Poll

Should I

pay off all my student debt (70K) before investing post-tax dollars
0 (0%)
only pay off student loans after investing substantially
3 (42.9%)
put half of my money towards debt and half towards investing
2 (28.6%)
something else entirely!
2 (28.6%)

Total Members Voted: 7

Voting closed: October 23, 2015, 11:25:13 PM

Author Topic: Investing vs Student Loans  (Read 1366 times)

2dogs0kids

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Investing vs Student Loans
« on: October 16, 2015, 09:55:33 PM »
I live a fairly Mustachian life but I'm working on improving it.  (Couldn't resist an early reference (name) to my least Mustachian habit - I spend significant time and money on my two dogs, because dog agility is a beloved hobby and it isn't cheap - but may become my source of income when I early-retire from medicine.)

I'm currently saving around 60% of my salary as a physician (3/4-time, academic, so not huge $$).

I still have student loans.  About $70,000 at 2.8% interest.
I am also saving for retirement pretax - I have maxed out my 403B contribution this year (18K), as well as my personal IRA contribution (5.5K).

What should I do with the money that I have left as savings after maxing out my retirement savings and paying the minimums on my student loans - pay off the student loans or invest?

I paid off 20K in student loans this year, just because having almost 100K worth of them was making me crazy.  Then I just put 10K in Betterment, because I wanted to have my safety-net-plus either making interest (invested) or paying off interest (student loans), but I also wanted to have the ability to "get it back" in case unexpected expenses should arise (instead of using all of it for student loans, when it is then gone forever since I could never get a loan at 2.8% in an emergency).  I still then have additional savings as part of my 60% of my salary that I am saving that I need to allocate.

At 2.8%, does the student debt count as a debt emergency that should be emphasized?  Or should I be putting money into index funds / Betterment, since I could probably make closer to 5% there, which is higher than my interest?  Or some of each?!

I am renting and do not have plans to buy (lost money on a condo in residency so I have a bitter taste in my mouth re: real estate).  No children or spouse to be saving up for.  Just saving with the goal of early retirement at this point, since medicine is burning me out.  I have no credit card or higher interest debt.

Thanks for your help!  I've been lurking for a while, but haven't noticed a situation exactly comparable to this yet, and will appreciate your words of wisdom.

MDM

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Re: Investing vs Student Loans
« Reply #1 on: October 17, 2015, 12:04:10 AM »
At 2.8%, does the student debt count as a debt emergency that should be emphasized?  Or should I be putting money into index funds / Betterment, since I could probably make closer to 5% there, which is higher than my interest?  Or some of each?!
2dogs0kids, welcome to the forum.

2.8% is not a debt emergency at all - it is only slightly above current inflation, which itself is running very low compared with historical averages.  "Just pay the minimum each month and never pay extra would get my vote" if that were an option.

Valetta

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Re: Investing vs Student Loans
« Reply #2 on: October 17, 2015, 06:58:38 AM »
That is a really low interest rate - mine is about the same 3.1%. I make only the minimum payments and save as much as possible. You could even save it in an investment account that you earmark for student loan payoff. Then when the balances meet, you could consider paying them off. That may also help with motivation if you need it. I have a feeling that once you got to that point, the payments wouldn't be a big deal and the saving would be a habit so you could just keep going with the saving.

I think the exception is when you are the kind of person that finds paying off debt more psychologically rewarding than saving money. I don't think there is anything wrong with this, a lot of people are like that. If it is between paying off the debt and blowing the money - then pay off the debt. Based on your post, I'm guessing this isn't the case though since you have a high savings rate.