Author Topic: Student Loans or Index Funds?  (Read 1251 times)

Cool Friend

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Student Loans or Index Funds?
« on: June 06, 2018, 12:26:33 PM »
Hi,

I graduated college right before the recession hit (2008), and long bouts of unemployment made me into an almost pathologically frugal person. Not that I was a big spender before, but the kind of outlook I found on this site recently is very encouraging to me.

Two years ago I finally got a job that allowed me to put my student loans on autopay ($350/month, on what is as of this day a $28,000 principal with 5.125% interest), and I also was able to pay an additional $4,500 towards my loans at the end of last year.  I only eased up on my unemployed spending habits a smidge since getting this job, and so I now find myself with $23,000 in my savings account.  I know, I know--what on earth is that doing in a savings account?  That's why I'm making this post.

I've never had this kind of money in my life, and I have a lot of anxiety and fears about financial emergencies (I grew up in a very volatile, unstable home, but I'm trying to grow past these fears).  So my inclination until now has been to just keep it guarded in savings, which I know is not sensible, since I could be taking advantage of index fund dividends or at least turning the tide against compounding student loan interest.  I remember from MMM blog posts that the general advice is to eliminate debt as fast as possible before investing.  But how aggressively should I pay it down?  How much of my savings account should I keep on hand?  Should I invest at the same time?  I guess it's a weird mental hurdle for me, because to me an index fund = the money is still mine if I need it and paying down debt = the money is gone forever.

Other possibly relevant factors
1. I have no other debt
2. I'm single and have no children
3. I do not want to stay at this job for much longer, because it's very stressful and located in one of those most expensive cities in the world. I'm uncertain if/how I will be able to get this kind of earning power again, though.

MDM

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Re: Student Loans or Index Funds?
« Reply #1 on: June 06, 2018, 01:13:33 PM »
I remember from MMM blog posts that the general advice is to eliminate debt as fast as possible before investing.
Cool Friend, welcome to the forum.

You may be conflating MMM with Dave Ramsey.  See Investment Order for the general advice usually referenced here.  Depends on "your satisfaction" whether you are ready to move past step 0.

A couple of other references specific to your post:
How to withdraw funds from your IRA and 401k without penalty before age 59.5
Roth IRA as an emergency fund - Bogleheads.

See also Getting started - Bogleheads.  Good luck!

Lady SA

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Re: Student Loans or Index Funds?
« Reply #2 on: June 06, 2018, 01:14:25 PM »
you are an excellent candidate for this post:
https://forum.mrmoneymustache.com/investor-alley/investment-order/

Quote
WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.           
           
WHY           
0. Give yourself at least enough buffer to avoid worries about bouncing checks           
1. Company match rates are likely the highest percent return you can get on your money           
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs for that purpose.
    At worst, the HSA behaves much the same as a tIRA after age 65.
4. Rule of thumb: traditional if current federal marginal rate is 22% or higher; Roth if 10% or lower, or if MAGI is too high to deduct a traditional IRA; flip a coin otherwise. 
   For those willing to expend a little more energy than it takes to flip a coin, consider comparing current marginal tax saving rate vs. predicted marginal withdrawal tax rate.
      If current > predicted, use traditional.  Otherwise use Roth.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   See Traditional versus Roth - Bogleheads for even more details and exceptions.  State tax (or lack thereof) should also be considered.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals*.
5. See #4 for choice of traditional or Roth for 401k.  In a 401k there are no income-based limits for deductions or contributions.     
6. Applicability depends on the rules for the specific 401k           
7. Again, take the risk-free return if high enough.  Note that embedded in "high enough" is the assumption that your alternative is "all stocks" or a "fund of funds"
   (e.g., target retirement date) that provides a blend of stock and bond returns.  If you wish to consider separate bond funds, compare the yield on a fund
   with a duration similar to the time remaining on the loan, and put your money toward the one with the higher interest/yield.
8. Because taxable earnings will still help your FI journey.  If your own retirement is in good shape, and you choose to provide significant help for children's college costs,
   a 529 plan may be appropriate.  Similar to "put on your own oxygen mask before assisting others," do consider funding your own retirement before funding 529 plans for children's college costs.

edit:
in your case, I would reserve part of that $23k as an emergency fund (3-6 months worth of expenses), and then put the rest into an index fund.
Have you looked into refinancing your loan to a lower rate recently?
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #3 on: June 06, 2018, 02:27:34 PM »
Thank you very much for the warm welcome and very helpful links!  It puts it all in a much clearer perspective. Lady SA, you suggested putting what I donít need for my emergency fund in index funds.  Would you recommend doing that before I start attacking my student debt, in tandem with, or only after my debt is eliminated?  I havenít looked into refinancing my loan before. Where do I start looking into doing that?  Nelnet is my student loan administrator, and Iíve had my loans in the IBR program since 2015 (though right now, I donít pay any less for my loans because I earn enough money to cover the regular charges).

