Reply to If you took out six figure student loans for a professional degree, what was your strategy

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]My spouse and I graduated into the recession (2010) with $250K law school loans, 5+% interest rates, and a pulled offer. We therefore were more risk averse than some others and focused on paying our loans down aggressively for 5+ years. Then focused on getting pregnant (worried about fertility) and saving for a down payment (tough with double daycare). That left us poised to buy in spring 2020 but then Covid happened and we waited a year to see whether we actually wanted to move out of the region to be closer to family. Ended up buying a house in the DMV in 2021. It’s worked out okay but if we had been less risk averse we likely would have gotten on the property ladder sooner which would have been much better for our net worth. I’m at peace with our approach but not sure I’d recommend to others.
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Say you finished law school in 2005, worked to pay loans down for 2 years, then said let's buy a house now before we are debt free.  So you spend $600K on a home in 2007, watch it go up in value for 1 year then watch the bottom drop out, so your home is only worth $300K and it takes another 7-8 years to be worth $600K again.  So in 2009 you have a home worth half what you paid for it, you still have at least half your loans, you are thinking of getting pregnant or have a kid already paying for daycare, no choice to move as you cannot sell your home, you would owe the bank if you wanted to move out.    
It's all about timing----for you you missed out on the years of increased home values.  But it just as easily could have been missing out on the bottom dropping out and you being so happy you were still renting and focused on reducing debt and not being underwater by 40-50% on your home.  [/quote]

This is a pretty asinine comment. As it happened I bought my house in 2016 which has worked out very well for us but I wouldn’t have said no to paying 2007 prices instead! Especially since no one was ever 50% underwater on their DMV home. [/quote]

There are plenty of places where people were in the USA, or at least 30-40% under.  We bought a house in 2015, the original owner had bought in 2007.  What we paid them was still 20% less than the original purchase price, factor in the ~10% for realtor fees, and real estate transfer taxes and they lived in a great home in a great area for 8 years and took a 25-30% loss, before considering any improvements they made to the home.  (Note: they had been attempting  to see for 2-3 years, but this was the highest they had gotten and finally wanted to downsize)  Now when we sold 7 years later we sold house for 85% more than we paid. and could have sold for 100% more just 6 months prior.

[b]no investment is guaranteed, housing or stock market[/b].  But paying down loans is always a guaranteed return.  [/quote]

You’re forgetting the massive tax advantages in investing for high income people. Maxing out retirement contributions was a huge advantage over student loans given the very marginal high tax rate of highly paid professionals.

Of course as a matter of fact I came out way way ahead buying a house and investing, but even if the market hadn’t done so well, I still could easily expect to be better off investing pretax income than paying tax on it and then paying off student loans. [/quote]

NP. I would not say prioritizing student loans over retirement contributions is the same thing as prioritizing buying a house or making other investments over student loans. We were very frugal in order to pay off student loans, and that meant not buying a house for a long time, but we did max out the 401k. I guess there is a spectrum of how big of a priority this is. I think the big idea for me is that I didn't want to leverage my student loan debt to make investments that might get a better rate of return, like many people do by buying a house before paying off student loans. Unless you can afford to eat your losses, which I understand many can. [/quote]

I'm the PP, and yes I would prioritize retirement along with paying down loans.  But I would not buy a home until I had most of the loans paid off.  We had nearly $75K in loans and we paid them off in 2 years with a focus on redirecting one salary to them, along with bonuses, and living in a decent but not fancy apartment for 2 years.  We also saved for a home downpayment at same time and funded retirement as best we could.  We waited to buy a home until we had paid off the loans and saved 10% down.  Yes we could have bought earlier, but we preferred to wait the extra year and felt more comfortable having the loans gone (loans were at 6-10%).  [/quote]

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