Should I pay off this student loan?

[Anonymous]

I owe $17,000 at a fixed 2.625% (consolidated federal loan on the longest repayment plan). It's my only debt except for my mortgage. I have the cash to pay it off in full, but have been putting it off for years in case this is the year we buy a bigger house. This might be the year for that ... or not, again. The other possible home for the cash is a Roth IRA.

Would you pay off the loan? I want to, just to be done, but I feel like it's foolish to lose the liquidity.

[Anonymous]

I wouldn’t.

[Anonymous]

I have a similar loan and opt not to pay it off. The money is better used other places. But it depends on your tolerance for debt.

[Anonymous]

I also have a similar loan and decided not to pay it off. Mine is at 2.1% and the payment is something around $200 a month....I barely even think about it.

[Anonymous]

unless you have specific needs for that money, i'd pay off.

[Anonymous]

Why not clear your debt if you have the funds to pay it off? Is a goal to become debt-free?

[Anonymous]

Depends how much else you have saved. If you have plenty for a down payment, I'd pay it off before buying a house so you can have a lower debt to income ratio. If the $17k is going to allow you to get to a 20% down payment and thus avoid PMI, then do that instead (and put the money into a money market or Ally's no-penalty CD so it earns while you look for a house).

[Anonymous]

I agree with PP that part of it depends on what else is in the picture. And in your case, keeping the option open to buy a bigger house is costing you money. I’d look at the interest amount it’s costing you and decide if it’s worth it to keep your option open. Maybe you should just make a firm decision about whether you’re going to buy another house or not and go from there.

I paid off my loans last year because they were really bugging me, even though financially it would have been better to put that money toward my mortgage principal. I don’t regret it but I recognize it was an economically irrational decision.

[Anonymous]

You give up liquidity and a higher return on your money. It's a no brainer to keep this loan. It's small enough that it probably doesn't matter too much one way or the other, but there is no logical argument for paying it off - there's only an emotional one. Seems to me logic should guide financial decisions.

[Anonymous]

I would pay that loan off. I would be sure to leave myself some emergency fund money, though. Don't put all your cash into paying it off all at once.

[Anonymous]

Don’t overthink this trying to be cute. Pay it off.

[Anonymous]

Up until the past year when the market tanked, I would say don't pay it off and invest your money, but ha!!! That said, I have a 1.75% loan that I'm not paying because I make more in a plain savings account.

[Anonymous]

lets assume 17000K 2.65% and you monthly payment is 100 bucks.

its going to take you almost 18 years to pay off the the debt and its going to cost you over $4000 in interest.

i guess if you are able to make more in interest on investing that payoff money, then its a good idea to keep the loan.

yes you have ideas about buying a bigger house using using the cash as a down payment. but the loan will be held against your available credit to use for purchasing power.

let say you pay off the loan lump sum
continue to invest the $100 monthly payment for the same 18 years

your contributions would total $21600, and your potential return is $33500 assuming 5% return. plus if you invest in a traditional IRA you get tax benefits.

[Anonymous]

OP, how much other cash, etc do you have saved? If you've been putting this off for years you must have more saved so really how much will an extra $17K make a difference?

Don't discount how satisfying it is to finally pay off your student loans - that feeling has some value also.

[Anonymous]

We have about $40k in student loans left at under 2%. Emotionally, I’d love to pay them off but it just makes no financial sense to do so.