It also sounds like I really need to educate myself about 401k, Roth, and IRAs.  I donít know much about any of them, except that I have a 401k through work.  I donít know if they do any matching, but Iíll ask tomorrow what the situation is.   Iím embarrassed to admit this, but here goes: Iíve worked short term in other companies that enrolled me in 401kís, but I donít know what happens to the money after I leave the company.  Is there a resource I can use to find out if that money still exists somewhere, and whether or not I can consolidate those accounts into one main account (if that's even how it works).

Thank you again for your help.  :)

MDM

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Re: Student Loans or Index Funds?
« Reply #4 on: June 06, 2018, 02:54:56 PM »
Iíve worked short term in other companies that enrolled me in 401kís, but I donít know what happens to the money after I leave the company.  Is there a resource I can use to find out if that money still exists somewhere, and whether or not I can consolidate those accounts into one main account (if that's even how it works).
You might start with that oldie but goodie of a resource: the telephone.  Call those previous companies, say that you have forgotten how to access your 401k plan, but would now like to roll over your balance to an IRA, so you need that information. 

When you have that information (or if for some reason have difficulty getting it), post with a summary (e.g., approx. balances in traditional and/or Roth accounts) and you can get more feedback on what to do next.

MDM

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Re: Student Loans or Index Funds?
« Reply #5 on: June 06, 2018, 02:57:05 PM »
It also sounds like I really need to educate myself about 401k, Roth, and IRAs.  I donít know much about any of them, except that I have a 401k through work.
See the 'Basic Terms' tab of the case study spreadsheet for one overview.

Jouer

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Re: Student Loans or Index Funds?
« Reply #6 on: June 06, 2018, 03:21:54 PM »
I'll offer my personal example as a case study. I paid off my student loans before investing. I massively regret that decision as I missed out on all that sweet, sweet compound interest. No matter how much I invest now and in the future (it's a lot), I will never catch up to what I could have had if I started investing earlier.

I would still pay more than the minimum on your student loans but I would also start investing.

therethere

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Re: Student Loans or Index Funds?
« Reply #7 on: June 06, 2018, 03:52:41 PM »
I'll offer my experience....

I followed the investment order in regards to my student loans. Once I got all the >5% student loans paid off I stopped extra payments. I maxed out my 401k and IRA's for taxes next. In the 10 years it took to get to this point, my retirement accounts were only receiving the 4% to get the company match so they had a pitiful balance. It felt good to get that growing as fast as possible. Then any excess monthly after that I directed to a brokerage "loan payoff" account. I dutifully bought VTSAX until I had enough contributions in that account to payoff my loan balance.

I started Jan 2015 and have been keeping track of the gains in the brokerage versus the extra interest paid monthly since. Granted, we have seen quite a run from 2017-2018, but I expect to only see the net benefit increase. I've also refinanced 3x since to get my rates all below 4%.

Started on Jan 2015 - SL 58k, Brokerage 0.
Jan 2016 - Net benefit (-357)
Jan 2017 - Net benefit  4,920
Jan 2018 - Net benefit 14,275
Current - Net benefit 16,475,
SL balance 41k, Brokerage balance 70k

Now I plan to keep my loans around and only pay minimums until they end in 6 years. In a way it is forced savings of ~$500 a month. Every 6 months I check to see if I can refinance them at a lower rate as my savings and income increases. Continually refinancing with different companies also net's you the referral bonuses which is usually more than the interest savings. I apply the referral bonuses to my brokerage account too. Should I ever need or want I can raid this brokerage account to payoff my loans. Or, if I lose my job I can take out just what I need to pay the minimums. Also, if an opportunity comes up (say a cheap house or a sabbatical) I still have the brokerage money on hand. Personally, this gives me way more security than paying off my loans completely.
« Last Edit: June 06, 2018, 03:56:06 PM by therethere »
I refinanced my student loans with Earnest and cut 1% off my rate. PM me for a referral with $200 credit.

