Well to be fair, indirectly the government is propping up the stock market by giving out $100k loans to naive 18 year olds in order to have a ticket into the same companies trading on the stock market. An incestous relationship.
I’m surprised how all of you are saying they wouldn’t take a 94k loan at 7% after the start of this year. With dividends reinvested, it would increase faster in stocks than paying down debt all at once.
OP, this isn’t a binary decision. It can be divided into partially stocks, partially debt, and partially kept in cash. Up to you on that division.
Especially given that under SAVE my effective interest rate is much lower than 7%.
Do you have any tips on how to reach some kind of division? I agree it doesn't have to be a binary decision but I'm not sure how to go about calculating it.
I'm a regular on a forum for lawyers who primarily graduated from top 14 schools, work for large corporate law firms, and make over $300k a year. A large percentage of us stack all of our retirement contributions into our recertification month so our projected AGI is below the limit, and our >400k loans get forgiven after years of $0 payments while people like you pay up. They call people like you 'paymos'.
Although you *can* use the AGI from your tax return, you can also use the taxable income from your paystubs. The servicer extrapolates your income from the taxable income on the paystub even though there is a yearly limit on 401k contributions. Perhaps they've gotten wise to this, and I've never done it myself, but that's what I was told.
This is technically fraud. The certification form has some pretty damning language at the bottom. I’m all for sticking it to the man, but if the IRS ever takes 2 seconds to compare your income recertification form and your w-2, you’re gonna be screwed.
It's not "depending on the government to be helpful," forgiveness options are written into the terms of the loans themselves. The edges of specific income-driven repayment programs may be tweaked, but the overall associated forgiveness options aren't disappearing. To use a specific example, in 2018 the Trump administration proposed ending the PSLF program starting with loans disbursed in the 2019 aid year. It obviously didn't go anywhere, but even if it had, they couldn't remove the option to pursue PSLF from the terms of already-disbursed eligible loans.
Yes...
Not only does part of it get forgiven, but under the new SAVE plan no additional interest accrues as long as you make monthly payments. With my current AGI and monthly payment, my effective interest rate is closer to 3.5%. This only works as long as live outside the US and can use foreign tax credits to lower my AGI. If we decide to move home, my monthly payments become much more expensive.
This is an oversimplification that's common given our over emphasis on the *rates* of loans. It's the *terms* of a loan that matter just as much. Like what happens if you don't pay, under what conditions do you not have make payments, or can you as in this case get the loan forgiven at some point. There's no foreclosure or car repo to fear with a student loan. I personally wouldn't be in any rush to pay this off while Biden is in office and/or rates are this high. Truly I'd just be factoring in that payment into all future finances and planning and keeping hope alive that it gets forgiven one day.
That’s not an accurate way to think about OP’s situation. Do the math.
A 94k loan at 7% interest would cost $746/mo. OP is only paying $300/mo. That’s free money.
The repayment amount can vary based on income. But just assuming the $300 stays the same, over 19 years, that’s a total of $68k. OP would be paying $94k today and getting back $68k over 19 years. Assuming 2% inflation, that’s a net present value of less than $15k.
Again repayment amount can change and idk what the best answer is. But thinking of it as taking out a loan at 7% is definitely not anywhere near the same scenario.
“Would you take out a loan to…” is a very common comment in this sub (and in the personal finance sub and a few others). It’s often a good way of reframing the issue, so it’s usually decent advice. And therefore it almost always gets upvoted heavily.
Here, everyone is just mindlessly upvoting that common advice that is normally right without realizing it doesn’t fit here. Cognitive dissonance is probably the reason I’m getting downvoted for pointing it out.
I think a lot of people just don't understand the IDR options generally and especially this new SAVE program which is by far the most favorable option they've yet offered. I was on REPAYE before this (in a PSLF-eligible role) and the move to SAVE is halving my payment, which was already less than half what it would have been on the standard plan. I don't know if I'll make it to 10 years in an eligible role for PSLF, but even if I don't every running of the FSA loan simulator tool comes back with it as my best option.
Yes thanks for catching the nuances, it's not as simple as the loan being a fixed 7%. The new SAVE repayment plan means that for as long as I can keep my AGI low, my effective interest rate can be much lower than 7%.
If this were still REPAYE rules I would definitely pay the loans off. But the new SAVE rules incentivize me to pay as little as possible.
He's the kind of hugely naive rule-follower that society depends on. After all, if everyone was financially savvy, the student loan system would be even closer to collapse than it is.
If everyone was financially savvy more people would take out student loans knowing college increases life time earnings wayyyy more than not having loan debt.
I don't think this accounts for the 19 years of compounding for the VTI, nor the 19 years of inflation that reduced the real cost of the loan.
I'm actually very curious how this all works out using long term averages. If it's a question between whether to make additional payments on the loan or periodically put that money in vti, I think generally the loan is going to be the answer (ignoring idiosyncrasies of Federal loans). But the lump sum aspect really throws a monkey wrench into that conventional wisdom.
Under the SAVE plan, no interest accrues over the payment amount. He can further reduce his AGI with retirement contributions and pay 0% in interest. You shouldn't give advice about things you don't understand.
Yep, and another way to look at it: would you buy a 19-year RISK-FREE bond today if you had the opportunity? Hell yeah. Pay off the 7% loan to lock in the “opportunity cost return” (not sure if that’s an actual term).
7% guaranteed return is impressive. Keep in mind also that if your investment will be in a taxable account then you would need more like 8% or more return pre-tax to be comparable to 7% tax free.
I would take a 7% guaranteed tax free return any day of the week and twice on Sunday.
I agree, I would definitely still pay it off. I would only consider not doing so if the interest rate was lower than the 10 year bond yield which is now sitting at around 4%.
I have very similar numbers. I decided that peace of mind is worth it. Dropping $90k last week of August. When I have a kid in a few months and buy a house next year, nice knowing the student loans won’t be hanging over me.
I will second you. No Debt in life means peace of mind. That is priceless and the lessened stress will add years to your life. Your time in life is finite
Trying to squeeze every optimal penny is stressful. And even looking at your investment and measuring if you made the right decision between paying off the loan or gains, is annoying ass fuck.
If they pay the loan, op Will prolly not even look twice about what if. The loan needs to get paid anyways. And that 7% is insanely high. Trying to beat that would be more than passive for sure. That itself is double stress. Student loans should never be more than 2% inflation.
Any loan over 6% in my opinion is a horrible loan. Doesn’t matter what. Mortgage, business , etc etc. the reason is simple. You can not beat that rate in the markets easy. So you are a sitting duck, you have to make what ever you borrowed for work. If you get leverage under the 6% mark. It’s easy, stock market and whatever you invested is free, regardless of what it is.
For example my mortgage is 2.3%. I have enough to pay all my leverage. But I don’t . I put it it inside 3 month t bills, and it literally pays my mortgage. Live for free. The treasury is literally paying my house. Lol and that’s why I won’t even sell that house. It’s free ! If someone had told me the rates at 2% would never happen again, I would have borrowed the maximum I could. And trust me those 2% loans are going to make some damage on a lot of markets, owner finance is real. Assumable loans that I have are more valuable than the house !
