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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FerrumB5 on August 30, 2017, 09:25:46 PM

Title: Student loan or sell some Vanguard (taxable)
Post by: FerrumB5 on August 30, 2017, 09:25:46 PM
All,

there might (MIGHT! <50% chance) be a possibility where I need 10-15k for a year-max 2 for a student loan. Given a rather low amount, would you take a loan at 5-7% whatever the rate is these days or sell an equal amount of taxable index funds just to avoid all that loan crap?
 
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: MDM on August 30, 2017, 10:50:46 PM
If this is a case of Tax Gain Harvesting (i.e., you will pay 0% on any gains from the lots you sell), that could tip the scales in favor of selling instead of taking loans.
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: secondcor521 on August 30, 2017, 11:03:10 PM
I'd sell Vanguard taxable rather than the loan.  In addition to the interest, I believe some student loans have origination fees which add to your costs.  Also the hassle of applying, making sure the proceeds go where you want, making payments, etc.

That being said, student loan interest can be tax deductible.  If you were in a high tax bracket (probably not if you're a student, but it can happen) and able to deduct the interest (again, unlikely if you're in a high tax bracket), and that brought the rate down to 2-3%, I'd consider it.
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: Finances_With_Purpose on September 04, 2017, 04:41:40 PM
I'd sell Vanguard taxable rather than the loan.  In addition to the interest, I believe some student loans have origination fees which add to your costs.  Also the hassle of applying, making sure the proceeds go where you want, making payments, etc.

That being said, student loan interest can be tax deductible.  If you were in a high tax bracket (probably not if you're a student, but it can happen) and able to deduct the interest (again, unlikely if you're in a high tax bracket), and that brought the rate down to 2-3%, I'd consider it.

The deduction isn't that good.  You only get it if lower AGI, meaning lower brackets - maybe 25% max?  (So 8% = 6% with deduction, plus the paperwork.) 

Personally, I would avoid student loans even if it meant selling some investments or (what we do) simply waiting longer to go. 
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: Blazin on September 05, 2017, 12:27:42 PM
I think it would depend if it is a subsidized or unsubsidized loan.  I would take a subsidized loan out if available.
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: FerrumB5 on September 06, 2017, 04:53:22 PM
All,

thanks for your input. we are in mid-tax bracket. Wife (SAHM for now) is attending the school, so we are one salary family with high local taxes (including property tax, $8500). It looks like we can stretch the loan/selling assets to mid-nov, but then we'll see. This year was rough with lots of unplanned big expenses
Title: Re: Student loan or sell some Vanguard (taxable)
Post by: I'm a red panda on September 06, 2017, 04:56:46 PM
I'd sell the taxable stocks.  But short term (ie not retirement) savings is why we have them.