Need help deciding if it makes sense aggressively paying off private low interest student loan or saving/investing

Submitted by ausb781 t3_zzxwag in personalfinance

Over the last year, I have paid off 85% of my CC debt, freeing up some of my income to pay debts/save. I am conflicted whether it makes more sense for me to aggressively pay down my private student loan, to save aggressively, or to do a 50/50 split of my discretionary income.

Currently own about 50k in student loans, divided below as such:

  • Private Student loan with credit union - ~$9,100 at 3.02% - min monthly payment $225. 5 year loan, paid off in Aug 2026 if paying on minimum.
  • Federal loans - $41,599.00 - weighted average interest rate: 4.21%, no monthly payments as currently frozen. Eligible for 20k forgiveness if it goes through, but I am not hoping on it. Once payment resumes next summer, I estimate my payment to be around $150/month with the new IPR plans.

My remaining CC debt totaling about $3k on an AMEX card. Will have it paid off before the intro APR expires in April.

I am currently making $4400/month after taxes (including health/vision/dental premiums, and contributing 3% to my company offered 401k plan.). I live in a HCOL.

Within the next year, I am expecting a pay raise of $10-15k/year, with high probably of reaching $120k+/year in the next 5-7 years. I work in a field that is very minimally affected by a potential recession.

Current savings: $2,000

Retirement - 401k balance is ~$7,000. I am 26 for reference on how close I am to retirement.

My company matches 50% of the first 8% of pay contributed, which is vested after 3 years of service. Currently have slight a year of working at my current company.

Total combined 401k balance is ~$7,000. I am 26 for reference how close I am to retirement.

Monthly expenses (minimums): $2,171

  • No rent/housing expenses as I live at home, but I pay the electric bill as an agreement - ~$300(taking the average through the year)
  • Student loan minimum - $225
  • Other debt minimums (including car, CCs, and installment plans) - $1041 (lowering to $800 by March 2023)
  • Other expenses(phone, car insurance, etc): $605

Did not include things like groceries, gas, and other misc. expenses in this, as it is easier to reduce how much I am spending and there are no minimums.

Finally, want to mention that my goal this year is to move out of my parents’ and move to another state (with MCOL) by fall, so having enough savings is important.

I am open to all feedback. Thank you!

6

Comments

You must log in or register to comment.

BetterFuture22 t1_j2ejpi4 wrote

Pay off all cc debt immediately unless there's a zero intro rate.

Leave student loans in place & make minimum payments so you can build up cash to finance your desired move.

Do not be eager to pay off student loans - those are really cheap rates that you can't get elsewhere. Is pretty close to "good debt"

4

ausb781 OP t1_j2emy0a wrote

There is a zero intro rate for remaining cc debt that expires in March. I should be able to pay it off by the end of February.

I agree, I lucked out with the interest rates on the student loans. Especially given inflation, they’re really good.

1

throwawayawayayayay t1_j2egc7y wrote

I would make min payments on the student loans and focus on saving. Student loan interest is deductible and interest from a HYSA would pretty much cover the loan interest today, and rates are going to continue going up.

Plus you have a lot more flexibility with $50k of student loans plus $50k of savings as opposed to just $0 everywhere.

3

ausb781 OP t1_j2eo8mn wrote

I like your way of thinking. Definitely better to have the saving and a safety net than zero to no minimal debt but no savings. There will always be expenses some way or another.

1

Burnt_Prawn t1_j2eb4ji wrote

Is the intro APR on the credit card 0%? If not , I’d pay down that first. The two loans are pretty low rates honestly and some high yield savings accounts will return higher amounts nowadays. I’d prioritize establishing a better emergency fund, contributing 8% to the 401k, then paying down the loans

2

ausb781 OP t1_j2eo288 wrote

It is an intro APR that expires in March. I’m planning on paying it off by the end of February.

My HYSA saving account currently has a a higher interest rate than the private loan, so I’ll definitely get a better return saving.

I think I will focus on saving more instead of aggressively paying the private student loan, especially I pay the CC off.

1

PetraLoseIt t1_j2eiifm wrote

That's a nice low interest rate, so I would not pay those student loans down quicker than necessary.

I would put in enough in your workplace's 401k to get the maximum match if despite the move you plan to continue to work for this company. If not, then I would not raise your investments until you've moved and settled.

I would then also start saving in ernst for your move in the fall. Moves generally cost money, you don't have a lot in savings just yet, so go go go.

1

ausb781 OP t1_j2end97 wrote

Totally agree I don’t have anywhere enough saved to move, especially given inflation. My saving account has a higher interest rate(close to 0.5% higher) than the private loan.

It’s up in the air if I’ll stay with this company, but I think another two years is unlikely. I’m not even sure if they’ll allow me to stay on remote as I currently work hybrid.

Is 3% a good amount to save despite not getting the match?

1

PetraLoseIt t1_j2f88j0 wrote

I would consider saving 0% in the 401k right now, but saving A LOT in your savings account for the move. But then after the move you should start putting in 10%.

2

BastidChimp t1_j2eed42 wrote

Try using either the Avalanche or the Snowball method to bring down your debt. There are YouTube videos that have extensive information on these two methods. Prep your own meals and refrain from going out to eat. Once you have ended your debt your options will open up immediately to save and invest more aggressively. Eliminating debt will allow you to obtain favorable loans from your lender in the future and frees up more cash for your monthly budget.

0

BetterFuture22 t1_j2ek3ax wrote

Leave the low interest rate student loans in place and save your money to move, etc

2

ausb781 OP t1_j2ennxa wrote

I’m familiar with both methods as I used the Snowball method to pay off the previous CC debt. My credit is great currently 750+, plus I have no plans for a major purchase in the next couple years, minus a car. My DTI is already pretty low.

0