Financial planning--should I pay off student loans, increase retirement contribution, or do something else?

[Raswan]

We're a dual-income, no kid household w/ yearly income ~$100k. A hundred and forty left on the mortgage, and only other debt is my student loans at $33k. Interest rate on 10 =/11 loans is 6.55% (remaining one is 5.1%), and I pay 475.xx/mo towards them collectively. We each already contribute 15% to retirement every month and each hit the $5500 max contribution.

I'm in the midst of seeing if I'll qualify for the Public Service Loan Forgiveness program, but with how it's currently working I'm not hopeful.

So: Am I better served by paying off individual loans (they range from 1.5k to 4.5k) a couple times a year? Or, should I open a supplemental retirement account? Do something else? Are there other options or is there other relevant information I should consider here?

Thanks!

 

[deadlyapp]

This is a simple response. If you don't expect yearly returns exceeding the APR of your loans, then you should divert all that to the loan payoff. At this point since the stock market growth is relatively flat, I'd say stop putting your money in your retirement and focus on paying your loans.

 

[s0me0nesmind1]

@ 100k year you should have had those student loans paid off yesterday. At 6.55% you should be tossing everything you have at that.

Put however much into your retirement that your companies will match - and then toss the rest at that ugly 6.55% loans. Every penny. I would reduce expenses as much as possible until that is done - which at 100k/year shouldn't take too long.

 

[zinfamous]

This is a simple response. If you don't expect yearly returns exceeding the APR of your loans, then you should divert all that to the loan payoff. At this point since the stock market growth is relatively flat, I'd say stop putting your money in your retirement and focus on paying your loans.

This is how I see it--but I also default to paying off all debts ASAP, regardless of the benefit in a few % points of interest between paying into minimums and investing that difference instead. Paying off debts has benefits beyond merely freeing up more money to turn that interest payment into an interest gain--never overlook the mental impact of being rid of huge debt, for one.

 

[s0me0nesmind1]

This is how I see it--but I also default to paying off all debts ASAP, regardless of the benefit in a few % points of interest between paying into minimums and investing that difference instead. Paying off debts has benefits beyond merely freeing up more money to turn that interest payment into an interest gain--never overlook the mental impact of being rid of huge debt, for one.

Sort of agree. For his loans, it's a guaranteed rate of return of 6.55%. For the market, it varies. So unless it's 2009 and there was a huge recession with likely recovery of 25% in the next couple years, I would stick with the loans.

But if it's a healthy loan that is low interest - I honestly would just make minimal payments. If the bank pays me 2.0% to keep my money in a savings account and the interest on the loan is 1.0%, you would literally be throwing away money just to give the "debt free feel good feeling"

 

[Raswan]

Thanks everyone. It's good to get confirmation. Wise counsel as always.

Are there early-payoff penalties or other things I need to consider/resources to read before picking these off one by one over the next year? They're held by Navient, currently.

 

[ImpulsE69]

You would need to ask Navient. I paid mine and my wifes off pretty early and there were no penalties through them.

 

[s0me0nesmind1]

Thanks everyone. It's good to get confirmation. Wise counsel as always.

Are there early-payoff penalties or other things I need to consider/resources to read before picking these off one by one over the next year? They're held by Navient, currently.

Gotta read your documentation to know for sure. There are no defaults that I myself am aware of.....

Example: I had a mortgage where they covered opening/closing costs when I re-financed with them... which mind you, was ~$2.5k. There was a stipulation that if I paid off the loan or closed it out in some way within 3 years (36 months) that I would have to repay those costs... I paid it off about 4 years later and totally forgot about that clause. Glad it was 3 years and not 5.

 

[RLGL]

No penalties with Navient. My daughter paid hers off in 5 years.

 

[frozentundra123456]

I agree, pay off the loans ASAP. I assume they are all fixed rate. If not (my grandson has some variable rate supplemental student loans), it is even more critical to pay them off.

 

[child of wonder]

Spend your money like a drunken sailor and vote for Democratic Socialists and eventually your mortgage and student loans will be forgiven by the government.

 

[UglyCasanova]

Student loans

 

[Mai72]

No penalties.

I owed $80k. Don't ask. Lol. Paid all it off in 2 years. I'm going to give you a different opinion, so take it for what it is. Nothing is absolute. You should take in all opinions and go from there. The problem is most people are ego driven, so they mostly think what they know is correct. What you know is only a half truth.

OK then. IMO, you should be looking at ways that you can get into some type of passive income. For me, that is real estate. My uncle when he was alive had multiple apartments, normally all full and he was getting anywhere from $800-1200 checks a month. Apartments were all paid in full, so that was profit. Yes, owning real estate comes with headaches. But, as they say NO PRESSURE, NO DIAMONDS. He had a system when buying real estate, and he was smart about it. His involvement in real estate allowed my uncle to retire by 45. Maybe you could sell on Amazon. I have a buddy who makes about $250k a year. More millionaires were created on Amazon than anything else.

Just my opinion. Oh, and finally. Do you read financial books? If not, then you'll be forever financial illiterate. I read 2-3 financial books a year. As Henry Ford once said "old men are always advising young guys to save. That is bad advice. Invest in yourself. I didn't save a penny until I was 40." ~Henry Ford. What he is saying is to read. Invest in you first. This is coming from one of the greatest inventors ever.

 

[Raswan]

Thanks everyone. Makes a good deal of sense. We're meeting with our credit union to talk about bringing them over from Navient at a lower rate (something around 4.25%), but the 2019 plan is to double the current payment and hit it with a few $5k contributions to knock it down by half by the end of hte year, then finish it off in 2020.

Much love,
Raswan

 

[NoCreativity]

I would say pay off your loans (highest interest first) but do not stop the retirement contributions. Diverting retirement savings to loan payments is trying to time the market. Maybe you come out ahead, maybe you don't. The only guarantee is that you miss out on two years of retirement savings.

 

[deadlyapp]

I would say pay off your loans (highest interest first) but do not stop the retirement contributions. Diverting retirement savings to loan payments is trying to time the market. Maybe you come out ahead, maybe you don't. The only guarantee is that you miss out on two years of retirement savings.

If you have a fixed amount of money that you can't divert, this is impossible.

 

[Red Squirrel]

Damn 33k student loans, that better be a PHD or something lol. But yeah I would definitely pay that off first. Put everything you can on that. Once that's paid off, then whatever you were putting on it, put on the mortgage.

 

[Brainonska511]

Damn 33k student loans, that better be a PHD or something lol. But yeah I would definitely pay that off first. Put everything you can on that. Once that's paid off, then whatever you were putting on it, put on the mortgage.

Speaking from personal experience, practically no one pays for a PhD out of their own pocket (they only pay in opportunity cost).

$33k in student loans isn't that far outside the mean for student loan debt.

 

[s0me0nesmind1]

Speaking from personal experience, practically no one pays for a PhD out of their own pocket (they only pay in opportunity cost).

$33k in student loans isn't that far outside the mean for student loan debt.

To be honest, $33k sounds... actually pretty small for a Master's or PhD - presuming you got them back-to-back without a gap.

 

[Brainonska511]

To be honest, $33k sounds... actually pretty small for a Master's or PhD - presuming you got them back-to-back without a gap.

I don't have any debt and I didn't put any money of my own towards my PhD. I'm just saying from the stats, $33k of student debt isn't far about the national mean for people with student debt.

On a side note, I don't have a masters; as far as graduate degrees, I only have a PhD.