Author Topic: Would you pay off this student loan?  (Read 2322 times)

FiguringItOut

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Would you pay off this student loan?
« on: March 01, 2016, 09:28:32 AM »
Loan principal ~$13K
Interest 3.5%
Monthly Payment $136
Payoff date in mid 2025
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Age 40, single parent of 2
Income $90K plus ~$22K in child support payments
Savings rate 45% of my salary, 36% of total income including support payments
Available cash ~$40K (includes 8-12 months emergency fund plus savings for planned/expected expenses)
Tax deferred investments ~$100K
No other assets or debts.  Total NW ~128K
Expect to get about $67K rollover IRA sometime later this year after QDRO goes through.


The loan has been bothering me for a while now, but my gut feeling is to leave the loan alone.  The payment is small enough that it will not radically increase my savings.  The interest rate is low enough that $100 of the $136 payment is going to principal.  But in 2025 both of my kids will be finishing or out of college.  Feels weird to still be paying my student loans when they will be paying off theirs. 




Bracken_Joy

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Re: Would you pay off this student loan?
« Reply #1 on: March 01, 2016, 09:33:07 AM »
I don't think it makes sense mathematically. And carrying a loan long term can help credit, although I don't know what your future looks like in terms of real estate purchasing or investing that would make that matter.

I would worry about maxing all tax advantaged space before tackling that loan.

On the other hand, whatever helps you sleep at night. There is also power in knowing you are debt free (so I hear... sigh).

nereo

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Re: Would you pay off this student loan?
« Reply #2 on: March 01, 2016, 09:36:09 AM »
Loan principal ~$13K
Interest 3.5%
Monthly Payment $136
Payoff date in mid 2025
Is the SL fixed?  If so, I would leave it alone.  You have sufficient savings and income that increasing your cash-flow isn't an issue, and the interest rate is low enough you'd be far better off paying the minimum over time.  The only reason to axe it is if it somehow was bothering you emotionally, but I also believe you should never allow emotions to control financial decisions.

Regarding that IRA - are you going to keep that invested?

FiguringItOut

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Re: Would you pay off this student loan?
« Reply #3 on: March 01, 2016, 09:43:45 AM »
Loan principal ~$13K
Interest 3.5%
Monthly Payment $136
Payoff date in mid 2025
Is the SL fixed?  If so, I would leave it alone.  You have sufficient savings and income that increasing your cash-flow isn't an issue, and the interest rate is low enough you'd be far better off paying the minimum over time.  The only reason to axe it is if it somehow was bothering you emotionally, but I also believe you should never allow emotions to control financial decisions.

Regarding that IRA - are you going to keep that invested?

Yes, the loan rate is fixed; so is monthly payment. This is consolidated loan of a couple of my old grad school loans. 

About IRA.  Once I get it, it will come in Fidelity account.  I plan to move it to my Vanguard Rollover IRA account and invest it same as my current account is invested.  A mix of Total Stock, International Stock, and Total Bond funds, mostly Total Stock (VTSAX).

little_brown_dog

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Re: Would you pay off this student loan?
« Reply #4 on: March 01, 2016, 10:09:34 AM »
Personally ld wipe it out. Being debt free feels awesome even if the loan isnt really a burden. I like the clean slate aspect of it...theres something very empowering about not owing money on a monthly basis. If it is bothering you get rid of it. Dont hold onto it if it is going to annoy you until 2025.

nereo

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Re: Would you pay off this student loan?
« Reply #5 on: March 01, 2016, 10:15:27 AM »

Yes, the loan rate is fixed; so is monthly payment. This is consolidated loan of a couple of my old grad school loans. 

About IRA.  Once I get it, it will come in Fidelity account.  I plan to move it to my Vanguard Rollover IRA account and invest it same as my current account is invested.  A mix of Total Stock, International Stock, and Total Bond funds, mostly Total Stock (VTSAX).

sounds good - just wanted to check that you weren't making the mistake of cashing out the IRA (and paying the penalties).

I definitely wouldn't pay off the loan given that it's fixed and the monthly payment is manageable. Don't let emotion (e.g. "it feels weird to be paying student loans when [my children] will be paying theirs" or "paying off a debt feels great") dictate your financial decisions.

randymarsh

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Re: Would you pay off this student loan?
« Reply #6 on: March 01, 2016, 11:55:10 AM »
Keeping is the "right" math answer. But I understand wanting to just be done with it.

I'm having this battle myself deciding whether to pay down student loans and my car. The interest rates are so low that investing probably makes more sense. I've begun calculating what my networth would be under the two different scenarios and I suspect keeping the debt longer is going to be the "better" choice.

mountainstache7

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Re: Would you pay off this student loan?
« Reply #7 on: March 01, 2016, 11:57:48 AM »
Keep investing...If you really want to get rid of it, you could add a little extra in the form of a principal payment each month to speed up the process.