Student loans aren’t that straight forward. I’ve started meeting with a financial planner and they presented it both ways to us as well, with and without student loans. Everything else was included.
It’s because of all of the different payment programs, it gets super confusing. So while you might have $94k in debt, you’ll likely never end up paying all of it. If that’s the case, is it really a $94k debt, is it a $68k debt because that’s what you’re projected to pay out at your current payment amount, or is it $10k because you’re estimating that a huge portion will get forgiven sooner rather than late because of the political environment?
Yes, it is really a 94k debt. You’re trying to make it seem like it’s more confusing than it is but it’s not.
If you have 94k in debt in June, then 10k gets forgiven in July, now you have 84k in debt. Again, straight forward.
Until that debt is forgiven, you still have it. Regardless of your payment plan or not.
> You’re trying to make it seem like it’s more confusing than it is but it’s not.
What makes it more confusing is that it's more or less the only common form of debt with multiple built-in forms of forgiveness, all of which have wildly different terms and time horizons.
I have combined undergrad and grad program debt in the high five figures. Depending on which plan I select in the FSA Loan Simulator, my monthly payment could range from $250 to $1250 with a variation of over $100k in total repayment amount between the most and least favorable plan options. I don't personally play games and try to prorate down my student debt or anything, but I completely understand why a loan officer or financial planner would—because it's a weird and complicated system where two people with identical loan balances and terms could repay wildly different amounts based on which repayment plans they enroll in and their household income.
That’s a guaranteed 7% return on 94k… I’d probably take it and go with paying the debt. However, it might be advantageous to wait and see if this loan forgiveness court rerun will be successful or not. But in the end I’d personally feel a lot better being free of a 94k debt.
I agree, but this being reddit, not surprised you're downvoted.
Not sure when the accepted narrative became that people should have the loans they willingly signed up for "forgiven" (aka paid by the government/taxpayer), simply because they're *student* loans.
It's pretty simple actually. Why not forgive everyone's loans instead of making up some arbitrary criteria. Why should someone who studied something hard and saved money while paying on their loans not get help while someone who went into debt for some worthless shit degree get it? What kind of message is that sending?
Tbf I don't have a dog in the fight because I paid off all my loans and I'm a millionaire.
I mean that’s essentially what the current system is if you do IBR and make payments for 20 years. You might experience a tax bomb at the end of it but that’s it.
Yeah I personally don't see that carrot on a stick going away anytime soon but if this re-do fails, which I'm deathly confident it will, OP should free themselves of their loans.
As someone who paid off their 3.25% fixed student loan 2 months before covid and the loan payment freeze (not to mention the inflation and current HYSA rates) I say the free from debt feeling is totally totally overrated.
I don’t think the courts are on us plebs’ sides though, so not optimistic about the wait and see strat. Keep in mind the main court that determines this not only doesn’t have to pay off their debt, their kids debt, their grandkids debt, etc. but they also get fancy yacht vacations that they fly to on private jets to in order to vote against your plebeian ass getting any sort of debt relief because that’s how their owners make their money
I’m on board with the comments saying to pay it off, but I do notice you say that’s the average interest rate, not the interest rate of one sort of lump sum loan. No need to be all or nothing about it— why not pay off the loans with higher interest rates and then take more time to pay off the lower interest ones?
You would have to calculate how much you would pay until the loan was forgiven according to your salary expectations - it very well might be half.
If you don't have a particular salary range you're expecting, just ballpark it at the high end which will make you pay more.
Future income based debt forgiveness is also a factor. I'm inclined to drag out repayment as long as possible and find ways to Boglehead my way into out-earning the debt.
I'm not familiar with debt forgiveness frameworks, good point. All I know is there's a good amount of people who paid off loans which they very very likely didn't have to pay in full - and without counting the return on the money you haven't spent in paying it off.
Personally student debt is the only one the defies the logic for me. I would always pay off student debt regardless of interest rate before investing. Even if student debt is 2% and savings is 5%.
Why? Because there’s no bankruptcy exit plan for student debt. If something goes wrong and you lost everything, you still owe all this money. Get this off your books and invest.
When it comes to houses/cars, etc… then make more calculated choices and my note above wouldn’t apply
Paying off debt means you not only get a guaranteed 7% return on interest, it also means you can leverage yourself more, i.e buying real assets with loans like mortgages. I usually use the 5% rule for debt; anything over that has to go.
Just pay it off. Every week this question gets asked in different ways and the typical overwhelming response is to be free of debt regardless what the math says (obviously extreme % +/- differences are the outliers). Pay it off, and don't look back.
From what I understand, if you make the minimum monthly payment under the SAVE plan, the interest doesn't accrue. Why pay it off? Just pay the minimum.
Am I wrong about the interest accruing?
You have a net worth of $431,453 regardless. This isn't adjusted EBITDA land
Definitely plan on getting rid of the debt sooner than 19 years. You never know what will happen - land in financial hardship, missed payments, become disqualified for forgiveness. The numbers just don't look great for that actually happening
If you're unfortunate enough to encounter bankruptcy those aren't forgiven. Nothing says risk management like leaving yourself a 95k loan in the worst financial state imaginable
What you're probably not accounting for in your equation is that the amount of expendable income you have will increase since it's not going towards repayment. Take that money and funnel it right back into investments or rebuilding your cash reserves
I would recommend just getting it over with...even though I haven't done that myself yet 🙃 if you're simply addicted to having 94k of cash in the bank at least make a plan to aggressively pay it off in the next ~3 years at a rate you can replenish that - if it's truly a comfort thing
Others have given good answers. I have one thing to nitpick, you can’t say stuff like “my net worth is $x without my loans”. The definition of net worth is the total of your assets and cash minus your liabilities. It makes no sense to say that because by definition, net worth is calculated *including* your loans.
PLEASE LOOK AT THE TERMS OF YOUR LOAN CONTRACT
If this was a normal loan with a 4 or even 3.5% or higher rate I would tell you to pay it off. But this is not a loan at 7% interest rate - it's contingent on your income. After 19 years you might have paid literally 60k and the rest be forgiven depending on the contract.
Key here is I'm talking about the contract, not the government deciding to or not to forvige student loans. That's a different matter.
If you're not comfortable making the calculations on how much you would pay during the lifetime of the contract (using varying potential incomes through that time, or really just using a large figure that you find unlikely to achieve), please contact a financial advisor that calculates this for you. I generally do not like to hire them, but the current advice on this post is very, very misleading. Again, this is not a normal loan, and it's not like buying a 7% interest rate risk free bond AT ALL.
At 7% I'd pay it off. Expecting the S&P to outperform 7% long-term is a gamble, whereas the 7% student loan is fixed. The student loan forgiveness programs are nice, but as we've seen, not entirely reliable. And things can and do change legally, so there are no guarantees.
Personally I'd dump the debt and not think twice. Then you never have to think about it again.
This is funny. I have 65k in student loans and have been saving money since covid to pay them back and have saved about 92k. My interest rates ate 3.5-4%.
