Save for kids' college or pay off my own student loans?

[Anonymous]

DH and I have $100k left of student loans for both of us. We have a 2.75% interest rate and make too much to take the student loan interest deduction. We have no college savings yet for our kids (2 and 4 year olds). Every month I have $1k-2k left over after bills, repairs, incidentals, etc.

What is the best tactic here? I was thinking that it would make the most sense to pay the minimum on our student loans and focus on starting to save $1000/month in a Va529 Invest plan (80% index and 10% bonds passively managed). We live in Va. Does this seem like a reasonable plan?

[Anonymous]

Yikes. Why didn't you pay these off earlier?!?!

Let me guess - you live in a $1mm plus house, have nice cars and have iPhones.

[Anonymous]

$100k is a lot and can really limit your option in the future. I would try to accelerate the payments on your student loan and put about $200 each in your children's 529 until your loan is paid off.

[Anonymous]

Pay off your debt, fund your retirement, then focus on college.

[Anonymous]

Anonymous wrote:Yikes. Why didn't you pay these off earlier?!?!

Let me guess - you live in a $1mm plus house, have nice cars and have iPhones.

OMG, I bet they never thought of paying them off before. This is such a useful comment!

[Anonymous]

Anonymous wrote:Pay off your debt, fund your retirement, then focus on college.

+1

[Anonymous]

OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

[Anonymous]

Anonymous wrote:OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

But have you been investing as opposed to paying down the student loans? Most people seem to have this excuse (the rate is so low!) but it's not like they instead are investing the money. They usually are spending it. If you've been building up a private investment account then that's great!!

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

But have you been investing as opposed to paying down the student loans? Most people seem to have this excuse (the rate is so low!) but it's not like they instead are investing the money. They usually are spending it. If you've been building up a private investment account then that's great!!

I've been investing in a 401(k) ever since I started working. I saved up to buy a house that has appreciated approximately 6% per year (plus I just needed a place to live with the kids). I paid off about $80k in other student loans too. So the answer is yes, I've either been investing or paying off loans.

But the question I originally posed asks what makes more sense -- to invest for my kids in a 529 (that would hopefully grow 6%+ per year, assuming the markets don't tank), or pay off a 2.75% student loan that I hold. I'm not asking whether it makes sense for me to go out and buy a new car instead of pay off my student loans.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

But have you been investing as opposed to paying down the student loans? Most people seem to have this excuse (the rate is so low!) but it's not like they instead are investing the money. They usually are spending it. If you've been building up a private investment account then that's great!!

I've been investing in a 401(k) ever since I started working. I saved up to buy a house that has appreciated approximately 6% per year (plus I just needed a place to live with the kids). I paid off about $80k in other student loans too. So the answer is yes, I've either been investing or paying off loans.

But the question I originally posed asks what makes more sense -- to invest for my kids in a 529 (that would hopefully grow 6%+ per year, assuming the markets don't tank), or pay off a 2.75% student loan that I hold. I'm not asking whether it makes sense for me to go out and buy a new car instead of pay off my student loans.

I'd say you need to cut back and do both. Payoff your loans and also invest in your kid's college. Unfortunately, you need to prioritize your loans. You can't borrow for your retirement but your kids can borrow for college.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

But have you been investing as opposed to paying down the student loans? Most people seem to have this excuse (the rate is so low!) but it's not like they instead are investing the money. They usually are spending it. If you've been building up a private investment account then that's great!!

I've been investing in a 401(k) ever since I started working. I saved up to buy a house that has appreciated approximately 6% per year (plus I just needed a place to live with the kids). I paid off about $80k in other student loans too. So the answer is yes, I've either been investing or paying off loans.

But the question I originally posed asks what makes more sense -- to invest for my kids in a 529 (that would hopefully grow 6%+ per year, assuming the markets don't tank), or pay off a 2.75% student loan that I hold. I'm not asking whether it makes sense for me to go out and buy a new car instead of pay off my student loans.

I'd say you need to cut back and do both. Payoff your loans and also invest in your kid's college. Unfortunately, you need to prioritize your loans. You can't borrow for your retirement but your kids can borrow for college.

Thank you. That makes sense. DH told me that saving for our kids should be our last priority, and seems he's right. We'll continue to chip away at the loans. DH is getting a big bonus this year (big for us) so we should be able to knock off a lot.

[Anonymous]

I'm in a similar boat with about 70k left on my student loan at 2.75%, a less than 4% mortgage and 2 little kids. I have a spreadsheet of all the accounts, and I look at it every quarter to decide where to park extra $, student loan, 529s, investments, etc. Since the interest rates are low, this is my attempt at a balanced approach.

My goal is to pay off the student loan before my older one finishes grade school.

[Anonymous]

Anonymous wrote:OP here, thanks. I'm somewhat surprised by the comments given my low student loan interest rate. All the calculators I've seen say that it makes more sense to invest rather than pay off a loan with such a low rate.

I also have a $300k mortgage at 3.5%. Should I focus on paying off that debt after I pay off my loans, especially if the mortgage interest deduction goes away?

And I drive a 20-year-old car, and DH drives a 10 year old car. I have a $50 Android phone and use Virgin wireless.

If you keep punting paying off your college debt, it will take forever and be a psychological noose. Do you really want to still be paying it off when your children go to college?

I would put in the minimum $ into your children's 529s to get the tax deductions, then plow the rest into paying off your student debt. Then in 5-7 years when that is done, plow more into their college accounts. You do not mention retirement, so I am assuming you already have that covered.

[Anonymous]

Anonymous wrote:Yikes. Why didn't you pay these off earlier?!?!

Let me guess - you live in a $1mm plus house, have nice cars and have iPhones.

Wow I didn't expect the first response to be the requisite asshole post!

[Anonymous]

Disclaimer: I like cheap debt. I follow my project management professor who says: if you are given the choice between holding the money or letting them hold the money always choose to hold the money. oh did I mention most DCUMers hate my advise?

How old are you OP. How long it will take you to pay your student loan with the minimum amount?

If you hate the debt, then fine pay it. but if your goal is to maximize your money then invest the $1000 providing:
1. Your student loan is paid before retirement
2. You have adequate emergency fund
3. Do not lock the extra $1000 on 529 on it is entirety (access is important in case you want to pay your student loan early )
4. Do not spend the extra $1000 because then you are paying interest on your student loan with no up side.

We have a mortgage, an investment property loan and a car loan that I do not intend to pay a day earlier than my contractual agreement. That allow us to max our 401K, Roth IRAs, 529 and have a life. Do not let DCUM bully you into something that is not you or what is best for you.