Author Topic: Student loands vs funds and savings  (Read 1707 times)

Snow

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Student loands vs funds and savings
« on: August 02, 2017, 06:12:43 AM »
I currently have a modest (~$25K) student loan that I have been paying monthly installments on since I graduated 3 years ago. In my country (Norway) we constantly get bashed with the attitude and "obviousness" that the student loan is the best loan you will ever have, and you should never make extra payments on it or pay it off in full early. It is also the only loan that vanishes when you die, making it risk-free for my Mr. Snow, should I pass away.

Now, Mr. Snow wanted to study abroad 2 years ago. I was recently graduated and scraping by with part-time projects, so I figured I might as well scrape by somewhere else. To give us some predictability, I froze the then interest for 3 years at 2.1%. This will stay in place until 31.08.18, but looking at the current interest, it has only risen to 2.2% since then.

But now I am back in Norway and for the first time ever I have a predictable and reasonable income of ~$2500 per month for the next four years, and I plan to put it to good use.

At the same time, our country offers a profitable mortgage savings account, where (in my bank) I get 3.2% interest per annum and and a 25% tax back for any money I save in it, up to ~$2500 per year(so about $500 each year straight back into the nest egg). I also have a couple of modest funds that have steadily been growing at an average of over 3% per year over the last 6 years(they're only at ~$1000 at the moment, but at only ~$400 invested on my side over the years, I am pretty happy). These funds will increase tenfold in the next four years with my new, shiny, stable income. 

Now, I badly want to pay more on my student loan, or at least increase my monthly payments on it from ~$150 to ~$200, but it bothers me that the math doesn't add up. It would be more lucrative to save in in the mortgage account (I am maxing it out every year) and stuff the rest in funds, right? Get that money ball rolling as much as possible, as soon as possible, at least while the interest is so low?

But what if the interest rises above that magical 3% line? Would I curse myself that I didn't chop off as much of the loan as possible while the rent was this low?

As I said, in my country it is the common opinion that you never ever pay off the student loan earlier than possible, so I would love some external, reasonable moustachian advice. We still rent where we live, bike or bus to work and have no other loans.

Thank you!

Lepetitange3

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Re: Student loands vs funds and savings
« Reply #1 on: August 02, 2017, 06:17:53 AM »
I think your idea of upping the payment a modest amount is a good, happy medium. 

There is a decided split on the forum between those who hate debt on principle and those who believe maximizing interest on investments is the best route.

In your case, I would keep maximizing the mortgage savings account and up the payment on the student loans to whatever is comfortable.

Snow

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Re: Student loands vs funds and savings
« Reply #2 on: August 02, 2017, 11:48:05 PM »
Thank you. I'll try it out and keep crunching the numbers for a few more months and see what comes out of it. :)

MDM

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Re: Student loands vs funds and savings
« Reply #3 on: August 03, 2017, 12:58:37 AM »
I badly want to pay more on my student loan, or at least increase my monthly payments on it from ~$150 to ~$200, but it bothers me that the math doesn't add up.
That's a good summary of the issue: pay the SL faster and have the loan go away sooner but have less money for other things, or pay the SL minimum and have more money for other things but the SL will be active for a longer time.

Take your pick....