Lucky Recardito

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Re: Student Loans or Index Funds?
« Reply #8 on: June 06, 2018, 04:29:26 PM »
Welcome! This is what I would do if I were you (this is just an application of the investment order others have posted):

1) Decide how much cash you want to keep in an emergency fund. The common rule of thumb is 3 to 6 months of expenses, but it's a personal choice. I'd say that anything under $1,000 is definitely too little, and anything over 1 year's living expenses is too much -- but there are a lot of good, defensible numbers in that range. You're allowed to let your personal experiences influence your choice here. (FWIW, my assumption for the #s that follow is that you'll decide to keep perhaps $10K or $15K as an emergency fund. If that's a wrong assumption, adjust accordingly.^)

2) Go sign up for your 401k TOMORROW.^^ At the very least, contribute enough to get the maximum match (if there is one). At the very most, contribute $18,500 for the year. (Per my assumption in #1, you can stop contributing to your emergency savings fund for now. So another way to do this might be to look at how much you've been putting into your savings account each month, and set your 401k contribution to that. You're essentially redirecting new savings from cash to tax-advantaged investments.) Make sure the $$ you're putting into your 401k are going into a target-date fund or a nice broad-market index fund. If you're not sure what that means, post your 401k plan's list of investment options here and someone will chime in and help.

3) Take $5,500 from your savings account and go to vanguard.com and open an IRA (Traditional or Roth; do some reading on this to decide, and post here if you want others to weigh in on your choice). Invest that $5,500 in, again, a nice broad-market index fund or a target-date fund. (Congrats, you just maxed out an IRA for 2018! You can't put any more in this account this year, but you can do it again in 2019.)

4) Go find those old 401ks and track down every dollar. (Note: if the balance in these was very low when you left, they may have cashed you out and you may not have realized it.) You'll want to roll all those into a Rollover IRA. Call Vanguard and they'll help you set it up. Again, big dumb index fund or target-date fund.

5) Take what's left from your emergency fund overage and do one of two things: (a) Open another account at Vanguard that's just a plain ol' taxable brokerage account, and buy some more boring index funds.^^^ Hot damn, now you'll have 4 investment accounts (a 401k, two IRAs, and a brokerage account). You laid the groundwork for your long-term financial planning in, like, a week. That's pretty badass. OR (b) Make a one-time student loan payment, all toward principal. At 5.125%, I'd just barely be inclined to go with (a), but if the loan is bugging you, a one-time payment might feel really good. And I'm not above psychological wins.

^ One reason to keep a bigger emergency fund would be if you think you'll leave your current job (and potentially move) in the next year or so. That would be a good reason to keep extra cash on hand.
^^ And figure out if your health plan qualifies you for an HSA (Health Savings Account). If so, that goes in here too.
^^^ For a new account, I think you need $3,000. So if your available amount is less than that, scratch this option.

Lady SA

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Re: Student Loans or Index Funds?
« Reply #9 on: June 07, 2018, 08:01:43 AM »
Count me as another person who is prioritizing investing over paying off my loans. Very happy with our decision!
In 2014 DH and I were -$150k in the hole. Today, our net worth is POSITIVE $230k, entirely because our investments are fast outpacing our loan balances. Once things are in positive territory, things really start accelerating in the right direction.
Plus, starting investing in our 20s, means we get an entire additional DOUBLING of our investments that many don't get. The rule of 7 states that every decade, assets that are invested in the market will double without you putting in another penny. Meaning, if you have 100k now, in 10 years without even touching it, on average it will grow to $200k. Then another decade, $400k. then another decade, $800k. One last decade, $1.6 million. But, if you delay, you miss an entire doubling... meaning at the same age, you can either have $800k, or $1.6 million. That is pretty significant difference.

If your employment situation is precarious, I would not refinance your loans as you would lose the federal benefits like IBR. However, DH and I refinanced ours because our jobs/industries are very stable and it would be easy for us to get another job within a month, so the benefits of federal loans were not a factor for us.
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

morethanconquerors

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Re: Student Loans or Index Funds?
« Reply #10 on: June 07, 2018, 10:11:54 AM »
I will throw out another, less popular, option.

