Author Topic: Paying down student loans vs. saving for house  (Read 3454 times)

fallstoclimb

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Paying down student loans vs. saving for house
« on: March 26, 2012, 09:18:57 AM »
I'm 27 and married, no plans to have kids for a few years at least.  Our only debt is student loans, but a lot of them:  $62,815 at about 6.5% interest.  I've been aggressively paying these down since I finished grad school last May.  We're pretty frugal - mostly thriftstore clothes, no smartphones, no cable, and I take (paid for) public transportation to work.  This leaves us with about $800-$1,000 every month to put towards debt or house savings. 

I'm starting to rethink my plan to pay off the debt ASAP.  I KNOW that's the typical advice.  But, with housing prices and interest rates so low, and starting to possibly turn around, is paying off student loan debt really the priority?  We'll pay a few thousand each year in interest which is a bummer, but if I lost my job the loans would be deferred (and they'd die w/ me so my husband wouldn't be stuck with them).  We're throwing away $1500 every month towards rent (this is actually a good price, as we live in DC and it includes utilities), and I just wonder if we should shift the focus towards down payment saving.  We'd try to buy for under $300K, although commuting costs will increase. 

Currently we have $10K saved for a house.  We also have $16K in retirement savings and $1K in an emergency fund, although my parents would be available to help if there were a real emergency.

Thoughts, anyone?

arebelspy

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Re: Paying down student loans vs. saving for house
« Reply #1 on: March 26, 2012, 09:34:19 AM »
At 6.5% interest, I'd work on paying them down. Possibly split between paying down and saving up a down payment.  Prices on houses will be low for several years, at least.  You have time, you won't miss the lower prices.
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fallstoclimb

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Re: Paying down student loans vs. saving for house
« Reply #2 on: March 26, 2012, 10:19:53 AM »
Well, I guess I didn't make this clear in my original question, but what I'm really confused about is that if you factor in what we throw away every year on rent - its way more than we spend on yearly interest for the loans.  But is paying down debt still the smarter choice? 

Landor n Stella

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Re: Paying down student loans vs. saving for house
« Reply #3 on: March 26, 2012, 10:37:55 AM »
Do you plan to stay in that area for a long time? Buying a house is risky, if you don't plan to stay there for a long time. We bought a house in 2009 and then situations changed in 2011, so we ended up selling. It was lucky for us that we were able to sell for more than we bought it for, but it was a pain and a challenge; and could have easily gone the wrong way and we would have sold at a loss.
Any chance of reducing your rent? I know you said it was a good price, but it still seems very high. On the other hand, we rent a 4 bedroom house with 2 car attached garage and fenced backyard for $550/mo. So my perspective could be skewed.
Do you have 2 incomes? We are living on one income right now, while Landor finishes his degree. We're also 26 and married without kids, and we have $55,000 in student loans. We're working on our student loans, putting about $600/month to them, but we have a hope that when he starts working our income will basically be doubled. We will then live on half of one income and the other 3/4 will go to student loans. If anything like this is going to happen in your future you might want to hedge your options by saving half of what you have extra and putting half towards the loans until you have more coming in.
~Stella

arebelspy

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Re: Paying down student loans vs. saving for house
« Reply #4 on: March 26, 2012, 12:17:46 PM »
Well, I guess I didn't make this clear in my original question, but what I'm really confused about is that if you factor in what we throw away every year on rent - its way more than we spend on yearly interest for the loans.  But is paying down debt still the smarter choice?

When you buy with a mortgage, most of that is "thrown away" to interest.  Your actual equity paid down will be about 3% of your payment (initially) - and then you'll have the various added expenses of homeownership.

Don't get me wrong, I'm a huge fan of owning a house.  But the idea that owning will save that whole monthly payment while renting it is throwing it away just isn't true.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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the fixer

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Re: Paying down student loans vs. saving for house
« Reply #5 on: March 27, 2012, 07:16:42 PM »
$1500 rent for two people in DC with utilities is not bad, depending on which part of DC you're in. I'm in a suburb just outside the beltway sharing a house for $2200/month plus utilities, split four ways. If you move farther out to the exurbs you can reduce this (a few years back I was living in a 2-bedroom floor of a house in Frederick MD for $775/month, water included), but commuting costs will probably go up. I think if you live in the district downtown you can reduce this a little but I have no direct experience, and you'll incur other costs like parking.