Author Topic: Studen loan pay off ?  (Read 2091 times)

wward6

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Studen loan pay off ?
« on: August 17, 2016, 03:23:41 PM »
Hi MMM, Fellow-Mustachians

I have rid myself of all debt (credit card, loans, etc) but my wife has one $40k student loan left @5.5% to pay off.  I'm looking into all debt forgiveness, as well as things like so-fi to lower rates, but putting that aside for a moment, if we continue to pay the min monthly payment will never be free.
My question is do we immediately stop paying into the 401k, Roth, etc. (basically stop all saving) and I think in doing so we could pay this loan off in about 1.5 years?

Or do we continue to pay the minimum on her student loan and just invest wisely?  If our investment returns beat 5.5% then we're better off, plus we'll have the magic of compounding returns working for us.

Advice is much appreciated.
Thanks all. :)

vivophoenix

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Re: Studen loan pay off ?
« Reply #1 on: August 17, 2016, 03:49:26 PM »
you are forgetting the advantage you receive by the fact that 401k money is pre tax.

wward6

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Re: Studen loan pay off ?
« Reply #2 on: August 17, 2016, 04:04:00 PM »
you are forgetting the advantage you receive by the fact that 401k money is pre tax.

Yes!  Good point, I meant to mention that.  So my inclination is to continue the route I'm going and pay the min. on the loan, but MMM always says get rid of all debt/loans NOW!  So MMM what do you think?  Is this a special case where its smart to live w/ the debt for now?

vivophoenix

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Re: Studen loan pay off ?
« Reply #3 on: August 17, 2016, 04:08:03 PM »
you have not put enough info

how much money do you make
what are you other bills?

what is your budget?

can you take on a part time job?

you literally have no other cash unless you stop contributing to your retirement savings?

do you have an emergency fund, or can you get a HELOC?

wward6

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Re: Studen loan pay off ?
« Reply #4 on: August 17, 2016, 04:24:51 PM »
I don't really want to get into all gritty details of my finances but I've calculated that I can pay back $40k in about 1.5 years if I forgo all savings.  Yes, I have a little rainy day fund.

* No I don't own a home, so no HELOC.
* No I can't make more $ in any other way such as a part time job (I work long hours and have 2 kiddos)
* I've cut out all the waste I'm able to cut out from our budget at this point.

tonysemail

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Re: Studen loan pay off ?
« Reply #5 on: August 17, 2016, 04:53:04 PM »
if you need advice specific to your situation, then it probably makes sense to provide more details.
if you just want general confirmation of what you think, google search is a good way to dig up past threads on this.

Here's an old poll that got to 70% of MMM prioritize paying off debt.
http://forum.mrmoneymustache.com/ask-a-mustachian/let's-settle-this-with-a-vote-invest-or-payoff-debts/

Finally, I would also keep socking money away into the 401k.
What's your effective tax rate?
I'm guessing it's much higher than 5.5%, so I'd keep paying the min towards the SL.

notactiveanymore

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Re: Studen loan pay off ?
« Reply #6 on: August 18, 2016, 10:25:19 AM »
Quote
if we continue to pay the min monthly payment will never be free.

Are you on IBR then? Is the option to either put money in retirement or pay off the loan? Do you plan on REPAYE forgiveness for her loan? I think of a minimum monthly payment for a student loan as the 10 year standard repayment amount and IBR as IBR payment.

I agree with others that there is not enough information for me to answer this question.

TheAnonOne

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Re: Studen loan pay off ?
« Reply #7 on: August 18, 2016, 10:28:53 AM »
You can't make any more money, or squeeze any room from the budget?

Given those options, you could go half and half on the 401k/loans.

I personally would get out of those loans, as they are just a constant stressful item, but mathematically, depending on the rate it's probably technically better to just pay the min on them

wward6

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Re: Studen loan pay off ?
« Reply #8 on: August 18, 2016, 10:57:33 AM »
Thanks everyone.  Yeah, I agree carrying a loan stresses me out a bit, but I'm trying to look at it w/o emotion and do the best thing.  Much appreciated. I'll probably end up paying the min.