You mention that:
1. You have a lot of anxiety about money in general
2. You may be leaving your job soon
3. You live in a high COL area
4. You aren't sure if you can get another job with the same earning power right away

Considering all of these factors, I would consider keeping the money in savings for the time being. Yes, you would be missing out on stock market gains and not be able to pay down debt as fast, but having the flexibility and comfort of knowing that you have a $23,000 buffer might be much more valuable to you. The common advice for an emergency fund is 3-6 months of expenses, but at the end of the day, it is your emergency fund and you are the one who has to be comfortable with it.
« Last Edit: June 07, 2018, 03:52:12 PM by morethanconquerors »

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #11 on: June 08, 2018, 07:25:35 AM »
Wow, I am overwhelmed (in the positive, good way) by all the great advice and perspectives.  Thank you so much for taking the time to reply to me.  I've been following the links and doing a lot of reading, and I'm learning a lot.

Okay, Iím going to get my 401k in order first.  Iíll talk to HR and see what the max I can contribute for this year is.  If Iím understanding correctly, it sounds like it would be useful to have a Roth or IRA to put money in for my emergency fund instead of my savings account, since itís tax advantaged.

Iím very encouraged to hear there is legitimate reason to weigh paying off the loans vs investing and I wasnít just missing something obvious.  Since I can deduct interest paid on my taxes, maybe it would be a good move to make sure Iím getting the max deductible ($2500 I think).  I added up how much of my loan payments were towards the interest for the last year, and it was about $1,500, so maybe what I need to do is pay an extra $1,000 towards the interest (is this possible, to choose whether your payment is on the interest or the principal?) so that I can take maximum advantage of it while simultaneously paying down my loans faster.

Itís true that Iím quite anxious about money (specifically, not having any), and a big part of that anxiety is about an uncertain financial future.  I think I would feel safe having at least $10,000 in savings, which gives me quite a bit to pay with.  Iíll see about the 401k before making any moves with the index funds though.

Iím very much looking forward to updating you all with my progress!

MDM

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Re: Student Loans or Index Funds?
« Reply #12 on: June 08, 2018, 10:57:18 AM »
...so maybe what I need to do is pay an extra $1,000 towards the interest (is this possible, to choose whether your payment is on the interest or the principal?)
It may be possible (depends on the loan terms), but if so you should direct any extra toward the principal, not the interest. 

This falls into the category "don't let the tax tail wag the overall finance dog." 

GetItRight

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Re: Student Loans or Index Funds?
« Reply #13 on: June 10, 2018, 01:22:04 PM »
I had six figure student loan debt. Without knowing more details about your situation I would put $10k into an Ally or other high interest savings account, keep what you need in your checking for regular expenses, pay the rest in lump sum towards student loans. Whenever you have $5k additional floating around throw it at student loans. You're almost there, debt free soon.

MrUpwardlyMobile

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Re: Student Loans or Index Funds?
« Reply #14 on: June 10, 2018, 01:33:31 PM »
Student loan refinancing candidate!!!

Your interest rate is actuall quite high at the moment.  I would recommend trying to get it down below 4% (ideally below even 3%).  Youíre currently tossing money out the window for no reason.  Several student loan refinancing companies would be able to reduce your interest rate significantly. SoFi and Earnest referral links might even get you a free $200 bonus for refinancing.  (If you use mine, we each get $200, but aim for the refinancer that will drop your rate the most). 

A lot of people will give you advice on how best to apply your savings account money.  This is my take,
$5500 should go into an IRA because it is tax deductible
$7500 should go toward reducing your student loan balance because killing the loan balance will help get you eligible for better rates and because the yield on paying your high rate student loans is better than anything a savings account will give you.
$10000 is a solid emergency fund that would be best kept in a high rate online savings account like from CIT Bank or Marcus by Goldman Sachs. I believe theyíre both at or above 1.7% right now.

From there, itís a matter of investing.

http://upwardlymobile.life

Refinance Student loans with Earnest.  Theyíll pay you $200 and their rates are cheaper than SoFi.

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #15 on: June 12, 2018, 03:21:47 PM »
Just wanted to give you all an update.

