Student Loans and where to invest first

Debt
#1

I have high student loan debt in which I am paying on an IDR payment plan within the Public Service Loan Forgiveness Program (PSLF). I will be eligible for forgiveness in 6.5 years and with my high debt, I am the perfect participant in this program as majority of my loans will be forgiven. So I try to pay the smallest amount possible. I work in Education, so I have a Pension (9% contributions, cannot be increased or decreased) that is newly fully paid for by my Board of Education (making my actual take-home more because typically has been paid by me). I also have a 403b account sponsored by my work, but with 0% match. This contribution is pre-tax (making my student loan payment smaller).

My question is…
Do I try to max out my 403b (to then also lower my student loan payments, but will not likely be able to contribute the max $20,500) before opening a Roth IRA (I’ll likely be able to contribute the max $6,000). Or do I focus on the Roth IRA before trying to contribute more to the 403b?

I feel as though my situation is somewhat unique and I’m not sure how to move forward, which is creating paralysis by analysis… any assistance is welcome!

#2

Hi @heatherlane21! It’s a great question! Here are three thoughts from me!

  1. If you lowered your AGI by contributing to your traditional 403(b), how much would that change your IDR monthly payment? Is it a relatively small amount it would be lowered by? I know it depends on a number of variables. If it only lowers it by a small amount, it’s probably not worth prioritizing.

  2. Depending on your income level, you may be able to deduct your contributions to a traditional IRA, which would also lower your AGI. But the total that can be contributed to a traditional IRA is less than the 403(b) max. But, if you’re not planning to max out the 403(b) anyway, the traditional IRA may be the better route since it still will lower your AGI, you will have more investment options and it could likely have lower costs as well (relative to the 403b).

  3. You are probably doing this already, but make sure you are staying on top of any PSLF requirements! And hopefully you can enjoy this period of no payments for as long as possible!

I hope this helps! Let us know if there are any other questions!

#3

@ShaneSideris Thank you for your response! This is very helpful. I didn’t really think about the Traditional IRA, which opens another door to consider. I think the option of being able to invest specifically in what I want to invest in is also helpful in making this decision. My 403b contributions likely wouldn’t change my IDR that much, but I guess I would need to figure that out.

And last, I am staying on top of the PSLF requirements! I recertify employment every 6 months, which is probably over-doing it, but it takes so long for them to process. I’ve also taken advantage of the no payment period by getting myself another Masters degree, which resulted in my upward movement at work, and being able to almost fully fund my emergency net. I know I’m patting myself on the back for all that, but I’m proud to have learned through PFC to start to make the moves to save.

Thank you!

1 Like
#4

Awesome, I love to hear all of that! That’s excellent that you are on top of your game! You deserve to be patting yourself on the back!! :hugs: