paying off a student loan; what would you do?

[scaredyclassic]

have a little extra money. not sure what to do with it.

wife has 50k outstanding refinanced salliemae loan. interest rate is 4%, loan lasts another 20 years, been paying about 10 years, monthly payment about 320.

would you pay this off?

PRO
1. psychologically nice.
2. guaranteed 4% aftertax return right now. not sure i can beat that short term.
3. hate salliemae, don’t want them to make money,

CON
1. discharged on death. bad deal if she dies. (wife notes she is in good health, family history of longevity (also says this is irrelevant if she dies as she won’t care)).
2. 4% return might not look so good in 10 years.
3. payment pretty small. manageable. doesn’t affect lifestyle.
4. some jobs offer loan repayment assistance, but unlikely she’ll take one soon although the loan goes until she’s near 70….)

i guess the question is, do i really really believe inflations gonna hit hard sometime in the next decade?

[spdrun]

Do you need the $50k for anything else — are you planning to buy property for say 6% return? (Doable today, easily.) If not, then pay it off.

Also remember that if you have any paid-off property, 15 year money is available at sub-4% rates, so a “refi” is possible.

[joec]

I assume your income is too high to deduct it as well?

I tend to like keeping the cash myself since paying it off is a small return unless you have higher extreme wealth (over 10+ mil).

Sometimes, having debt also helps credit rating scores.

If the 50k is relatively small to your overall net worth, nice to not have to think about it I suppose.

[scaredyclassic]

No deduction.

Kind of was in the mood to pay it off this morning but changed my mind as darkness fell.

Planning to use the money for other things. Screw it.
A fancy driveway gate.

Flagstone.

Flooring.

Also thinking of investing in 30 k&m match safes in bronze … I expect these will triple in value over 10 years.

[UCGal]

As the most debt averse person here… let me chime in.

The payment doesn’t effect your lifestyle now – but what about when you retire? Or do you plan to work the full 20 years into the future?

Once that debt is resigned – you can cashflow the $320/month into other investments, dollar cost averaging. Pick an investment – equities, gold, big heavy things to haul up and down your driveway?

But I think I’m atypical for most of piggington. My goal is to get 100% debt free. (Less than a year till the mortgage is paid in full – and looking at lumpsumming it now.) I’m looking at the freedom of not having to service the debt… that’s huge to me – and frees up my income for other investing.

[earlyretirement]

[quote=UCGal]As the most debt averse person here… let me chime in.

The payment doesn’t effect your lifestyle now – but what about when you retire? Or do you plan to work the full 20 years into the future?

Once that debt is resigned – you can cashflow the $320/month into other investments, dollar cost averaging. Pick an investment – equities, gold, big heavy things to haul up and down your driveway?

But I think I’m atypical for most of piggington. My goal is to get 100% debt free. (Less than a year till the mortgage is paid in full – and looking at lumpsumming it now.) I’m looking at the freedom of not having to service the debt… that’s huge to me – and frees up my income for other investing.[/quote]

I agree with your chain of thought UCGal. I don’t think there is any right or wrong answer as it just depends on each individual and their personal financial situation and comfort level with debt. But I’ve always been of the belief that eliminating debt is a good thing.

Sure, you will get many that tell you how leveraging is smart and you can invest that $50k into something else and do much better. Sure, but I’ve also personally seen people squander money like that in similar situations with loaning money to family/friends that they never got back, blowing it on bad investments, or just spent the money as it was burning a hole in their pocket.

When I graduated from college I had monstrous student loans and my goal was to just pay them off as soon as I could. Fortunately I had a great job and was making great income so I paid it off fairly quickly and I don’t regret it at all.

[Hobie]

I’m in the no debt camp as well. But another idea would make extra payments to principal. A tad late now as most of payments to date would be to interest, but by reducing principal you will feel better and close account sooner.

[scaredyclassic]

I go back and forth.

