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Started By
Message
Save Money / Invest / Pay off Student Loans?
Posted on 4/2/20 at 10:47 am
Posted on 4/2/20 at 10:47 am
Coming for some advice on what my wife and I should do? We both work and our new to our careers. We have built a nice "safety nest" - about a year of my wife's salary (she's an analyst for the Dept. of Revenue) - so roughly $55,000.
We have a child and, unfortunately, both have federal student loans. We also own our home that we've refinanced for a much lower interest rate. We've invested about $35,000 over the years in mutual and index funds.
That said, with this "safety nest," would you advise targeting specific student loans (higher interest rates) given that they are temporarily slashed to a 0.00% interest rate? Invest it? Pay off the principal on our mortgage? Save it should someone be laid off, get sick?
We have a child and, unfortunately, both have federal student loans. We also own our home that we've refinanced for a much lower interest rate. We've invested about $35,000 over the years in mutual and index funds.
That said, with this "safety nest," would you advise targeting specific student loans (higher interest rates) given that they are temporarily slashed to a 0.00% interest rate? Invest it? Pay off the principal on our mortgage? Save it should someone be laid off, get sick?
This post was edited on 4/2/20 at 10:53 am
7
Posted on 4/2/20 at 10:51 am to GentleJackJones
If you already have a safety net of money then pay off your higher interest loans while you don't have to pay interest on them.
This post was edited on 4/2/20 at 11:21 am
Posted on 4/2/20 at 11:05 am to GentleJackJones
quote:
Invest it?
This.
Posted on 4/2/20 at 11:14 am to GentleJackJones
$55,000 is a good safety net/nest egg for most people, but it depends on your lifestyle/expenses. I think strategically it's better to pay down debt when things are humming along. If this pandemic and oil war has taught us anything, sugar can turn to shite real fast nowadays, you don't see it coming until it happens so having a large cash reserve on hand (which you do) is smart IMO.
How much do you owe in student loans? What is your current monthly payment?
How much do you owe in student loans? What is your current monthly payment?
Posted on 4/2/20 at 11:35 am to GentleJackJones
Always keep an emergency fund for 3-6 months of living expenses in case you lose a job or break both legs or a worldwide pandemic.
Honestly, I think the psychological benefits of not having anymore student debt would far out weigh whatever potential gains you might have in the market. I never had any student debt so I can't relate to the experience, but if it has a relatively high interest rate I would try to get rid of it as quickly as possible.
That said maybe have the best of both worlds, maybe invest 5-10k and use the rest to pay off loans. All of this assuming you have the emergency fund.
Your home mortgage would be nice to pay off but it's such a low rate over a long period of time so not your biggest priority in my opinion.
Honestly, I think the psychological benefits of not having anymore student debt would far out weigh whatever potential gains you might have in the market. I never had any student debt so I can't relate to the experience, but if it has a relatively high interest rate I would try to get rid of it as quickly as possible.
That said maybe have the best of both worlds, maybe invest 5-10k and use the rest to pay off loans. All of this assuming you have the emergency fund.
Your home mortgage would be nice to pay off but it's such a low rate over a long period of time so not your biggest priority in my opinion.
Posted on 4/2/20 at 11:42 am to SaintTiger80
quote:
Your home mortgage would be nice to pay off but it's such a low rate over a long period of time so not your biggest priority in my opinion.
Agree 100%, in any scenario your mortgage should be last on this list of priorities.
quote:
I think the psychological benefits of not having anymore student debt would far out weigh whatever potential gains you might have in the market
Very good point that I didn't mention - the peace of mind aspect. If student loans are causing you to hemorrhage money relative to your income (e.g. you make $50,000/year but your monthly loan payment is $1,500), then you may very well sleep better at night knowing you don't have that financial weight on you. Personally, I have around $12,000 in student debt (this is my only debt), my monthly payment is only $400 and I have the cash to pay the whole thing off right now, but it would put a good dent in my emergency fund, so I sleep much better at night knowing I have good cash reserves as opposed to no student debt. Especially since I work in such a volatile industry.
Posted on 4/2/20 at 11:45 am to GentleJackJones
Don’t pay off the mortgage.
You don’t mention the student loan balances....but I’d definitely start throwing more at them, ASAP.
Your nest egg is great. Make sure it is sitting in an easily accessed account that is paying you interest—look around for a money market savings or checking. Your bank or another may pay you preferential interest rates based on your aggregate balances.
Now, look at your monthly contribution you were making toward the nest egg: reallocate to student loans and/or investing.
You don’t mention the student loan balances....but I’d definitely start throwing more at them, ASAP.
Your nest egg is great. Make sure it is sitting in an easily accessed account that is paying you interest—look around for a money market savings or checking. Your bank or another may pay you preferential interest rates based on your aggregate balances.
Now, look at your monthly contribution you were making toward the nest egg: reallocate to student loans and/or investing.
Posted on 4/2/20 at 12:36 pm to hungryone
Federal student loans are 0% interest right now and all required payments are suspended until September (both effective March 13). The payments are automatically suspended so it shouldn't be pulled from your bank accounts anymore, and if one does happen from March to September, you can (and should) request a refund. If you want to continue paying, you can, but you'll have to turn autopayments back on. Call your lendor to figure that all out.
