Pay off entire student loan?

[put me in coach]

Hello,

I owe about $24k on a student loan with about 5.65% interest.

We're in an extremely HCOL area. We were saving up for a house. Now we know that we won't buy a house for a couple years. We've built a cushion of about $60k in a high yield savings account earning 2.25% interest and have moved to an area where we're spending about $1.1k/month on rent and sharing a house–super cheap for us.

We could replace the $24k in about 3-4 months if we were to pay it off today and still contribute to our retirement accounts as normal. Any reason why we shouldn't do this? For credit reasons or anything else? Anything else to consider?

Current monthly payments are set at $310/month, but we often pay more than that.

[NolanCF]

You've got 60K earning 2.25% vs 24K costing you 5.65%

This is really easy math.

Pay it off now.

[Davnasty]

Paying off the loan shouldn't have any significant effect on credit score and I can't think of anything else.

Unless you have a need for a $60,000 emergency fund, and especially since you can replace it in 3-4 months, I say pay it off.

[nereo]

Near as I can figure, you have a 2+ year emergency fund, and you have a net cashflow of over $6k/month.

I'll echo the other posters - pay off your SL today. It won't adversely impact your credit score several years from now.

[SwordGuy]

Yep, pay it off now.   The rate is high enough that it's  better to get rid of it vs. investing in the market.   Kill it off and be done.

And good job getting those costs in line.

When you've got your stash ready remember that housing costs in much of the country are really low compared to the really expensive locations.   I buy nice houses in cash, paid in full, for less than your emergency fund.

[use2betrix]

I agree with the others on paying it off. This forum typically comes to a general consensus that some loans aren’t bad, if low interest rate, but yours is pretty easily in the category of pay it off. I typically consider around 4% to be the cutoff number between investing vs payoff. At your 5.65%, that’s a GUARANTEED return by paying it off.

If we were in the midst of an actual recession I’d say invest, but in the current market, I’d call it a no brainer.

[Radagast]

Yup I agree. Pay off the debt. Every valuation method seems to show you will get a better to similar return on that right now, obviously with less risk.

[Dicey]

1. I love, love, love your screen name.

2. This question is impossible to answer without knowing what you are doing for retirement savings. Please provide additional information asap.

3. Paying off cheap-ish student loans in haste before you start saving for retirement is a mistake you might have years to regret at leisure.

[put me in coach]

Thanks everyone! Ya, we were pretty certain that it's priority to pay. We were just wondering about how much it'll do to our credit score and if there's an option to pay it down to 1k or something and then make tiny payments monthly so we can keep the line of credit open and average age of accounts up. I paid down my student loan last year to $0 and it's not coming up at all on my credit report already.

Our retirement savings are close to $16k/year combined, and i've got a small new-school pension (as in not as good as old school pension). We could increase this, but we've got a kid on the way and want to see how all that works out, including parental leave w/o pay.

[therethere]

I would follow the investment order. But that's just what has worked for me. Refinance the loans to a lower rate (snagging a referral bonus) and max out your retirement. Once you get there invest the extra in a brokerage.

You don't have a cash flow problem. Keep the e-savings high until you work out your new family situation.

[nereo]

Thanks everyone! Ya, we were pretty certain that it's priority to pay. We were just wondering about how much it'll do to our credit score and if there's an option to pay it down to 1k or something and then make tiny payments monthly so we can keep the line of credit open and average age of accounts up.

What's your credit score now?  Do you need a line of credit in the near (e.g. 6 month) future?
What the credit agencies want to see is at least one line of credit open for >2  years, preferably 5 years, and a history of having paid on time in the last 7 years (even on accounts that are now closed).  They don't care about the average age of debts much, if at all. If you've had a credit card for several years not much will happen to your credit score should you pay off your SL.  In general, it's a good idea to keep your longest credit card open regardless (I made the mistake of allowing mine to close).

Even still, on-time payment and your available credit ratio are two of the biggest factors.  When I applied for a mortgage I had allowed all but my most recent cc to close (which was just 1y, 11mo) and I still had a score of 760, qualifying me for the best rate.  Even though SLs won't show up on your active credit, they ARE still listed on your full credit report, as are other credit cards you may have had in the last 7 years.