Author Topic: Student loan debt vs. savings  (Read 1877 times)

Britan

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Student loan debt vs. savings
« on: August 20, 2015, 02:16:42 PM »
I have a feeling I know the answer to this question in my gut... Let's say the situation is something like this:

Combined debt for 2 people:
$60k in student loan debt at 8.6%

Obvious opportunities for saving for two people:
Person 1 workplace 401k: Company matches 100% up to 3% and 50% up to 5% of income; only high fee investment options with middling returns, no index funds
Person 1 HSA: No matching
Person 2 workplace 403b: No company matching
Roth IRA: Vanguard index funds

What I tentatively have sketched out is:

1. 401k up to company matching limit
2. HSA (At least enough to cover the deductible on the insurance)
3. Round house kick that student loan in the face until it's $0
4. ??? Max Roth IRA? 403b?

That last step is less important to figure out now because it's almost impossible for us to get past step 3 in the next year if that's what we focus on first. Does that order seem optimal? Or would you save more in a retirement account before knocking the student loan down to 0?

MDM

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Re: Student loan debt vs. savings
« Reply #1 on: August 20, 2015, 02:21:43 PM »
$60k in student loan debt at 8.6%

Obvious opportunities for saving for two people:
Person 1 workplace 401k: Company matches 100% up to 3% and 50% up to 5% of income; only high fee investment options with middling returns, no index funds
Person 1 HSA: No matching

What I tentatively have sketched out is:

1. 401k up to company matching limit
2. HSA (At least enough to cover the deductible on the insurance)
3. Round house kick that student loan in the face until it's $0

Does that order seem optimal?

Yes, I think you've got it just right.  Good luck!

merryt

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Re: Student loan debt vs. savings
« Reply #2 on: August 21, 2015, 09:23:15 AM »
If the student loans were lower interest I would max roth IRA first. With 8.6%, I think you are doing it right!

Zaga

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Re: Student loan debt vs. savings
« Reply #3 on: August 21, 2015, 09:26:55 AM »
Once you've kicked out those horrible loans, then maxed out all of your other options, hold your nose and max out the lousy 401-K's as well.  You won't be in that job forever paying those high fees.  It's worth it in my opinion to pay the high fees for a few years to get the tax savings. 

Then, when you do change jobs (and most people do from time to time) roll that over to a low fee IRA asap!  That's what we did, don't regret it at all!

cincystache

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Re: Student loan debt vs. savings
« Reply #4 on: August 21, 2015, 10:56:37 AM »
+1 on having the right steps

Have you looked in to refinancing your student loans at a place like sofi or something similar? If you can get that rate around 4-5% this might change the story, at 8.6% it is a clear choice.

Step 4.
Max HSA

Step 5.
Max traditional or Roth IRA (depending on your income)

Step 6.
Max 403b

Step 7.
Max crappy 401k

thd7t

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Re: Student loan debt vs. savings
« Reply #5 on: August 21, 2015, 12:12:34 PM »
I would definitely consider a traditional IRA, unless you are in a very low tax bracket.  cincystache's refinance recommendation is definitely something to look into.  Finally, you should go to your company and ask if a low cost index fund can be added to your 401k.  You have nothing to lose, there.  I did this and it worked out for me (previously, the lowest ER was 1.8%).