I’m pretty sure 300/month is going to seem like a small number in 12 years.

[Coronita]

Why not spend and wait until the government bails you out?

Seems to be the going trend…

[Coronita]

[quote=scaredyclassic]
i guess the question is, do i really really believe inflations gonna hit hard sometime in the next decade?[/quote]

you betcha

[Hobie]

[quote=flu]Why not spend and wait until the government bails you out?

Seems to be the going trend…[/quote]

I know this is tounge and cheek, but he is employed. So no bailout. I wouldn’t be suprised for loan forgiveness for unemployed or taking a union/govenment job.

[joec]

I suppose I’m in the more have debt, manage it well camp…

I actually would like to refinance my mortgage just as I’m about to retire to get a large tax deduction to offset forced IRA withdrawals…You have to pay a certain amount of tax anyways so why not make that tax 0?

Even Mark Zuckerberg, being a $20+ (?) billionaire has a mortgage on his home when he can obviously pay it off:
http://www.bloomberg.com/news/2012-07-16/zuckerberg-s-loan-gives-new-meaning-to-the-1-mortgages.html

Course, it’s 1% adjustable 🙂 which none of us can get, but hey, I’m sure it’s still a hassle for some folks.

If you manage your money well, you’ll always have income in your life. Unfortunately, the USA always likes to tax income so having ways to make that 0 is a wise thing IMO.

Obviously, people should do what makes them feel the most comfortable, but I’d take minimizing taxes to 0 over “feeling more secure”.

Course, I don’t have money to pay stuff off so I don’t have this problem to actually have to choose.

[scaredyclassic]

i guess what im thinking is, at 20 years remaining, at 4 percent, it’s basically like a cheap mortgage, without the tax deduction. Even over the last 10 years since sshe started th eloan, 300.00 means a lot less to us ina month than it did a decade ago. i’d be pretty surprised if the trend didn’t continue. an extra 300 a month isnt really going to give a lot more flexibility overall…

[UCGal]

[quote=joec]I suppose I’m in the more have debt, manage it well camp…

I actually would like to refinance my mortgage just as I’m about to retire to get a large tax deduction to offset forced IRA withdrawals…You have to pay a certain amount of tax anyways so why not make that tax 0?

Even Mark Zuckerberg, being a $20+ (?) billionaire has a mortgage on his home when he can obviously pay it off:
http://www.bloomberg.com/news/2012-07-16/zuckerberg-s-loan-gives-new-meaning-to-the-1-mortgages.html

Course, it’s 1% adjustable 🙂 which none of us can get, but hey, I’m sure it’s still a hassle for some folks.

If you manage your money well, you’ll always have income in your life. Unfortunately, the USA always likes to tax income so having ways to make that 0 is a wise thing IMO.

Obviously, people should do what makes them feel the most comfortable, but I’d take minimizing taxes to 0 over “feeling more secure”.

Course, I don’t have money to pay stuff off so I don’t have this problem to actually have to choose.[/quote]

I don’t get the ‘pay interest to get a tax deduction’ argument. It’s a tax deduction, not a tax credit. So for every dollar you pay to the bank in interest, you get 28cents or so back in reduced taxes. Which means you are still out 72cents of each dollar. I’d like to keep that 72cents.

Arbitraging leveraged debt I understand… But not taking out a loan you don’t need just for the deduction.

Plus I plan on doing enough Roth conversions before I turn 70.5 in order to reduce my RMD tax worries.

[Coronita]

[quote=scaredyclassic]i guess what im thinking is, at 20 years remaining, at 4 percent, it’s basically like a cheap mortgage, without the tax deduction. Even over the last 10 years since sshe started th eloan, 300.00 means a lot less to us ina month than it did a decade ago. i’d be pretty surprised if the trend didn’t continue. an extra 300 a month isnt really going to give a lot more flexibility overall…[/quote]

ding ding ding….

[Author]

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