Economically, you should 100% not make any payments to the govt as long as there is 0% interest. You are better off putting that money in a bank account and let it collect interest. When the govt starts charging interest again, you can withdraw that money from the bank and pay your loans and be in a better situation than you would have been had you made the payments normally as you kept the bank's interest over 6 months. You could also get riskier and invest the money, but then you open yourself up to a loss, whereas sticking it in a savings account is a guaranteed win.
That argument is the pure mathematics behind it all. Behaviorally, you may not be able to stick to that plan (and most people actually fail to stick to this type of plan) and you end up spending the money. Or perhaps the peace of mind of being done with student loans is worth the loss in interest.
Personally, I would prefer to have as much cash on hand as possible right now to do with as I please (invest, spend, etc.), ride out this pandemic, and once its all over decide what to do with the cash.
Economically, you should 100% not make any payments to the govt as long as there is 0% interest. You are better off putting that money in a bank account and let it collect interest. When the govt starts charging interest again, you can withdraw that money from the bank and pay your loans and be in a better situation than you would have been had you made the payments normally as you kept the bank's interest over 6 months. You could also get riskier and invest the money, but then you open yourself up to a loss, whereas sticking it in a savings account is a guaranteed win.
That argument is the pure mathematics behind it all. Behaviorally, you may not be able to stick to that plan (and most people actually fail to stick to this type of plan) and you end up spending the money. Or perhaps the peace of mind of being done with student loans is worth the loss in interest.
Personally, I would prefer to have as much cash on hand as possible right now to do with as I please (invest, spend, etc.), ride out this pandemic, and once its all over decide what to do with the cash.
This post was edited on 4/2/20 at 12:39 pm
Posted on 4/2/20 at 12:43 pm to GentleJackJones
Normally I put 200-300 a month into investing but right now I'm up to 500 since everything is so low
Posted on 4/2/20 at 12:49 pm to blackoutdore
My above post was in reference to absolutely not throw any money towards your student loans from an economic/math perspective. So not only will have $55k from your nest egg, each month will you save $X that were previously dedicated to your student loans.
My Steps moving forward:
1. Keep several months cash on hand in regular savings.
2. Explore refinancing any debt to lower rates.
3. Pay off any interest accruing debts with a 4% or greater rate. (Remember, student loans are temporarily 0%, so don't pay them until they return to normal).
4. Save/invest excess money. Look into tax advantaged accounts [HSA, 401k, Roth IRA]. If you fill those up, proceed to a normal brokerage account.
Steps 2-4 are somewhat dependent on each other and may have various tax affects that may shift the order around. You'll have to play around with each scenario to optimize. I also cannot understate keeping cash on hand as lay-offs could be wide scale.
My Steps moving forward:
1. Keep several months cash on hand in regular savings.
2. Explore refinancing any debt to lower rates.
3. Pay off any interest accruing debts with a 4% or greater rate. (Remember, student loans are temporarily 0%, so don't pay them until they return to normal).
4. Save/invest excess money. Look into tax advantaged accounts [HSA, 401k, Roth IRA]. If you fill those up, proceed to a normal brokerage account.
Steps 2-4 are somewhat dependent on each other and may have various tax affects that may shift the order around. You'll have to play around with each scenario to optimize. I also cannot understate keeping cash on hand as lay-offs could be wide scale.
Posted on 4/2/20 at 3:54 pm to blackoutdore
quote:
Federal student loans are 0% interest right now and all required payments are suspended until September (both effective March 13). The payments are automatically suspended so it shouldn't be pulled from your bank accounts anymore, and if one does happen from March to September, you can (and should) request a refund. If you want to continue paying, you can, but you'll have to turn autopayments back on. Call your lendor to figure that all out.
So, my wife's April payment (on her government loan) was just auto-drafted from her account on the 1st. It is showing a regularly scheduled amount of interest paid. Should the draft have been suspended? If paid, should interest due be zero in this situation? As if the payments are principal only. We usually pay an extra $1200/mo, but I'll throw it in the savings if what you say is true. Do you have a link for the details for that plan?
Thanks for the heads up.
Posted on 4/2/20 at 3:59 pm to Oenophile Brah
I want to know the same thing man. Mine auto drafted out at the normal amount, both my loans are Federal and I definitely don’t see 0% interest anywhere...
Posted on 4/2/20 at 8:03 pm to GentleJackJones
What are the interest rates on your student loans? I know they’re temporarily 0%, but what are they normally? If they’re above 5% I’d consider doing some short term investing, then hitting them hard when interest starts accruing again
Posted on 4/2/20 at 8:27 pm to blackoutdore
Mine show 0% interest but still says I have a minimum monthly payment due for april
Posted on 4/3/20 at 9:00 am to blackoutdore
quote:
Importantly, some Federal Family Education Loans (FFEL) are owned by private lenders (such as banks) and some Perkins Loans are owned by colleges and universities. Those student loans do not qualify for these benefits. Contact your student loan servicer to verify which student loans you have.
This is from the link above you provided. This is important to note. I originally thought my student loan was now at 0%, but it’s an FFEL that is owned by a private bank. I found out it’s not subject to the 0%. Don’t automatically assume yours is too. They aren’t all 0%.
This post was edited on 4/3/20 at 9:01 am
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