Author Topic: Graduate Student Looking for Student Loan Payoff vs Investment Advice  (Read 2075 times)

ProfessorSnuggle

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Hi folks, my first time posting here. Please forgive and correct any ignorance or misconceptions, I'm new to the whole money thing.

So, I'm 23 and I am 8 days away from finishing my undergraduate degree and now I'm starting to think seriously about money (wish I had done it sooner). I ran into the MMM blog about a year back and decided to take a serious look again recently because the lifestyle that MMM promotes is one that resonates with me/ confirms my biases ;). My parents are the definition of consumerist suckas ($1200 a month car payment, expensive home, constantly buying new stuff) who are basically slaves to their debt. Because I've seen first hand the effect that not being in control of your money can have, I am really motivated to pay off all of my student loans as quickly as I can, but after doing a little reading here there seems to be a few people saying that student loans are "good debt"(?).

I have what appears to be a small amount of loan debt ($19,500 - 3.8%-4.2%, subsidized), but it feels very intimidating. I am starting graduate school in 3 weeks, where I will be getting a stipend of ~$18,000 a year after taxes. I'll be getting my Master's at the same school that I got my undergrad so I don't have to worry about the cost of moving or an increase in CoL by going to a different city. I already live a somewhat Mustachian lifestyle (I think?) where I live very happily on ~$10,000 a year.

My plan until today was to pay off that 19.5K balance ASAP because as I said before I am a bit afraid of debt, but after reading and trying to be a bit more rational it seems like that money *might* be better elsewhere. Since the payments (and interest) can be deferred for the next 2.5-3 years while I'm in school I could pay them back interest free OR I could put that ~7k a year in a Roth or something and just make the minimum payment on my loans. What would the best course of action be? As much as I want to be debt free I also want to avoid making my financial decisions based on emotion.

On a related note, what are some good books to read for financial beginners? In case it already isn't painfully obvious, I need to up my financial literacy, but am starting from basically zero.

Thanks in advance!

Broadway2019

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #1 on: August 03, 2017, 08:30:04 PM »
I would pay them off asap! After graduate school it will be so nice knowing you are starting with a clean slate. Also, after grad school you will be in another point in your life, where you living expenses will probably go up. Car, house, relationships, etc..

I am 29 and just paid off $80k of student loan debt last month and it is such a freeing feeling. Imagine making $50-60k and not having any debt.

ProfessorSnuggle

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #2 on: August 03, 2017, 09:14:35 PM »
Congrats on paying off that debt!

Yeah, that was my original thinking. I was just curious if I would come out ahead by investing instead. I will probably be going on to get my PhD once I finish my master's, so I will have plenty of time to pay it off before the interest kicks in and I really like the idea of not letting NAVIENT make money off of me. I think unless I get some really good input otherwise I'm going to lean towards paying off, but I thought I'd get some more experienced advice before I commit to one approach.

Thanks for the advice.

poetdereves

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #3 on: August 04, 2017, 07:43:18 AM »
Lucky for you your interest rate and amount aren't really too bad at all! It may seem like it now, but once you finish grad school without loans to pay back you'll be dumbfounded by the numbers some of your friends say that they owe.

Honestly, you're at a point where the numbers come out pretty even either way. I think what is more important is making a choice that will keep you motivated to stay on the right path and wanting to continually improve. You're young compared to a majority of the people on here, so you can't really go wrong either way with this decision. For you, it seems like paying off your loans is what will keep you making the right choices.

So, books. I'd recommend The Richest Man in Babylon and The Millionaire Next Door. Even just those two books will help you avoid some of the biggest pitfalls of post grad life, and teach you a bit about ways to maximize whatever cash flow you do have in school. You can download both online for free or pick them up at your local public library.

Best wishes to you on your journey! You may feel a bit overwhelmed at first, but you are in a WAY better spot than you realize.

YttriumNitrate

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #4 on: August 04, 2017, 08:37:47 AM »
How are the loans subsidized? If the government is paying the interest on them while you are in school (rather than the interest just being rolled into the principal), you should totally be putting the money into a Roth IRA. The great thing about the Roth is that you can withdraw the principal penalty free. That means, if at any time you change your mind and want to pay off the loan, you can just take the money out of the Roth IRA.
« Last Edit: August 04, 2017, 08:39:28 AM by YttriumNitrate »

yuka

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #5 on: August 04, 2017, 01:15:54 PM »
How are the loans subsidized? If the government is paying the interest on them while you are in school (rather than the interest just being rolled into the principal), you should totally be putting the money into a Roth IRA. The great thing about the Roth is that you can withdraw the principal penalty free. That means, if at any time you change your mind and want to pay off the loan, you can just take the money out of the Roth IRA.

This is the correct answer.

I'd add that, with your low cash-flow, having a large near-cash reserve (Roth IRA principal) could quite easily take a disaster and reduce it to a big inconvenience.

ProfessorSnuggle

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #6 on: August 04, 2017, 03:19:55 PM »
Quote
The great thing about the Roth is that you can withdraw the principal penalty free. That means, if at any time you change your mind and want to pay off the loan, you can just take the money out of the Roth IRA.

This is awesome. I hadn't realized that I could do that! Thanks

Quote
This is the correct answer.

I'd add that, with your low cash-flow, having a large near-cash reserve (Roth IRA principal) could quite easily take a disaster and reduce it to a big inconvenience.

That's also a great point.


Thanks for the advice folks, I really, really appreciate it. I'm gonna head to the library and check out the books @poetdereves recommended and start arming myself with a little more knowledge.

Dules22

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #7 on: August 25, 2017, 11:27:35 PM »
I would see if you can get a deferment. Have the interest paid by the government if you can. Many programs allow you to do this but you might have to ask around. Take your extra cash and put it in a Roth. At the end of your studies decide if you are making a higher return on your Roth than the interest rate of your loan. Also depending on your field the loan might be forgiven at some point after working for x number of years so you can look into that. Also sofi seems to be popular on this site so you could read up on that too. Good luck!

koshtra

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #8 on: August 25, 2017, 11:52:46 PM »
I'm with poetdereves. Odds are you'd come out a few hundred dollars better going the Roth route, but if keeping your motivation strong and clear requires clearing the debt first, go ahead and do it.

I find that student debt (when I've looked at it to advise my kids about theirs) is so irritating, with all the different loans and rates, and the maddening mushiness of the agencies that administer them, that if I carried any my first order of business would be to get out from under it. But that's just me.

koshtra

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Re: Graduate Student Looking for Student Loan Payoff vs Investment Advice
« Reply #9 on: August 26, 2017, 12:11:26 AM »
Oh, and as for further reading, Jim Collins' stock series http://jlcollinsnh.com/stock-series/, for sure.

Andrew Tobias's *The Only Investment Guide You'll Ever Need* was what put me on the road to financial independence, long ago, in the days when you worried more about inflation than about investment banks going rogue... but I read the new edition a year or two ago and I still thought it was full of good advice. He was the first person to hammer home to me that a penny saved is actually worth a hell of a lot more than a penny earned.