- I made an appointment with HR to open up 401k and see what the policy is/if they offer matching.
- I got word back from my last employer and it turns out I have about $1,800 still in that 401k!  I'm going to see if I can roll that over into my current employer's plan.
- I opened a high-yield savings account with Ally and dropped $10,000 from my savings into it.  The interest rate is 1.60%, and I'm told that it accrues daily!  Does that really mean that I'll earn $160 on the first day it's in there?  I wish I had done this sooner!!

still to do

- look into student loan refinancing (will I be able to stay in the IBR program?  will my credit score take a hit?)
- Once I have my 401k in order, I can see what I have left to play with regarding paying down my student loans and investing in an index fund.

MDM

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Re: Student Loans or Index Funds?
« Reply #16 on: June 12, 2018, 03:29:09 PM »
- I opened a high-yield savings account with Ally and dropped $10,000 from my savings into it.  The interest rate is 1.60%, and I'm told that it accrues daily!  Does that really mean that I'll earn $160 on the first day it's in there?  I wish I had done this sooner!!
If only.

You'll earn 1.6%/365 * $10,000 = $0.44 the first day.

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #17 on: June 12, 2018, 03:55:26 PM »
Ohh yes, that makes much more sense.  :facepalm:

MrUpwardlyMobile

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Re: Student Loans or Index Funds?
« Reply #18 on: June 12, 2018, 05:50:19 PM »
Just wanted to give you all an update.

- I made an appointment with HR to open up 401k and see what the policy is/if they offer matching.
- I got word back from my last employer and it turns out I have about $1,800 still in that 401k!  I'm going to see if I can roll that over into my current employer's plan.
- I opened a high-yield savings account with Ally and dropped $10,000 from my savings into it.  The interest rate is 1.60%, and I'm told that it accrues daily!  Does that really mean that I'll earn $160 on the first day it's in there?  I wish I had done this sooner!!

still to do

- look into student loan refinancing (will I be able to stay in the IBR program?  will my credit score take a hit?)
- Once I have my 401k in order, I can see what I have left to play with regarding paying down my student loans and investing in an index fund.

You cannot do IBR if you refinance, but why would you want to?  If your goal is paying off, then Opting for IBR is just throwing money away because it traps you in a higher interest loan.  IBR is for people without steady work or very shakey finances.  Youíre not really describing yourself as being anywhere near that category.

Itís impossible to say how your credit will be impacted without knowing more, but my credit scores  went up even higher each time that I refinanced.  The biggest improvement was when I refinanced and multiple Smšll loans became 1 bigger refinanced balance. The note on my account from my credit score provider said it was because I had far fewer credit lines with balances. 
« Last Edit: June 12, 2018, 05:57:00 PM by MrUpwardlyMobile »
http://upwardlymobile.life

Refinance Student loans with Earnest.  Theyíll pay you $200 and their rates are cheaper than SoFi.

MrUpwardlyMobile

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Re: Student Loans or Index Funds?
« Reply #19 on: June 12, 2018, 05:53:15 PM »
Ohh yes, that makes much more sense.  :facepalm:

Itís not a big return, but youíre basically parking money for emergencies and just taking a better return than you get from a checking account.
http://upwardlymobile.life

Refinance Student loans with Earnest.  Theyíll pay you $200 and their rates are cheaper than SoFi.

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #20 on: June 13, 2018, 01:04:25 PM »

You cannot do IBR if you refinance, but why would you want to?  If your goal is paying off, then Opting for IBR is just throwing money away because it traps you in a higher interest loan.  IBR is for people without steady work or very shakey finances.  Youíre not really describing yourself as being anywhere near that category.

Itís impossible to say how your credit will be impacted without knowing more, but my credit scores  went up even higher each time that I refinanced.  The biggest improvement was when I refinanced and multiple Smšll loans became 1 bigger refinanced balance. The note on my account from my credit score provider said it was because I had far fewer credit lines with balances.

A very good point.  It's probably a hangover fear from the 9 years after college I did struggle with steady, decently-paid work.  Before the IBR program my loans went into default because I couldn't pay them and they wouldn't offer forbearance or even a renegotiated monthly bill.  The IBR program really saved my ass and let me get the loans back on track, so I'm a little gun-shy about losing it as a safety net if my job goes sideways.  But then again, like you said, it traps me with an unfavorable interest rate.   Hmm...
« Last Edit: June 13, 2018, 01:19:13 PM by Cool Friend »

therethere

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Re: Student Loans or Index Funds?
« Reply #21 on: June 13, 2018, 01:53:15 PM »

You cannot do IBR if you refinance, but why would you want to?  If your goal is paying off, then Opting for IBR is just throwing money away because it traps you in a higher interest loan.  IBR is for people without steady work or very shakey finances.  Youíre not really describing yourself as being anywhere near that category.

