Author Topic: Pay off school loan vs 401k contribution  (Read 191 times)

Outback8

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Pay off school loan vs 401k contribution
« on: July 10, 2019, 11:15:59 PM »
38 years old, finished graduate school recently, been working for 8 months at my second career. I'm wondering how much money I should put into my 401k vs paying off federal school loans?  Any other advise is welcome.

Salary/bonus: $124,000 per year, will be approximately the same next year. 401k has no matching, but they put a good chunk in ea year, $10,000/year starting in year 2 of employment.

Assets:
Bank acct: 18,000
Stocks/bonds: 26,000
Roth 4,600
401k: 61,000
Total: 109,600

Debt:
Federal student loan debt: 154,000 at 6.1% interest
Car loan: 24,000 at 1.9% interest for 5 years
No other debt
Total debt: 178,000

Do not have a house. My studio apt rent is 1500/mo.

I currently pay about 10% of my monthly income toward student loan.
I currently contribute 20% of income toward 401k

Enigma

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Re: Pay off school loan vs 401k contribution
« Reply #1 on: July 11, 2019, 07:38:45 AM »
You are in a situation that is highly debatable.
Tax advantage 401k account should be decreased from 20% down to 15.3% mostly because the cap is $19k.  Then I would put the month into the Roth IRA...

I wouldnt focus too highly on the student loan debt because it seems like a political issue at the moment.  If you havent consolidated the loan then maybe look into doing that for a lower interest rate.  If the laws change in 5 years and somehow the debt is forgiven/interest is completely written off you will be kicking yourself.  I would focus on building the Net Worth while keeping the student loan debt.  Just my 2 cents.

Also some employers offer loan forgiveness programs.  It might be worth looking into finding an employer that pays more (now that you have your grad degree/exp) and offers such programs.  They make only take off 10k a year or something but that is still better than nothing.

Fishindude

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Re: Pay off school loan vs 401k contribution
« Reply #2 on: July 11, 2019, 08:17:39 AM »
I would participate in the 401k enough to get any employee match, then throw anything and everything you can at getting those student loans paid off as quickly as possible, you have the income to do it in a few years.   There is a lot of political discussion regarding student loans, but I seriously doubt anyone is going to wave a magic wand and make them all go away.

therethere

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Re: Pay off school loan vs 401k contribution
« Reply #3 on: July 11, 2019, 08:52:38 AM »
Refinance the student loans with Earnest, Sofi, Lendkey or the like for a lower rate.


Then follow the investment order. This will have you max out your 401k contribution, mainly for taxes. Lowering your AGI may also get you to a level where you can deduct student loan interest, effectively lowering your loan rate.


Depending on your new rate I may or may not pay down the loans. My personal marker was  over 5% pay down the loans. 5% and under pay only the minimums and invest the rest. I also did refinance quotes every 6-12 months as my salary and assets increased to get a lower rate.

MDM

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Re: Pay off school loan vs 401k contribution
« Reply #4 on: July 11, 2019, 08:55:04 AM »
As therethere mentioned, do the suggestions in Investment Order seem applicable to you?

Refinancing to a lower rate is a good idea in pretty much any case.

mistymoney

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Re: Pay off school loan vs 401k contribution
« Reply #5 on: July 11, 2019, 10:29:05 AM »
what other goals do you have?

You have a nice salary, but very heavy debt to repay on your education.

If you don't have immediate plans for buying a house or having a family, etc. then I think you could make great strides towards savings and paying off the loans.

I would max the 401k and Roth if eligible (what are the income limits on Roths for a single person? I don't know).

do 500-1000/month into your taxable account.

You should still be able to send 1k or more extra/month to the SLs. Maybe 2k.

Without more info on your budget, it's tough to judge how much. But if you are otherwise frugal, you should have quite a bit of money to work with. I'm guessing your takehome pay, after maxing the 401k, would be around 6-7k/month?

1500 rent
1000 other expense
500 fun
1000 taxable
2000+ to student loans

Do that for 1 year and see how it feels. How your debt is reduced/investments increased - and make any adjustments.

I guess one big caveat is - job security, ease of replacing current income if let go?



« Last Edit: July 11, 2019, 10:32:16 AM by mistymoney »