To be or not to be: Student loans are invest?

[apfroggy0408]

Hi everyone.

If you've seen my journal or gauntlet thread I have very minimal student debt that I've been aggressively paying off. You can see where I sit below, where last month I took out all the 6.8% loans in one go.

Total Current Balance:    $20,882.98
                                          $13,437.48

Loan Type | Amount Owed | Interest
Direct Sub Stafford Loan -       $5,493.42   -   3.4% Fixed
Direct Unsub Stafford Loan -   $2,264.26   -   6.8% Fixed
Direct Sub Stafford Loan -       $4,526.45   -   4.5% Fixed
Direct Unsub Stafford Loan -   $2,403.79   -   6.8% Fixed
Federal Stafford Loan -           $3,544.16   -   5.6% Fixed
Federal Unsub Stafford Loan -$2,541.50   -   6.8% Fixed


So doing pretty well and I've planned on paying off the 5.6% and 4.5% this next pay check which is the 15th of this month. It makes sense to take those out as the interest rate is pretty low. But is it worth it to take out that 3.4% loan instead of investing? I have enough cash to take out all the loans right this second but wouldn't leave me any emergency cushion room.

I'm currently trying to max my 401k and IRA, save for a house downpayment, might need to buy a new car/motorcycle in the near future as my current jeep is not a good DD (I carpool right now) will be moving by the end of the year to a new place and will do my best to make sure I have work/gym/groceries nearby.

So the question is to be or not to be debt free now or chip away at that lowest rate loan over time and invest now?

If you need anymore information please ask.

[Gin1984]

You are trying to max out or you are on target for maxing out?
Personally, I would not pay off the debt until you have a good EF, and are maxing out your accounts.  At what point do you want to buy and how much do you need set aside?

[apfroggy0408]

You are trying to max out or you are on target for maxing out?
Personally, I would not pay off the debt until you have a good EF, and are maxing out your accounts.  At what point do you want to buy and how much do you need set aside?

Trying to max out, just found this website last month so trying to catch up.

I have no idea when I want to buy a house, I always figured the sooner the better, but now with ER being a thought process I don't want to get stuck somewhere I don't want to be. I plan on living in a small efficient house that I build myself in ER, but right now I enjoy working and don't mind bouncing around til I find somewhere I love.

IF I were to buy a house it wouldn't be more then $100-120k house. Before MMM I always thought renting was just a waste of money.

[Villanelle]

Would you take out a loan today at 3.4% so that you could invest that money?  Because in effect, that's what you'd be doing if you decide not to pay off that loan faster than necessary.

I wouldn't, and for me the number at which I would would probably be somewhere in the 2s.  So I would pay off that loan (keeping a comfortable emergency fund) before increasing investments. 

My only caveat would be that I'd max the 401k up to any maximum company match.

[skunkfunk]

3.4% is better than any other 100% guaranteed return you will find right now. There is no risk. Great investment.

[apfroggy0408]

Would you take out a loan today at 3.4% so that you could invest that money?  Because in effect, that's what you'd be doing if you decide not to pay off that loan faster than necessary.

I wouldn't, and for me the number at which I would would probably be somewhere in the 2s.  So I would pay off that loan (keeping a comfortable emergency fund) before increasing investments. 

My only caveat would be that I'd max the 401k up to any maximum company match.

Good point.

I've been contributing to the 401k up to the max company match since I started, I was at least smart enough to do that. I've since them more than doubled that to 15% so that is being taken care of.

3.4% is better than any other 100% guaranteed return you will find right now. There is no risk. Great investment.

Also a good point.

I think I would also "feel" much better about being completely debt free.

[phred]

if your IRA and 401 placements are top drawer I would max them nowso they have time to build.

One couple I know puts so much effort into being debt free that they have no money for an emergency fund.  So, whenever an emergency arises, they go back into debt.

[apfroggy0408]

I have about 14k in the bank just sitting right now.

Maybe I'll just take out 1 loan this month instead of two.

I just don't know what my "comfortable" emergency fun is yet. I was at 20k before I got ride of all the 6.8% loans and that seemed like a lot but it also had the intention of being a down payment on a house.

I currently have just under 3 months of before tax earnings saved, which always seemed like a good number to shoot for.