Student Loans down to 2.6% - Should I keep going HAM or Invest?

Debt
#1

I’ve been going HAM on my loans for a while now, finally bringing them below 6 figures last fall and chipping away at them every chance I get. I still owe ~82K. They are at 4.05% but I am able to refinance them to ~2.6% fixed. I’d like to do this.

The question is, should I keep going HAM or invest the difference? Either way, they will be paid off in 5 years or less. And if I choose to invest the difference, should I put it in my HSA, start a Roth IRA, or toward my child’s 529? I am saving enough in my current 401K to earn my employer’s full match (which is also just enough to retire at 65).

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#2

I say pay just the minimums on your loans and invest the difference, simply because you can never make up for the lost time value of money. Especially since they’ll be paid for in 5 years anyway( unless I misunderstood you )

Def start a roth with Vanguard, Fidelity or Schwab and stick it all in a total market fund. Fidelity now has one with a zero expense ratio, it’s called FZROX.

Folks around here seem to like Target Date Funds, but I disagree for several reasons. But the biggest reason is that even the long time frame ones start with 10% in cash or bonds, which means your account will be missing out on 10% of the growth in stocks. Many people much smarter than I am agree with me, here’s one example. Should I Invest in Target Date Mutual Funds for Retirement? - YouTube

Here’s another one Do NOT Buy Target Date Funds - Here is Why - YouTube

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#3

Thank you. Yep the refinance term is 60 months, so it will just be 5 more years maximum.

#4

It’s really up to you. @Jeremy says pay off all mortgage debt after contributing enough to retirement to get the match How to prioritize your money (The phases of investing) – Personal Finance Club

The math might say if your interest rate is lower then 3-4% then invest because you can get better returns in the market. To me personally $82K is still a lot of money and I’d probably prioritize bringing that down before making any shift in strategy. Either way you can’t go wrong as long as you’re aggressively investing, paying down debt, or doing a hybrid of both.

But in my experience with Jeremy, he doesn’t really care about the math, he says go HAM on the debt, pay it off, and then when you’re debt free you’ll have all that extra money to invest! :smile:

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#5

I say this knowing that she’ll have the student loans paid off in 5 years at only 2.6% interest.

Use the growth calculator under “tools” on this site and do this…

Run 2 different scenarios using the same exact numbers, except in one scenario make it 5 years shorter ( or longer lol ) and you’ll have your answer.

Once you lose the time value of money it’s gone forever.

#6

Thanks for the calculator tip. Actually, this is interesting, I will end up with almost the same amount of $ either way when I tailor the numbers to my specific circumstances. If I go keep going HAM, I am projecting it will be paid off in 2 years vs. 5 years, so I ran the numbers to show what will happen if I invest all of the money that I have been paying toward my debt starting in 2 years. The key will be for me to stick to the plan and avoid lifestyle inflation. Investing now does come out ahead but not as much as I thought it would.