit rating. I would keep $10K or so of loans, refinance over 10 years, put enough cash in a bank account to cover the payments, and set up autopay. Curent tax savings and savings down the road on mortgage and auto loans should more than offset the current additional interest cost.
Student loans are an excellent way to build a strong credit rating. I would keep $10K or so of loans, refinance over 10 years, put enough cash in a bank account to cover the payments, and set up autopay. Curent tax savings and savings down the road on mortgage and auto loans should more than offset the current additional interest cost.
Gatordoc50
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cautious said:
You may want to wait a few years just in case they are forgiven or adjusted in the same manner as mortgages.
I had no idea you could still refinance student debt. I think the 30-year sweet spot between good debt & bad debt is somewhere around 4-5%.
You're saying to pay off the debt because you sleep better at night. That's an emotional basis for the issue. "Cautious" asked a question about beating the carry in the stock market. That's a logical basis for the issue.
Either one of those perspectives is a valid manner to address the question, and neither one is wrong. The problem comes when people make logical decisions and feel bad about them, or when they make emotional decisions and later decide that they weren't logical. He doesn't seem emotional about the subject, so it's appropriate to answer him in terms of the financial logic.
Another reason to pay off the student debt would be to lock up all that loose capital before you (or one of your loved ones) decide to do something stupid with it. Doesn't seem to be an issue here... yet!
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Can government loans be refinanced with new government loans, or only private loans? I wold be very unlikely to trade a government loan for a private lender loan.
Ha
Gatordoc50
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cautious said:
You didn't say if you are a homeowner. I like a lot of the comments of being debt free and it is wise to seek out different opinions. Try to keep in mind, however, that the younger generations with their 50 or 100 or even 250 thousand in student loans are in uncharted territory. No generation in history has dealt with that type of debt and so your kind of on your own on these decisions. I know what I would do if in your position. I would buy a 150k foreclosure, paying cash. It would be a no brainer for me. I doubt many on this site have made their wealth by buying stocks. Don't get caught up in interest rate or inflation discussions when trying to build wealth. People get wealthy under all scenarios of environments.
Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Since this is your second post.... you have not read a lot I guess...
From the reading that I have done, the vast majority of people have made their wealth from buying stocks... they are LBYM types that save.. BUY STOCKS and it grows....
The second most that I have read is real estate...
Not sure of third, but I would bet it is grow a company and sell....
Gatordoc50
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Texas Proud said:
I wasn't giving advice, just giving an alternative opinion that had yet to be given. I like real estate. Putting 100K in the market at one time, especially when it represents 200% of your annual income , is not something I would do at these prices. He has a good problem nonetheless.
nivek
Dryer sheet wannabe
Darn. I was just going to say something about taking all that money and going out and buying a nice fancy car. Or better yet, putting it as a downpayment on the car and then taking a vacation. You know, live the high life for awhile because you deserve it.
Rambler
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Divide the 150k into 3 x 50k parts.
1) take the first 50k and divide it into 2x 25k. Put 25k into shorter term CDs as your emergency fund. Put the other 25k into a broad index ETF like VTI or SCHB.
2) take 50k and use it as a down payment on a home (assuming you are not yet a homeowner). Get a loan for the rest, with payments no larger than $600 per month PITI, perhaps up to about 100k principle on a 30 year loan.
3) pay off the student loan
In the end, your student loan is gone, you are a homeowner, the amount of money you spent servicing the student loan now goes to service a much more efficient home loan. You have a 6 month rainy day fund. You take the money you save on your current housing situation, and begin investing in earnest. At your age, I would go with an asset allocation of 90/10 or 80/20 equity/fixed (not including the emergency fund).
Good luck!
R
1) take the first 50k and divide it into 2x 25k. Put 25k into shorter term CDs as your emergency fund. Put the other 25k into a broad index ETF like VTI or SCHB.
2) take 50k and use it as a down payment on a home (assuming you are not yet a homeowner). Get a loan for the rest, with payments no larger than $600 per month PITI, perhaps up to about 100k principle on a 30 year loan.
3) pay off the student loan
In the end, your student loan is gone, you are a homeowner, the amount of money you spent servicing the student loan now goes to service a much more efficient home loan. You have a 6 month rainy day fund. You take the money you save on your current housing situation, and begin investing in earnest. At your age, I would go with an asset allocation of 90/10 or 80/20 equity/fixed (not including the emergency fund).
Good luck!
R
Gatordoc50
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cautious said:
You didn't say how old you were, but for the sake of argument, let's say 25. If you believe in the stock market returns of 9% with a 60/40 mix then your money will double 5 times turning your 150K into 4.2 million at age 65. Your done, you just won the game. Of course you will have to pay 500K to a million bucks in taxes on all those capital gains. The student loan becomes an after thought. Some will say not to put all your eggs in one basket. At a young age, I disagree. Personally, I still like my foreclosure idea, but either way I would not pay off the loan.
Gatordoc50
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Gatordoc50 said:
I was being facetious with the stock analogy. Just to be clear.
I'd pay off any loan when I could go out the same day and easily beat the interest rate on said loan with a different loan. OP, Your loan interest rate is an example of this, even if adjusted for the tax deduction. My bank would give me 2.49% for a car loan. What are house loans these days (15-yr), 3.7%ish? That pretty much covers the expensive stuff (that would justify a large debt). Ok, well there's education debt like yours, but again, your rate isn't low.
Gatordoc50
Full time employment: Posting here.
cautious said:
Interesting, you can use firecalc to compare different results. Neat tool. If you pay off the loan and invest the 100K in a 60/40 mix for 30 years, the average end value is 422k. If you invest 150K in the same way, the average end value is 633k. You would then subtract the total loan expense from the 633K. BUT if you pay off the loan, invest the 100K AND add 7200/year, the average end value is 942,000. Looks like I gotta eat some crow.
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