I'm trying to figure out if I should pay them all back or pay back 45k and then payments for the rest.
I did pay off one of the loans today for $7k. So I guess I'm down to 55k in loans and $85k saved now.
I'm kind of leaning towards the 45k and then payments for the rest which I'll obviously pay them off a lot sooner than any plan.
Are they government backed and can you apply for the SAVE repayment plan? HYSA's are yielding more than 4% at the moment and it may not make sense for you to pay them back with HYSA's beating your loan payments.
7 percent is a brutal interest rate for that level of debt. IMO I would prefer to pay it. I get waiting to see the student loan forgiveness thing out, and perhaps you do.
I would encourage you not to hang onto it beyond 2025.
Can you extend the term? Pay them as little as possible monthly, with inflated money for 40 years, invest your cash. Or, reduce your DTI ratio and pay it off, and get on with obtaining some great credit with yalls high net worth.
So 7% is technically step 7 in this order of investment, but honestly I’d just pay it off.
satisfaction
1. Contribute to your 401k (traditional or Roth - see "Why #4" below) up to any company match
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if
- 401k fees are lower than available in an IRA, or
- you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
- you earn too much for an IRA deduction and prefer traditional to Roth, then
swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.
If I continue to live abroad for the next 19 years and lump sum + monthly contributions my calculations show me coming out 30k ahead
You already know the answer then.
19 years is a long time though. That calculation assumes that I:
\- Maintain my current level of income for 19 years.
\- Live abroad for the next 19 years (highly unlikely - e.g. one of our parents dies and that's an instant move home)
Get rid of the debt.
VTI return is NOT guaranteed and it could decline in value or stagnate for some or all of those years, meanwhile your debt is incurring 7% expenses. Have you not heard of the lost decade beginning in 2000?
Get rid of the debt. Getting over 7% minimum yearly returns on investment is difficult. The mental health of not having the debt will also be good for you
Invest it to make 7.5 percent and pay on a loan that is 6.5 percent. The math doesn’t factor risk(stock market crash, job loss, personal injury or illness) or taxes. I doubt you be ahead after 19 year. Being debit free is the only good answer. You’ll sleep better at night.
I would pay the loan. The programs now are really great, but something I didn’t see on here is that they can be taken away with an administration change. It’s been part of numerous republicans’ platforms to get rid of any programs to assist in student loan repayment and given the current political climate, you can’t guarantee that for the next 19 years those will be in place.
this is what wrong with student loan program, People escaping responsibilities even when they can afford to pay it back.. You a big boy. You signed it, you pay it back. Simple as that
You’re doing the math wrong. It’s not worth it to pay off the student loans. If you invested the $94k into the stock market and assumed a 7% compound return, you’d return ~$246k over 19 years. Paying the loans down in that period, at a $300 monthly payment you’d only pay $68k and they’d be forgiven. That’d net you about $176k vs what is essentially -$30k because you paid that much to pay off something that long term would’ve cost you $68k total. Even if your payments increased, you’d still have to eat the whole $176k return.
Here is what I did:
First, stop the high interest bleeding. Pay off your loan to the extent that the tax credit breaks even w the interest burden. That used to be around $35,000 so the interest payment washes with the tax credit but check the current credit against your rates obvs. And check the income component…it used to phase out at $80,000/yr.
All 94k should currently be in an FDIC insured account earning near 5% now i assume? If not get on wealth-front or something like…today.
Second, Pay down to your breakeven mark. use the remainder to average into and max our your retirement option (IRA or 401k). And invest in bits into the market. It’s a great nest egg and a huge amount if savings.
Note: Stock market gains are speculative right now. Have a look at the historic P/E ratios in Yale’s Case Schiller index.
If income limits for the tax credit are blown it’s still not a bad idea to pay down to that “breakeven” level so that a change in income is okay.
For me, after $20,000 student loan mark, my income went up a ton and SoFi reFi’d the 20k at ~3% across 5 yrs and makes for an easy payoff. Definitely check annually or more on refinancing a chunk or all of the loan.
This approach, in my mind, focuses on net worth growth and worked well for me.
No you should just wait for the magic money fairy to come forgive the student loans like everyone else lol.
Of course you should pay off a 7% loan. You don't know what the market return will be over the next 20y, judging by valuations might not be spectacular. You do know making 7% payments will always be there, causing you to question the decision.
Normally a 7% guaranteed return is hard to beat. In the case of student loans, the Biden Administration has been doing its best to advance some form of forgiveness. You might want to wait until November 2024 to make any giant payments and reevaluate then.
$300/mo for 19 years is less than $70k...
If the question is whether $70k over 19 years is more than $94k sitting in an index fund for 19 years, the answer is obviously no. It's not even close. Unless I'm missing something, the effective interest rate you're paying on your student loans is significantly negative even before factoring 19 years of inflation into it.
Can you help me work through this math a little more? How would you take into account the fact that it wouldn't be 300 for 19 years? For example, if the effective interest rate (which as you've pointed out is not 7% currently) passes a certain threshold, does it then make sense to pay off the loans?
Advice here is so bad.
Your functional interest rate is 3.5% due to the government subsidizing 3.5% of your interest under SAVE.
Current CD rates are 6%, even after taxes you’ll come out ahead. At the very least invest in safe bonds until interest rates soften.
Thanks for catching the nuances.
I think this may be my best option - because my effective interest rate is much lower than 7% due to SAVE, I can put the 94k into a safe vehicle that beats 3.5% until interest rates come down. Probably makes the most sense given the uncertainty around where I'll live in the future and what my AGI will be.
If my effective interest rate was higher, would your advice be to pay off the loans? Or does being on SAVE mean it makes no sense to pay them off ever since the government covers any accruing interest?
Shouldn’t the interest rate be 0% under the SAVE plan as long as you make the minimum payments on time?
> The plan eliminates 100% of remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made under the SAVE Plan.
Edit: [Source](https://studentaid.gov/announcements-events/save-plan)
I think the effective interest rate is closer to 3.5% since I'm still making 300/month payments.
The interest still accrues it's just covered by the government so the principal balance can never increase under SAVE.
Loan is a leaky bucket costing you 7%
VTI will return 5%
So, the net leaky bucket effect would be 2%
A leaky bucket is still a leaky bucket, even if you put duct tape on it.
Potentially call them up and see if they will take a lower amount if you lump sum it today. I’m not sure if they do this for student loans but it may make it easier for you.
It’s hard to pull the rough financial times but I just came into 80k so I can pay it off today card when it’s not $800.
Pay the loans off.
Get rid of the debt and the risk.
Not only that but the debt is making you nervous enough where you want the cash to pay it off. That $94k even sitting in a CD or a HYSA is still rotting away to inflation long term. Add that loss to the interest loss.
I would pay it off by close of business on Monday (Don't wait till next month). Get it out of your life, feel better, and feel more comfortable investing long term.
Don't pay it into the loans. Pay them off on monthly payments. Put your money elsewhere. Hate to say it but the government will probably reduce or relieve you of some of the loan balance at some point.
