Comments on: Why You Should Pay the Minimum on Student Loans

By: KaylasDebtStory

KaylasDebtStory — Sun, 05 Apr 2015 18:03:06 +0000

What scares me the most is the fact that student loans can’t be bankrupted like CC’s, car loans, mortgages, or medical bills, and all of mine have fairly high interest rates. All are only 1-2% lower than what would be my returns (hopefully) in the stock market. For me, I’m glad to let psychology take over…the feeling of security by paying off 60k in debt that can’t go away no matter what is far better than any amount I could accumulate in the stock market while paying them off. In a way it’s like spending that 1-2% (~ minus the tax deduction, so an even smaller % really) for a lot of financial security in case something goes awry.

I still put money aside in an e-fund, am ahead on all of my loans so I can take a break for a few months paying them if needed, and invest some money in stocks, but also still quite a bit in my 401k and company stock. For me, I try to balance it all, but my student loans are still going to be my very top priority for security’s sake.

Now when my low-interest car loan is all that’s left, psychologically I’ll want to pay it off fast too for peace of mind, but holding onto that loan for longer feels better and it probably won’t be my top priority — investing and building wealth will precede it.

By: DC @ Young Adult Money

DC @ Young Adult Money — Sun, 09 Nov 2014 21:25:46 +0000

Myles Money Yes, and I mention in the post that this does not factor in human nature. Human nature is not always logical and many times is based on emotions even if they conflict with logic.

By: Myles Money

Myles Money — Sat, 27 Sep 2014 06:10:42 +0000

Clearly it makes sense to pay off your larger interest loans first. And if you can get a better rate of interest on savings and investments than the interest rate on your student loans, you’ll gain by investing. But whilst that argument is mathematically sound, it doesn’t address human nature: our money-savvy friends here in the PF community are all looking for ways to earn more and spend less so we’re all on the same wavelength, but what about Joe Public? I think he’s unlikely to have the discipline necessary to take his extra cash and fill up on dividend stocks or max out his pension contributions. We want shiny stuff. And we’re weak.

By: Jover2

Jover2 — Fri, 26 Sep 2014 23:09:53 +0000

I definitely should have done this because I had a very low loan rate (something like 2.685?) and I could have had quite a bit more in my retirement accounts. Still glad to have that debt paid off early, and now I can focus completely on investing, not debt.

By: FranklyFrugalFI

FranklyFrugalFI — Fri, 15 Aug 2014 16:52:07 +0000

DC @ Young Adult Money FranklyFrugalFI On a side note, I did recently get some AT&T instead of paying off extra debt, the yield is so high that it matches my mortgage debt (probably the same with student loan debt). Even without dividend growth this investment can pay the extra interest on the loans plus a little over the 10 year time frame… crazy!

By: FranklyFrugalFI

FranklyFrugalFI — Fri, 15 Aug 2014 11:46:09 +0000

DC @ Young Adult Money FranklyFrugalFI That is true that you shouldn’t try to time the market, and over the long term stocks are the better pack off. But the default length of student loans is 10 years, so you have to question what is the best investment 10 years from today? You don’t know that answer until 10 years from now of course! Which is why I decide to do some of both, pay extra on debt and invest.

By: DC @ Young Adult Money

DC @ Young Adult Money — Fri, 15 Aug 2014 03:32:48 +0000

FranklyFrugalFI Fair enough, but I’d encourage you to leave a comment on the post about interest rates instead. For this to work I’m assuming that people agree with an average market return. I don’t think most people have enough knowledge or reason not to. Otherwise you get into the whole “timing the market” debate which I think we’ve seen 99% of people should avoid.