Author Topic: Pay Remainder of Student Loans or Let It Ride?  (Read 686 times)

brandonw

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Pay Remainder of Student Loans or Let It Ride?
« on: May 15, 2019, 09:36:30 AM »
Hello Mustachians!

My wife and I have been paying down her student loans and there are only two loans remaining totaling roughly $5k.  She originally had eight loans and the last 8 months we've paid off six.  Great right?  Well her credit has dropped roughly 15-20 points since paying off those loans and that has me concerned.  I ran a credit report and there is nothing negative on it.  The only reason I can think of, is that paying off these loans is hurting her credit.

We have the money now to pay off the remaining $5k of loans, however I'm wondering if it's a good idea to do so or not?  The loan interest rates are 3.15%.   She only has a small car loan and credit card for other means to continue building credit so I'm wondering if it might be better to leave these remaining two loans and let consistent payments continue to help her build credit.  Obviously, we'd love to just pay them off and say we have no student loans but I'm not sure it's worth risking a larger credit drop.

What would you do? 

jps

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #1 on: May 15, 2019, 09:38:22 AM »
Pay them off. And pay off the car loan too. Debt is for scrubs.


therethere

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #2 on: May 15, 2019, 09:41:11 AM »
I would say let it ride due to the rate. But there's only 5k left and it has been a paydown journey for you? Pay it off and celebrate.

JLee

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #3 on: May 15, 2019, 09:43:19 AM »
I would pay them all off.  Discover's credit score tool (FICO 8 or 9, I forget) tells me I'm at 820 and I have no debt at all, so I suspect the score will recover just fine.

FINate

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #4 on: May 15, 2019, 09:49:56 AM »
Pay it off. A 20 point drop is, what, about a 2% change? And dips from closing a line of credit bounce back.

There are are too many horror stories of student loan servicers acting in bad faith, "accidentally" providing incorrect information or "misplacing" payments. Regardless of interest rates, I would want to kill these debts ASAP especially since they aren't dischargeable in bankruptcy and you never know what kind of financial trouble you'll have in the future.

LifeHappens

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #5 on: May 15, 2019, 10:19:04 AM »
Ultimately this is a personal choice because paying down $5k is not going to affect your FI journey much, if at all. I have only paid the minimum on my student loan because it's at 2.15% and the interest is tax deductible. I could have paid it off 10 years ago, but it makes a lot more sense mathematically to stick to the schedule.

The credit score drop is almost certainly temporary. When you pay off several loans at once the utilization of credit goes way up, which causes the algorithms to lower your score. As your wife pays down the rest of her debt her score will go up again. It's also not an issue at all unless you are looking to take out credit in the next few months.

simonsez

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #6 on: May 15, 2019, 12:10:08 PM »
Is the interest tax-deductible?  In the US many loans have an above-the-line deduction on up to $2500 of interest (subject to income phaseout).  That rate is very low.  Is it fixed or variable?

If it was me with fixed federal student loans at 3.15% with the interest tax deductible, I'd switch they payment plan from the standard 120 month repayment to the graduated and extended 25 year plan and increase contributions to investments.  Then again, I probably wouldn't do that for an amount like 5k and would likely pay it off but wouldn't be in such a rush to do so.  YMMV

As for the FICO score, yeah seems something is going on with your utilization.  It should bounce back quickly after the swings are less pronounced.

ReadySetMillionaire

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #7 on: May 15, 2019, 12:40:49 PM »
Is the interest tax-deductible?  In the US many loans have an above-the-line deduction on up to $2500 of interest (subject to income phaseout).  That rate is very low.  Is it fixed or variable?

If it was me with fixed federal student loans at 3.15% with the interest tax deductible, I'd switch they payment plan from the standard 120 month repayment to the graduated and extended 25 year plan and increase contributions to investments.  Then again, I probably wouldn't do that for an amount like 5k and would likely pay it off but wouldn't be in such a rush to do so.  YMMV

As for the FICO score, yeah seems something is going on with your utilization.  It should bounce back quickly after the swings are less pronounced.

I'd love to see the math on how much of a difference this would make.

OP, $5k is nothing. Pay it off.

ColoradoSaving

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #8 on: May 15, 2019, 01:18:04 PM »
Technically it would be better to invest it. But I personally hate having debt floating over my head besides a mortgage, and that is annoying enough.

If it were me I would probably just wipe it out and have the freeing feeling since like others stated, 5k isnt that much and you are close and can pay it off now and point the savings elsewhere.

frugaliknowit

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #9 on: May 15, 2019, 01:24:38 PM »
NEVER borrow money, or continue an existing balance to enhance your credit score.

brandonw

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Re: Pay Remainder of Student Loans or Let It Ride?
« Reply #10 on: May 15, 2019, 03:04:46 PM »
Thanks for the advice everyone!

As most advised, I'm going to pay off the loans.  I'm tired of looking at them and the credit will bounce back over time.  I know this was a small dilemma but I wanted to make sure I wasn't missing something stupid.  Thank you and here's to no more student loan debt *cheers*