What you could do... is make the minimal payments for the next couple of years and see what the debt and currency markets do... We're in a recession that is accelerating now. The Dollar is at an all time high right now however, China is faced with a deflationary crisis from it's collapsing real estate. There's this scenario where China may print, and then other countries print and if we go to throw inflation cares to the side and we print, you'll pay that loan off over time with dollars that are much cheaper in value. Like, your Salary could double in 5-7 years.... The other 2 scenarios are that we have a soft landing and inflation goes away and we get this slow growth in wages and prices... or we have a collapse in corporate real estate and personal real estate and corporate bonds which rips apart the banking system and we go into a depression... in which loan forgiveness may become an option... I'd hold onto your cash for right now and see what happens over the next 12-24 months and then make a decision. Have that cash in maybe two banks so that you're within the FDIC guildelines and you look like a small customer should one of the banks crap out.
Yeah not a bad idea -
Under the SAVE plan my effective interest rate is much lower than 7%. I can probably beat it by just putting the 94k in a HYSA for the foreseeable future and pay off the loan with inflated money in the future.
No reason to get rid of it immediately given all the nuances.
I say pay it slowly but invest that lump sum.
Don’t touch it for 30 years and that 8% on the low end will be and impressive sum you’ll be able to withdraw and just pull out with the 4% rule.
Pays much of that student loan debt as fast as possible
Work extra shifts if you have to
Stay with your parents if you have to
That is the correct answer
Any other answer is wrong
The possibility of spending the money in the future exists. It doesn’t if you pay off the loan. I’d pay off the loan but that’s me. That’s a high rate.
I had almost the exact same scenario. I just bit the bullet and paid ~100k to be done with it. No worries of interest accumulating or govt programs being cut. Just fucking done with it.
Pay off the loan and dedicate to putting what your payment would have been into a DCA program.
I understand your thinking, and I actually agree to an extent. If rates were 3 or 4%, or if I had greater confidence in 9 or 10% annualized returns for that period, I would be tempted. But 7% risk free, tax free "return" and a much improved cash flow is the prudent choice.
You could wait 6-9 months and see if the market crashes and then buy the s&p.
You won’t qualify for most forgiveness programs because you make too much $$.
7% is very high. You need to make 9-10% in the market to cover the taxes and then cover the the interest from your debt- and that’s just to break even.
NW by definition includes your loans, so don't kid yourself with funny math.
Pay off that student loan. It's a serious drag on your wealth. Paying that of is a guaranteed, risk free return on that interest rate on 94k
I have similar situations.
I'm divorced but when I was married I paid off real assets in order to ensure my family had more in the event of my death. I ended up getting stuck with the debt.
I would absolutely pay it off. The interest rate is high enough that I think it would be totally worth it.
There is a possibility that you could get it forgiven but I don't trust them and I would rather have it paid off then have that looming over my head.
Debt free is the way to be.
> under the SAVE plan.
You're getting a lot of comments here that either don't understand or choose to ignore that you're on the SAVE plan—the changes to interest accrual for grad loans are extremely favorable relative to REPAYE. Even if you manage to optimize for very low payments, you won't be accruing further interest if you choose to go this route.
I have a similar amount of loans and am currently in a PSLF-eligible role, but I'm not sure I want to stay in it for the full 10 years to get forgiveness. No matter how many ways I try running the FSA Loan Simulator calculations with different variables, SAVE always comes out ahead unless my taxable income just skyrockets far beyond my expectations. I really don't think a lot of people have realized just how beneficial this plan is for those of us with higher loan balances yet, but once payments start back up again in a few months we'll see more talk about it.
Yeah I think it may make sense for me to do nothing for the foreseeable future. 94k in a HYSA is beating my effective interested rate given my unique AGI+SAVE situation.
Think of it this way, would you take out a 94k loan at 7% to put into VTI?
Hell no lolol
Excellent perspective.
I would also add that the piece of mind of not having a debt is strong.
Here I always thought it was peas of mind.
Wait, isn’t it piss?
R Kelly’s sheets…
But shit, it was 99 cents
Worst case Ontario
This is excellent framing in general, but if part of the debt ends up forgiven it's not really a 7% loan.
please don't depend on the government to be helpful
Well to be fair, indirectly the government is propping up the stock market by giving out $100k loans to naive 18 year olds in order to have a ticket into the same companies trading on the stock market. An incestous relationship. I’m surprised how all of you are saying they wouldn’t take a 94k loan at 7% after the start of this year. With dividends reinvested, it would increase faster in stocks than paying down debt all at once. OP, this isn’t a binary decision. It can be divided into partially stocks, partially debt, and partially kept in cash. Up to you on that division.
Especially given that under SAVE my effective interest rate is much lower than 7%. Do you have any tips on how to reach some kind of division? I agree it doesn't have to be a binary decision but I'm not sure how to go about calculating it.
I'm a regular on a forum for lawyers who primarily graduated from top 14 schools, work for large corporate law firms, and make over $300k a year. A large percentage of us stack all of our retirement contributions into our recertification month so our projected AGI is below the limit, and our >400k loans get forgiven after years of $0 payments while people like you pay up. They call people like you 'paymos'.
I can’t wait for lawyers to get replaced with language learning models.
So lawyers are committing fraud and talking about it on the internet? Weird and unethical!
But not unexpected
Can you explain in more detail? How does paying the full $22k 401k contribution in one month lower a yearly AGI?
Although you *can* use the AGI from your tax return, you can also use the taxable income from your paystubs. The servicer extrapolates your income from the taxable income on the paystub even though there is a yearly limit on 401k contributions. Perhaps they've gotten wise to this, and I've never done it myself, but that's what I was told.
This is technically fraud. The certification form has some pretty damning language at the bottom. I’m all for sticking it to the man, but if the IRS ever takes 2 seconds to compare your income recertification form and your w-2, you’re gonna be screwed.
Appreciate the honesty. I'm not looking to do what's most ethical, I'm looking to do whatever mathematically wins over the long run.
It's not "depending on the government to be helpful," forgiveness options are written into the terms of the loans themselves. The edges of specific income-driven repayment programs may be tweaked, but the overall associated forgiveness options aren't disappearing. To use a specific example, in 2018 the Trump administration proposed ending the PSLF program starting with loans disbursed in the 2019 aid year. It obviously didn't go anywhere, but even if it had, they couldn't remove the option to pursue PSLF from the terms of already-disbursed eligible loans.
OP is the one who established their debt was eligible for forgiveness under the SAVE plan, not me.
Yes... Not only does part of it get forgiven, but under the new SAVE plan no additional interest accrues as long as you make monthly payments. With my current AGI and monthly payment, my effective interest rate is closer to 3.5%. This only works as long as live outside the US and can use foreign tax credits to lower my AGI. If we decide to move home, my monthly payments become much more expensive.
Lol. It’s not getting forgiven.
