Student loans

[bluebunny]

We owe about $67K in student loans. We've consolidated and have a low interest rate over a thirty-year period (20 years left). We are fairly financial stable right now and have some "extra" money that we could use to pay down that loan. Is it a smart choice to do that, what with our interest rate being so low? Is it better to save for our own children's college funds or pay down our mortgage?

What would you do?

-Pay down mortgage
-Save for children's college
-Other savings
-Other

[Paigekitten]

I think if it were me I would pay extra to whatever has the highest interest rate or the largest monthly payment, so probably the mortgage. I know our school loans are a little more flexible then our house payment, with deferments if DH is out of work, and income based repayment, so if anything ever happened you might be in better shape owing less on the house. This would be if I already had enough money saved for us to live on for a month or two.

Everything I have read suggests that saving for your children's college can actually cause them to get less financial aid then if you had not.

[bluebunny]

Thanks, Paigekitten. The mortgage definitely has the higher interest rate and monthly payment.

Any other thoughts/opinions?

[Eman'smom]

We are in a roughly similar place and are paying down the mortgage first. We figure if god forbid something happen we will always need a place to live, but they can't take back the education.

[Mosaic]

For years, the interest earned on the money in savings was higher than the interest we were being charged on my loans, so we saved the cash and bought our cars cash (because interest rates on that are typically higher than mortgage).

Recently though, the dropping interest rates meant our earnings no longer outpaced the cost of carrying my student loan debt, so we took our "car fund" and paid off my loans. It always boils down to the math!

[nd_deadhead]

I don't see retirement saving as an option - and it should be.

A Roth IRA can be used for college or retirement.

[bluebunny]

I don't see retirement saving as an option - and it should be.

nd_deadhead, it is not an option in my OP because we already do that. Thanks, for the reminder, though. Would you put the "extra" we have each month in a Roth IRA over paying down the mortgage or paying off the student loans faster? That is really my original question. What is the best use of the "extra"? We have an emergency fund, retirement savings (it could always be more), pay mortgage + $100 each month, pay slightly more than the minimum on the student loans....

[JudiAU]

Assuming other areas of your life are funded, I would pay off the student loan. It was seriously the best, most-freeing thing I've ever done.

And frankly, I think it is absurd to fund a college savings account for your kids while you still have significant student debt of your own.

[Paigekitten]

Originally Posted by nd_deadhead

I don't see retirement saving as an option - and it should be.

A Roth IRA can be used for college or retirement.

If you earn more in interest then you pay in interest for other things.

[shelley4]

another vote for paying off the house faster.

[FloridaBorn]

Originally Posted by JudiAU

And frankly, I think it is absurd to fund a college savings account for your kids while you still have significant student debt of your own.

I agree, but at least the kids wont have to endure the same lending trap!

[bluebunny]

Originally Posted by JudiAU

Assuming other areas of your life are funded, I would pay off the student loan. It was seriously the best, most-freeing thing I've ever done.

And frankly, I think it is absurd to fund a college savings account for your kids while you still have significant student debt of your own.

I agree that it sounds absurd, however, at one point we were making more in an savings account (college fund) than we were paying interest on the student loans. Not so much anymore what with the market the way it is.

I can only imagine how freeing it will be when we get rid of the student loan payment!! Congrats to you!

[tessamami]

I think that I'd

make sure that I had PLENTY of savings first, THEN I'd invest. If you can live on less of a paycheck now, what about increasing your 401K or Roth contribution? And the tax savings might mean that you have MORE $$$ to save or invest.

The reason that I wouldn't pay the mortgage first, is if the mortgage interest is LESS than what you can make in the maret. Also, it may be that your house sells for less than you bought it for, or doesn't keep up in value over time. And that would mean that you have paid more cash in, then you stand to make. Better to make your $ work for you.

If however, your housing market will do better, and you are older and will not be able to keep up with payments, then maybe pay more into your mortgage. I think that your student loans should come last, and definitely your chidren's college $ should come last, because you can get low interest student loans, but you can't borrow for your retirement, and not pay through the nose. Let the children borrow, they have more time to pay the debt than their parents.

[Dingletwitz]

having been through highs and lows financially, if I were in an extra-money situation I would pay nothing extra to the bills that are stable right now, but I'd stick it into something I could access if needed (say, an emergency fund). If you have a huge emergency fund, then perhaps no problem, but there's nothing like being laid off for two years or whatnot. I'd have at least a 12-24 month emergency fund before putting any extra to the house or student loan. When things are looking good, it's hard to see the potential disasters in the future. It's a heck of lot harder to borrow for something in the future than just have something on hand, you know? I used to have only 1K in emergency fund until I realized that didn't get us through two weeks.