Author Topic: Student Loan at 3% interest  (Read 1887 times)

TheCatWhisperer

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Student Loan at 3% interest
« on: September 22, 2014, 08:11:05 PM »
So I've got 60K to go before paying off my student loan. This forum has been an inspiration to buckle down and get this done. My question is, at 3% interest, would it be more advantageous to invest the money instead? It is my only debt besides my mortgage, and I think it could be paid off in less than a year if I committed to it. It's easy to second guess myself when talking to some of my dentist friends who are paying student loans off slowly to allocate the money in other ways.

What do you guys say?

La Bibliotecaria Feroz

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Re: Student Loan at 3% interest
« Reply #1 on: September 22, 2014, 08:17:04 PM »
Our loans were much smaller and the interest rate lower, but we decided to pay it off for the sense of freedom and security. I explained why more fully in my blog: http://frugalparagon.com/2014/05/25/debt-free-and-why-we-did-it/ My grandfather, the original Millionaire Next Door, read my post and was apparently so moved by it, he sent me a thousand dollars to help with moving costs.

So, I am obviously in favor of de-debting, at least once you've maxed out tax-advantaged options like a Roth IRA and any 401(k) you might have at work. Keep in mind that while the stock market on AVERAGE gives higher returns, it does sometimes go down. Paying off your loans is a guaranteed 3% return, which is much better than other guaranteed options like CDs and savings accounts.

horsepoor

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Re: Student Loan at 3% interest
« Reply #2 on: September 22, 2014, 08:46:02 PM »
Are you eligible for student loan interest tax deductions? If yes, don't forget to add that into the equation.

The rule of thumb of maxing the tax-advantaged accounts and then paying off the loans sounds like good advice to me.  My SLs are under 2% @ $189/month though, and I have no intention of paying them off substantially early.  OTOH, my car note is at 2.79%, and that payment annoys me to no end, so I'm killing it pretty quickly even if the math says it might be better to invest.

TheCatWhisperer

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Re: Student Loan at 3% interest
« Reply #3 on: September 22, 2014, 08:49:18 PM »
I make too much to deduct any interest and all retirement funds are maxed out.

horsepoor

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Re: Student Loan at 3% interest
« Reply #4 on: September 22, 2014, 08:52:38 PM »
In that case, I'd probably crush them.  Bet it would feel great, then you'll be able to invest away without regrets over any sluggish growth to where you could have been with SL balance drawdown.

Bob W

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Re: Student Loan at 3% interest
« Reply #5 on: September 22, 2014, 09:07:20 PM »
Start an investment account named student loan payoff.  Fill it up with 80k in the next 9 months.  Set up autopay and call it good.