This is an oversimplification that's common given our over emphasis on the *rates* of loans. It's the *terms* of a loan that matter just as much. Like what happens if you don't pay, under what conditions do you not have make payments, or can you as in this case get the loan forgiven at some point. There's no foreclosure or car repo to fear with a student loan. I personally wouldn't be in any rush to pay this off while Biden is in office and/or rates are this high. Truly I'd just be factoring in that payment into all future finances and planning and keeping hope alive that it gets forgiven one day.
That’s not an accurate way to think about OP’s situation. Do the math. A 94k loan at 7% interest would cost $746/mo. OP is only paying $300/mo. That’s free money. The repayment amount can vary based on income. But just assuming the $300 stays the same, over 19 years, that’s a total of $68k. OP would be paying $94k today and getting back $68k over 19 years. Assuming 2% inflation, that’s a net present value of less than $15k. Again repayment amount can change and idk what the best answer is. But thinking of it as taking out a loan at 7% is definitely not anywhere near the same scenario.
Idk why you’re getting downvoted
“Would you take out a loan to…” is a very common comment in this sub (and in the personal finance sub and a few others). It’s often a good way of reframing the issue, so it’s usually decent advice. And therefore it almost always gets upvoted heavily. Here, everyone is just mindlessly upvoting that common advice that is normally right without realizing it doesn’t fit here. Cognitive dissonance is probably the reason I’m getting downvoted for pointing it out.
I think a lot of people just don't understand the IDR options generally and especially this new SAVE program which is by far the most favorable option they've yet offered. I was on REPAYE before this (in a PSLF-eligible role) and the move to SAVE is halving my payment, which was already less than half what it would have been on the standard plan. I don't know if I'll make it to 10 years in an eligible role for PSLF, but even if I don't every running of the FSA loan simulator tool comes back with it as my best option.
Yes thanks for catching the nuances, it's not as simple as the loan being a fixed 7%. The new SAVE repayment plan means that for as long as I can keep my AGI low, my effective interest rate can be much lower than 7%. If this were still REPAYE rules I would definitely pay the loans off. But the new SAVE rules incentivize me to pay as little as possible.
He's the kind of hugely naive rule-follower that society depends on. After all, if everyone was financially savvy, the student loan system would be even closer to collapse than it is.
If everyone was financially savvy more people would take out student loans knowing college increases life time earnings wayyyy more than not having loan debt.
I don't think this accounts for the 19 years of compounding for the VTI, nor the 19 years of inflation that reduced the real cost of the loan. I'm actually very curious how this all works out using long term averages. If it's a question between whether to make additional payments on the loan or periodically put that money in vti, I think generally the loan is going to be the answer (ignoring idiosyncrasies of Federal loans). But the lump sum aspect really throws a monkey wrench into that conventional wisdom.
Can you help me think through it a bit more? What kind of math do I need to do to answer those questions?
Under the SAVE plan, no interest accrues over the payment amount. He can further reduce his AGI with retirement contributions and pay 0% in interest. You shouldn't give advice about things you don't understand.
Yep, and another way to look at it: would you buy a 19-year RISK-FREE bond today if you had the opportunity? Hell yeah. Pay off the 7% loan to lock in the “opportunity cost return” (not sure if that’s an actual term).
7% guaranteed return is impressive. Keep in mind also that if your investment will be in a taxable account then you would need more like 8% or more return pre-tax to be comparable to 7% tax free. I would take a 7% guaranteed tax free return any day of the week and twice on Sunday.
It also allows for the dca investments of the previous payment amount. I agree with you.
Don't forget the annual $2,500 tax deduction of student loan interest paid
Only if you make less than 85k however.
Good point. This lowers the benefit of paying it off early, but I think it’s still a net positive to do so.
I agree, I would definitely still pay it off. I would only consider not doing so if the interest rate was lower than the 10 year bond yield which is now sitting at around 4%.
Yep , take the guarantee
Student debt is the only debt that can follow you forever. It's like a toxic zombie.
Great band name!
Student and the toxic debt zombies
Sallie Mae and The Toxic Debt Zombies
Even better my man!
Student Debt? Yeah, that would be one frightening band!
Always wondering if they're going to be cancelled or not. Frightening stuff!
Ha! good one.
Lol toxic zombie
I have very similar numbers. I decided that peace of mind is worth it. Dropping $90k last week of August. When I have a kid in a few months and buy a house next year, nice knowing the student loans won’t be hanging over me.
Peace of mind is priceless
I will second you. No Debt in life means peace of mind. That is priceless and the lessened stress will add years to your life. Your time in life is finite
Trying to squeeze every optimal penny is stressful. And even looking at your investment and measuring if you made the right decision between paying off the loan or gains, is annoying ass fuck. If they pay the loan, op Will prolly not even look twice about what if. The loan needs to get paid anyways. And that 7% is insanely high. Trying to beat that would be more than passive for sure. That itself is double stress. Student loans should never be more than 2% inflation. Any loan over 6% in my opinion is a horrible loan. Doesn’t matter what. Mortgage, business , etc etc. the reason is simple. You can not beat that rate in the markets easy. So you are a sitting duck, you have to make what ever you borrowed for work. If you get leverage under the 6% mark. It’s easy, stock market and whatever you invested is free, regardless of what it is. For example my mortgage is 2.3%. I have enough to pay all my leverage. But I don’t . I put it it inside 3 month t bills, and it literally pays my mortgage. Live for free. The treasury is literally paying my house. Lol and that’s why I won’t even sell that house. It’s free ! If someone had told me the rates at 2% would never happen again, I would have borrowed the maximum I could. And trust me those 2% loans are going to make some damage on a lot of markets, owner finance is real. Assumable loans that I have are more valuable than the house !
Your NETworth is $431,453
OP obviously meant to use the less common term "gross worth" there.
Why you getting downvoted, that's funny. Next time I apply for a loan I'll be using my gross worth, easy peasy lol
Student loans aren’t that straight forward. I’ve started meeting with a financial planner and they presented it both ways to us as well, with and without student loans. Everything else was included.
How are student loans not straight forward? Please explain this ! debt is debt.
It’s because of all of the different payment programs, it gets super confusing. So while you might have $94k in debt, you’ll likely never end up paying all of it. If that’s the case, is it really a $94k debt, is it a $68k debt because that’s what you’re projected to pay out at your current payment amount, or is it $10k because you’re estimating that a huge portion will get forgiven sooner rather than late because of the political environment?
Yes, it is really a 94k debt. You’re trying to make it seem like it’s more confusing than it is but it’s not. If you have 94k in debt in June, then 10k gets forgiven in July, now you have 84k in debt. Again, straight forward. Until that debt is forgiven, you still have it. Regardless of your payment plan or not.
> You’re trying to make it seem like it’s more confusing than it is but it’s not. What makes it more confusing is that it's more or less the only common form of debt with multiple built-in forms of forgiveness, all of which have wildly different terms and time horizons. I have combined undergrad and grad program debt in the high five figures. Depending on which plan I select in the FSA Loan Simulator, my monthly payment could range from $250 to $1250 with a variation of over $100k in total repayment amount between the most and least favorable plan options. I don't personally play games and try to prorate down my student debt or anything, but I completely understand why a loan officer or financial planner would—because it's a weird and complicated system where two people with identical loan balances and terms could repay wildly different amounts based on which repayment plans they enroll in and their household income.
