I have around $10,000 in federal student loans. I have a $1500-$2000 surplus each month after maxing out my personal IRA and employer-provided SimpleIRA, so I could easily pay these off in the next few months. Otherwise, I’ll stash the money in my (taxable) Vanguard brokerage account (index funds, mostly). The source of my dilemma is that the loans only cost 2.0% and 3.5% interest, while my investments earn significantly more than that.
I have no other debt - I pay off my credit cards every month, and I don’t have a mortgage. I’m considering buying a house in the next few years, though, and would probably not pay in all cash, so it seems a bit silly to pay off debt at 2% interest and then take on additional debt at a higher rate. And hopefully it’s irrelevant, but if I die or become totally and permanently disabled before I repay them, the loans will be discharged, which I guess would be nice for my heirs and/or caretakers?
I don’t think paying off the loans would be the most logical financial decision, but they just kind of weigh on me, and I really want to pay them off. Does anyone want to reassure me that it makes perfect sense to pay off these loans? Or would you rather reassure me that slow and steady wins the race and there's no need to rush to pay them off?
I’ve considered just paying off the 3.5% loan (which also has a longer repayment term - 10 more years, rather than 5 more years for the 2% loan). But I’m not sure that would be psychologically satisfying enough.