Itís impossible to say how your credit will be impacted without knowing more, but my credit scores  went up even higher each time that I refinanced.  The biggest improvement was when I refinanced and multiple Smšll loans became 1 bigger refinanced balance. The note on my account from my credit score provider said it was because I had far fewer credit lines with balances.

A very good point.  It's probably a hangover fear from the 9 years after college I did struggle with steady, decently-paid work.  Before the IBR program my loans went into default because I couldn't pay them and they wouldn't offer forbearance or even a renegotiated monthly bill.  The IBR program really saved my ass and let me get the loans back on track, so I'm a little gun-shy about losing it as a safety net if my job goes sideways.  But then again, like you said, it traps me with an unfavorable interest rate.   Hmm...

Most refinance companies will offer some hardship accommodations. It's just not official "IBR" that is required to meet any loan forgiveness. So if you aren't looking for loans compliant with PLSF or REPAYE it should make virtually no difference. You'd also be able to re-refinance to extend the term and lower your payment if loss of income is turns into a longer term thing. Here's a clip from Earnest:

    Forbearance: Postpone your payments in three-month increments, up to 12 months total, if you have:

            An involuntary decrease in income, such as a reduction in hours, unpaid leave and change from full-time to part-time employment
            An involuntary loss of employment at no fault of your own
            A significant increase in essential costs such as medical expenses, emergency home repairs or child care
I refinanced my student loans with Earnest and cut 1% off my rate. PM me for a referral with $200 credit.

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #22 on: June 14, 2018, 02:06:55 PM »
I won't have the meeting with HR until Monday (this happens to be her vacation week), but until I do, I had another question about 401k's, if I may ask.

From the advice in this thread, a 401k is the best return on my money... but if the goal for us is to retire as early as we can, how do we withdraw that money without getting hit with the 10% penalty? With Substantially Equal Periodic Payments?  I'm sure there's good reasoning behind this, I'm just new to the whole thing.

MDM

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Re: Student Loans or Index Funds?
« Reply #23 on: June 14, 2018, 02:14:16 PM »
but if the goal for us is to retire as early as we can, how do we withdraw that money without getting hit with the 10% penalty?
See the links in this post. ;)

Cool Friend

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Re: Student Loans or Index Funds?
« Reply #24 on: June 14, 2018, 02:26:41 PM »
but if the goal for us is to retire as early as we can, how do we withdraw that money without getting hit with the 10% penalty?
See the links in this post. ;)

Ah, I managed to miss this first link!  Thanks for re-directing me to it.  Lots of info to take in.  :)

iwanttobelive2

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Re: Student Loans or Index Funds?
« Reply #25 on: June 18, 2018, 08:59:15 AM »
In a similar boat, graduated recession, been ether unemployed or low wage jobs, currently making $35K . Students loans are $36K, Rent is $800. I was wondering about this same thing, thanks for asking. Some of my student loans are 3.5% and others are 6%, on IBR , I'm paying $60 a month right now (will go up since I got promotion and more pay). All though I'm worried about another recession as the stock market is at all time highs (and housing), the general consensus here is not to time the market.

rubybeth

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Re: Student Loans or Index Funds?
« Reply #26 on: June 18, 2018, 09:33:39 AM »
Two notes:

1) Don't roll your old 401k into your new 401k unless they have some amazing investment options. Generally, 401ks do not have great options, so I'd just roll the old 401k to Vanguard or Fidelity into an IRA. Both companies make rollover very easy. Then keep contributing to that same IRA. Generally, you'd contribute enough to the 401k to get an employer match, then try to max out the IRA since you'd have the most control over what you invest it in (max for IRA in 2018 is $5,500), and then if you have more money to invest, then go back to the 401k and put more in there. Or other options like an HSA (Health Savings Account) if you have a qualifying medical plan.

2) Your IRA and 401k would not replace your emergency fund, since accessing those funds early involves planning. Still keep some cash in emergency savings even as you invest. The investments are basically "later" money for "future you." Future you will thank present you for doing this now. :)
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