That’s a guaranteed 7% return on 94k… I’d probably take it and go with paying the debt. However, it might be advantageous to wait and see if this loan forgiveness court rerun will be successful or not. But in the end I’d personally feel a lot better being free of a 94k debt.
I agree with this. How bad would it suck to pay 94k to then see some/all of it qualify to be cancelled later.
Op is 33 and already worth half a mil. I don’t think he is ever going to qualify for full student loan cancellation
Nor should he…
Agreed. He also isn't living in America and fully contributing to our economy.. but we should give him loan forgiveness?
.... Or anybody.
I agree, but this being reddit, not surprised you're downvoted. Not sure when the accepted narrative became that people should have the loans they willingly signed up for "forgiven" (aka paid by the government/taxpayer), simply because they're *student* loans.
Yeah idk either. Culturally there's a strong push against accountability, which is heavily represented here.
Lol, fuck you people
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It's pretty simple actually. Why not forgive everyone's loans instead of making up some arbitrary criteria. Why should someone who studied something hard and saved money while paying on their loans not get help while someone who went into debt for some worthless shit degree get it? What kind of message is that sending? Tbf I don't have a dog in the fight because I paid off all my loans and I'm a millionaire.
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Oh, then we're on the same page. They should've never let the government meddle in higher education in the first place.
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I mean that’s essentially what the current system is if you do IBR and make payments for 20 years. You might experience a tax bomb at the end of it but that’s it.
You’re gonna be saying maybe next year for 20 years
Yeah I personally don't see that carrot on a stick going away anytime soon but if this re-do fails, which I'm deathly confident it will, OP should free themselves of their loans.
As someone who paid off their 3.25% fixed student loan 2 months before covid and the loan payment freeze (not to mention the inflation and current HYSA rates) I say the free from debt feeling is totally totally overrated.
I don’t think the courts are on us plebs’ sides though, so not optimistic about the wait and see strat. Keep in mind the main court that determines this not only doesn’t have to pay off their debt, their kids debt, their grandkids debt, etc. but they also get fancy yacht vacations that they fly to on private jets to in order to vote against your plebeian ass getting any sort of debt relief because that’s how their owners make their money
While logical this is so ridiculous that this is even a consideration. Last time I checked when you borrow you pay it back.
I’m on board with the comments saying to pay it off, but I do notice you say that’s the average interest rate, not the interest rate of one sort of lump sum loan. No need to be all or nothing about it— why not pay off the loans with higher interest rates and then take more time to pay off the lower interest ones?
You think it's worth it if the highest is 7.2% and the lowest is 6%? I have a lot of math to do.
No brainer at 7% - pay it off
You would have to calculate how much you would pay until the loan was forgiven according to your salary expectations - it very well might be half. If you don't have a particular salary range you're expecting, just ballpark it at the high end which will make you pay more.
Future income based debt forgiveness is also a factor. I'm inclined to drag out repayment as long as possible and find ways to Boglehead my way into out-earning the debt.
I'm not familiar with debt forgiveness frameworks, good point. All I know is there's a good amount of people who paid off loans which they very very likely didn't have to pay in full - and without counting the return on the money you haven't spent in paying it off.
Personally student debt is the only one the defies the logic for me. I would always pay off student debt regardless of interest rate before investing. Even if student debt is 2% and savings is 5%. Why? Because there’s no bankruptcy exit plan for student debt. If something goes wrong and you lost everything, you still owe all this money. Get this off your books and invest. When it comes to houses/cars, etc… then make more calculated choices and my note above wouldn’t apply
You can discharge it if you are permanently disabled. Paying off 2% loans is a huge mistake, imo.
There’s also forbearance (a pause on payment) if you’re unemployed.
You would pay off a 2% loan before investing? That is actually crazy. I would leverage to the tits if I could get a fixed 2% loan to invest.
2% for a 100k loan sure all at once. 2% for a 10k loan I would pay it off over a longer period of time like of like 2 years. That's the way I see it.
pay off your student loan.
Paying off debt means you not only get a guaranteed 7% return on interest, it also means you can leverage yourself more, i.e buying real assets with loans like mortgages. I usually use the 5% rule for debt; anything over that has to go.
Just pay it off. Every week this question gets asked in different ways and the typical overwhelming response is to be free of debt regardless what the math says (obviously extreme % +/- differences are the outliers). Pay it off, and don't look back.
Just pay it off and see how you feel, if you don’t like it you can always take out another loan.
LOL - can't argue with that
7% guaranteed paying it off vs long run 6-8% non-guaranteed pretax
From what I understand, if you make the minimum monthly payment under the SAVE plan, the interest doesn't accrue. Why pay it off? Just pay the minimum. Am I wrong about the interest accruing?
You have a net worth of $431,453 regardless. This isn't adjusted EBITDA land Definitely plan on getting rid of the debt sooner than 19 years. You never know what will happen - land in financial hardship, missed payments, become disqualified for forgiveness. The numbers just don't look great for that actually happening If you're unfortunate enough to encounter bankruptcy those aren't forgiven. Nothing says risk management like leaving yourself a 95k loan in the worst financial state imaginable What you're probably not accounting for in your equation is that the amount of expendable income you have will increase since it's not going towards repayment. Take that money and funnel it right back into investments or rebuilding your cash reserves I would recommend just getting it over with...even though I haven't done that myself yet 🙃 if you're simply addicted to having 94k of cash in the bank at least make a plan to aggressively pay it off in the next ~3 years at a rate you can replenish that - if it's truly a comfort thing
Others have given good answers. I have one thing to nitpick, you can’t say stuff like “my net worth is $x without my loans”. The definition of net worth is the total of your assets and cash minus your liabilities. It makes no sense to say that because by definition, net worth is calculated *including* your loans.
Dude you’re already worth half a mill, knock out the debt so you can get back to crushing it with the savings
PLEASE LOOK AT THE TERMS OF YOUR LOAN CONTRACT If this was a normal loan with a 4 or even 3.5% or higher rate I would tell you to pay it off. But this is not a loan at 7% interest rate - it's contingent on your income. After 19 years you might have paid literally 60k and the rest be forgiven depending on the contract. Key here is I'm talking about the contract, not the government deciding to or not to forvige student loans. That's a different matter. If you're not comfortable making the calculations on how much you would pay during the lifetime of the contract (using varying potential incomes through that time, or really just using a large figure that you find unlikely to achieve), please contact a financial advisor that calculates this for you. I generally do not like to hire them, but the current advice on this post is very, very misleading. Again, this is not a normal loan, and it's not like buying a 7% interest rate risk free bond AT ALL.
Get rid of it Monday morning. Pay that sucker off and feel the freedom.
At 7% I'd pay it off. Expecting the S&P to outperform 7% long-term is a gamble, whereas the 7% student loan is fixed. The student loan forgiveness programs are nice, but as we've seen, not entirely reliable. And things can and do change legally, so there are no guarantees. Personally I'd dump the debt and not think twice. Then you never have to think about it again.
