Author Topic: Student Loans or Retirement  (Read 1495 times)

FIREmenow

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Student Loans or Retirement
« on: May 18, 2016, 09:47:06 AM »
I have recently come across an interesting study, summarized here:
http://www.forbes.com/sites/shaharziv/2016/05/16/stop-prioritizing-student-loan-payments/?linkId=24590404#1020d83872ec

Basically it argues for paying off student loans with interest at 5% to 7% over the long-term while contributing more to retirement, IRA(Roth and Traditional) and 401k.

With the goal of FI, I wanted to see what the MMM community thought of this strategy. As opposed to paying off student loans quickly.

Here is the full report:

http://info.hellowallet.com/rs/206-RGJ-096/images/HelloWallet%20-%20Twos%20a%20Crowd-%20Are%20Retirement%20Savings%20Crowded%20Out%20By%20Student%20Loans%3F.pdf

dandarc

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Re: Student Loans or Retirement
« Reply #1 on: May 18, 2016, 09:54:28 AM »
The math (generally speaking) says pay low-interest debt as slowly as you can and invest the difference to come out ahead.  If you have the discipline, hard to argue with the math.  In this case, we're talking good (pay-off the debt) vs. better (get better long-term results by investing), so paying the loans down first isn't "bad" per-se, just sub-optimal.

The problem a lot of people run into is that they pay low-interest debt as slowly as they can and spend the difference.  This is good vs. bad.

Then of course there is potentially a psychological benefit to being debt-free, but that is hard to quantify.

forummm

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Re: Student Loans or Retirement
« Reply #2 on: May 18, 2016, 12:07:24 PM »
Mustachians should be able to max out their 401k and IRA and still have money on top of that to pay off loans. We paid off 6+% loans as quickly as possible after maxing out retirement accounts. I kept 2% loans for 10 years, paying the minimum. Your personal threshold interest rate may vary. For me, probably anything under 4% I would pay off more slowly. Anything above that I would pay off more quickly.

NV Teacher

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Re: Student Loans or Retirement
« Reply #3 on: May 18, 2016, 01:36:52 PM »
I paid my loans off as quickly as possible and never regretted it once.  It may have not been the smartest move money wise but it was important to me and in the end that a good enough reason.

jda1984

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Re: Student Loans or Retirement
« Reply #4 on: May 18, 2016, 02:22:42 PM »
I paid my loans off as quickly as possible and never regretted it once.  It may have not been the smartest move money wise but it was important to me and in the end that a good enough reason.

This was our approach as well.  Mortgages on the other hand we are paying off somewhat slowly (a little faster than 15 on our primary, 30 on our investment property).