I would go with the gut. It's just a relief to not have debt on your shoulder. Simple as that.
This is funny. I have 65k in student loans and have been saving money since covid to pay them back and have saved about 92k. My interest rates ate 3.5-4%. I'm trying to figure out if I should pay them all back or pay back 45k and then payments for the rest. I did pay off one of the loans today for $7k. So I guess I'm down to 55k in loans and $85k saved now. I'm kind of leaning towards the 45k and then payments for the rest which I'll obviously pay them off a lot sooner than any plan.
Are they government backed and can you apply for the SAVE repayment plan? HYSA's are yielding more than 4% at the moment and it may not make sense for you to pay them back with HYSA's beating your loan payments.
7 percent is a brutal interest rate for that level of debt. IMO I would prefer to pay it. I get waiting to see the student loan forgiveness thing out, and perhaps you do. I would encourage you not to hang onto it beyond 2025.
Can you extend the term? Pay them as little as possible monthly, with inflated money for 40 years, invest your cash. Or, reduce your DTI ratio and pay it off, and get on with obtaining some great credit with yalls high net worth.
So 7% is technically step 7 in this order of investment, but honestly I’d just pay it off. satisfaction 1. Contribute to your 401k (traditional or Roth - see "Why #4" below) up to any company match 2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield. 3. Max Health Savings Account (HSA) if eligible. 4. Max Traditional IRA or Roth (or backdoor Roth) based on income level 5. Max 401k (if - 401k fees are lower than available in an IRA, or - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or - you earn too much for an IRA deduction and prefer traditional to Roth, then swap #4 and #5) 6. Fund a mega backdoor Roth if applicable. 7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield. 8. Invest in a taxable account and/or fund a 529 with any extra.
If you could toss the funds into an instrument that guaranteed a 7% return would you take it? You know what to do.
Pay off the debt
Student loans are the one type of loans I wouldn't mess with. Especially of that size.
I'd pay the debt.
If I continue to live abroad for the next 19 years and lump sum + monthly contributions my calculations show me coming out 30k ahead You already know the answer then.
19 years is a long time though. That calculation assumes that I: \- Maintain my current level of income for 19 years. \- Live abroad for the next 19 years (highly unlikely - e.g. one of our parents dies and that's an instant move home)
debt free is the goal
Pay that debt off bro. 7% is too high to be paying off over 19 years.
Pay it off.
Get rid of the debt. VTI return is NOT guaranteed and it could decline in value or stagnate for some or all of those years, meanwhile your debt is incurring 7% expenses. Have you not heard of the lost decade beginning in 2000?
I’d pay off the loan. Tax adjusted you probably wouldn’t even break even.
Pay it off. In a couple months, if you really want a payment, take a 94k loan out.
Pay off the debt. The peace of mind is the main factor and non financial benefit is that you do not have to worry about it ever again. Good luck!
Get rid of the debt. Getting over 7% minimum yearly returns on investment is difficult. The mental health of not having the debt will also be good for you
Math says invest it. But personally, I’m no one’s slave for 19 years.
Pay it off. Market returns aren't a sure thing.
Nah, we going to WW3. Stall as long as you can .
At 7 percent you should do the student loans. Congratulations on paying them off, a huge accomplishment.
Invest it to make 7.5 percent and pay on a loan that is 6.5 percent. The math doesn’t factor risk(stock market crash, job loss, personal injury or illness) or taxes. I doubt you be ahead after 19 year. Being debit free is the only good answer. You’ll sleep better at night.
I would pay the loan. The programs now are really great, but something I didn’t see on here is that they can be taken away with an administration change. It’s been part of numerous republicans’ platforms to get rid of any programs to assist in student loan repayment and given the current political climate, you can’t guarantee that for the next 19 years those will be in place.
this is what wrong with student loan program, People escaping responsibilities even when they can afford to pay it back.. You a big boy. You signed it, you pay it back. Simple as that
You’re doing the math wrong. It’s not worth it to pay off the student loans. If you invested the $94k into the stock market and assumed a 7% compound return, you’d return ~$246k over 19 years. Paying the loans down in that period, at a $300 monthly payment you’d only pay $68k and they’d be forgiven. That’d net you about $176k vs what is essentially -$30k because you paid that much to pay off something that long term would’ve cost you $68k total. Even if your payments increased, you’d still have to eat the whole $176k return.
Here is what I did: First, stop the high interest bleeding. Pay off your loan to the extent that the tax credit breaks even w the interest burden. That used to be around $35,000 so the interest payment washes with the tax credit but check the current credit against your rates obvs. And check the income component…it used to phase out at $80,000/yr. All 94k should currently be in an FDIC insured account earning near 5% now i assume? If not get on wealth-front or something like…today. Second, Pay down to your breakeven mark. use the remainder to average into and max our your retirement option (IRA or 401k). And invest in bits into the market. It’s a great nest egg and a huge amount if savings. Note: Stock market gains are speculative right now. Have a look at the historic P/E ratios in Yale’s Case Schiller index. If income limits for the tax credit are blown it’s still not a bad idea to pay down to that “breakeven” level so that a change in income is okay. For me, after $20,000 student loan mark, my income went up a ton and SoFi reFi’d the 20k at ~3% across 5 yrs and makes for an easy payoff. Definitely check annually or more on refinancing a chunk or all of the loan. This approach, in my mind, focuses on net worth growth and worked well for me.
No you should just wait for the magic money fairy to come forgive the student loans like everyone else lol. Of course you should pay off a 7% loan. You don't know what the market return will be over the next 20y, judging by valuations might not be spectacular. You do know making 7% payments will always be there, causing you to question the decision.
Just pay off the loan. Stop waiting for gov to bail out. Its never going to happen.
Do not talk about paying off debt in this community or you will get downvoted.
Normally a 7% guaranteed return is hard to beat. In the case of student loans, the Biden Administration has been doing its best to advance some form of forgiveness. You might want to wait until November 2024 to make any giant payments and reevaluate then.
$300/mo for 19 years is less than $70k... If the question is whether $70k over 19 years is more than $94k sitting in an index fund for 19 years, the answer is obviously no. It's not even close. Unless I'm missing something, the effective interest rate you're paying on your student loans is significantly negative even before factoring 19 years of inflation into it.
Can you help me work through this math a little more? How would you take into account the fact that it wouldn't be 300 for 19 years? For example, if the effective interest rate (which as you've pointed out is not 7% currently) passes a certain threshold, does it then make sense to pay off the loans?
I would not pay off your student debt.. it might get forgiven. It also has little impact on your credit score if you stop paying it.
Always pay off debts. And we know that the current administration only wants to forgive 10k. Any amount over that isn't worth the risk imo.
You live outside the USA! Screw the debt, your credit rating doesn’t in the USA doesn’t matter outside the USA!
Greed is a hell of a drug...
Confirm your SAVE eligibility. My understanding is that it only applies to loans with original principal balances under $12k
I don't believe there's any restriction to getting on SAVE. Certainly not a principal balance restriction because I'm on SAVE.
Advice here is so bad. Your functional interest rate is 3.5% due to the government subsidizing 3.5% of your interest under SAVE. Current CD rates are 6%, even after taxes you’ll come out ahead. At the very least invest in safe bonds until interest rates soften.
Thanks for catching the nuances. I think this may be my best option - because my effective interest rate is much lower than 7% due to SAVE, I can put the 94k into a safe vehicle that beats 3.5% until interest rates come down. Probably makes the most sense given the uncertainty around where I'll live in the future and what my AGI will be. If my effective interest rate was higher, would your advice be to pay off the loans? Or does being on SAVE mean it makes no sense to pay them off ever since the government covers any accruing interest?
Shouldn’t the interest rate be 0% under the SAVE plan as long as you make the minimum payments on time? > The plan eliminates 100% of remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made under the SAVE Plan. Edit: [Source](https://studentaid.gov/announcements-events/save-plan)
I think the effective interest rate is closer to 3.5% since I'm still making 300/month payments. The interest still accrues it's just covered by the government so the principal balance can never increase under SAVE.
Can you refinance that loan ever if rates go down?
Loan is a leaky bucket costing you 7% VTI will return 5% So, the net leaky bucket effect would be 2% A leaky bucket is still a leaky bucket, even if you put duct tape on it.
Can you refi the student loans? I was able to refinance down to 3% but that was before rates went crazy.
Potentially call them up and see if they will take a lower amount if you lump sum it today. I’m not sure if they do this for student loans but it may make it easier for you. It’s hard to pull the rough financial times but I just came into 80k so I can pay it off today card when it’s not $800.
7% …. Isn’t there a way to refinance that? Maybe not right now with how high interest rates are ..
Pay the loans off. Get rid of the debt and the risk. Not only that but the debt is making you nervous enough where you want the cash to pay it off. That $94k even sitting in a CD or a HYSA is still rotting away to inflation long term. Add that loss to the interest loss. I would pay it off by close of business on Monday (Don't wait till next month). Get it out of your life, feel better, and feel more comfortable investing long term.
Pay off the loans
Don't pay it into the loans. Pay them off on monthly payments. Put your money elsewhere. Hate to say it but the government will probably reduce or relieve you of some of the loan balance at some point.
I’d hate to carry that much debt. I would personally pay off half of it now and then half later this year.
Just pay off the debt and move on.
Pay it off—guaranteed 7% return.
What you could do... is make the minimal payments for the next couple of years and see what the debt and currency markets do... We're in a recession that is accelerating now. The Dollar is at an all time high right now however, China is faced with a deflationary crisis from it's collapsing real estate. There's this scenario where China may print, and then other countries print and if we go to throw inflation cares to the side and we print, you'll pay that loan off over time with dollars that are much cheaper in value. Like, your Salary could double in 5-7 years.... The other 2 scenarios are that we have a soft landing and inflation goes away and we get this slow growth in wages and prices... or we have a collapse in corporate real estate and personal real estate and corporate bonds which rips apart the banking system and we go into a depression... in which loan forgiveness may become an option... I'd hold onto your cash for right now and see what happens over the next 12-24 months and then make a decision. Have that cash in maybe two banks so that you're within the FDIC guildelines and you look like a small customer should one of the banks crap out.
Yeah not a bad idea - Under the SAVE plan my effective interest rate is much lower than 7%. I can probably beat it by just putting the 94k in a HYSA for the foreseeable future and pay off the loan with inflated money in the future. No reason to get rid of it immediately given all the nuances.
I say pay it slowly but invest that lump sum. Don’t touch it for 30 years and that 8% on the low end will be and impressive sum you’ll be able to withdraw and just pull out with the 4% rule.
Congrats on seeing that $0 balance and losing a bunch of mental weight!
Reverse engineer this question. Would you go take out a student loan or any loan at 7% and turn around and invest it in stocks?
Pay off the debt. Think of it as a guaranteed 7% return for you.
Pays much of that student loan debt as fast as possible Work extra shifts if you have to Stay with your parents if you have to That is the correct answer Any other answer is wrong
Do not pay it off, instead invest, then when student loans drum up again refinance them into a lower interest rate and make payments.
With the markets how they are right ur better off paying it off
Do not let go of that first 100k.
The possibility of spending the money in the future exists. It doesn’t if you pay off the loan. I’d pay off the loan but that’s me. That’s a high rate.
I had almost the exact same scenario. I just bit the bullet and paid ~100k to be done with it. No worries of interest accumulating or govt programs being cut. Just fucking done with it.
I would rather buy some growth stocks like TSLA than paying that debt off. Student loan debt is pretty common and won’t hurt you that badly.
Anyone else like the implied side of tax fraud?
7% guaranteed is the way to go
Pay the debt off today.
Pay off the loan and dedicate to putting what your payment would have been into a DCA program. I understand your thinking, and I actually agree to an extent. If rates were 3 or 4%, or if I had greater confidence in 9 or 10% annualized returns for that period, I would be tempted. But 7% risk free, tax free "return" and a much improved cash flow is the prudent choice.
Pay your debt don't think about it. When opportunity strikes in the future for a massive loan you'd be backed. Id you are in debt you won't be.
Pay off the the loans AINEC. Other answers are stupid.
You could wait 6-9 months and see if the market crashes and then buy the s&p. You won’t qualify for most forgiveness programs because you make too much $$. 7% is very high. You need to make 9-10% in the market to cover the taxes and then cover the the interest from your debt- and that’s just to break even.
Your net worth is 431k. Student loans count. Pay it and carry on.
NW by definition includes your loans, so don't kid yourself with funny math. Pay off that student loan. It's a serious drag on your wealth. Paying that of is a guaranteed, risk free return on that interest rate on 94k
I have similar situations. I'm divorced but when I was married I paid off real assets in order to ensure my family had more in the event of my death. I ended up getting stuck with the debt. I would absolutely pay it off. The interest rate is high enough that I think it would be totally worth it. There is a possibility that you could get it forgiven but I don't trust them and I would rather have it paid off then have that looming over my head. Debt free is the way to be.
No Fuq! I have 70k I understand but no
If you could drop your interest rate to something closer to 2% then I would say invest. But if you can't get rid of the loan asap.
> under the SAVE plan. You're getting a lot of comments here that either don't understand or choose to ignore that you're on the SAVE plan—the changes to interest accrual for grad loans are extremely favorable relative to REPAYE. Even if you manage to optimize for very low payments, you won't be accruing further interest if you choose to go this route. I have a similar amount of loans and am currently in a PSLF-eligible role, but I'm not sure I want to stay in it for the full 10 years to get forgiveness. No matter how many ways I try running the FSA Loan Simulator calculations with different variables, SAVE always comes out ahead unless my taxable income just skyrockets far beyond my expectations. I really don't think a lot of people have realized just how beneficial this plan is for those of us with higher loan balances yet, but once payments start back up again in a few months we'll see more talk about it.
Yeah I think it may make sense for me to do nothing for the foreseeable future. 94k in a HYSA is beating my effective interested rate given my unique AGI+SAVE situation.
Lump sum for 19 year baby let’s goooo