Pay Off Student Loan or Continue Investing?

I recently paid off my mortgage which was at roughly a 3.5% fixed interest rate. There were good non-financial reasons to pay off the mortgage, for me (related to family and relationships), but I hate how it actually slows down my progress towards FI.

Had I been able to keep the money that I used to pay off the mortgage in investments, then I would probably on average see 10% per year returns in the stock market on this money. Compare that to the 3.5% of my mortgage*... Or in your case, the 3% of your student loan interest rate.

I think the stock market will continue to return an average 10% per year, so you stand to gain 7% per year on your money compared to the student loan interest rate. For the full $119k**, over ten years you're talking about an additional gain, if you invest, of about $134,000. That's a serious sum of money. So I would advise you to just pay the student loans as obligated, but focus your surplus money on your investments in low-fee index funds.

• You could say with a mortgage I will also stand to gain from the house value rising over time. But... that would happen anyway, whether or not I still have a mortgage. The fact that I own the house will mean I will get to enjoy any appreciation in value.

** That is not completely fair, as you are probably obligated to pay down the student loans over time anyway, so right now you can keep $119k in the market, but over the years you can invest a bit less because you are still paying on your student loans. But still: it's serious money we're talking about here.

A few thoughts-

$90,000 in cash does seem like quite a lot of cash. I would invest more of that in the market (simple path to wealth style).

It seems like it bothers you psychologically to have the debt. Otherwise you wouldn't be asking the question. That seems like a good enough reason to me to pay it off.

Mathematically, it makes sense not to pay it off. Some people conquer the psychological side by stashing cash so that they know they could pay it off whenever they wanted to.

Also, looking at total net worth is a nice way to look at the full picture. $119k loans seems like so much...until you realize that in big picture, y'all are doing really well financially

As a strict math question I'd keep paying the loans down on a regular basis. You can get more than 3% for cash in a HYSA. Personally I'd keep dumping money into the market until you're closer to RE and try to time paying down all loans during your re date.

Only other question is whether these are federal loans and if you're going for any type of forgiveness program. If not, treat it like any other debt regarding the interest rate vs the interest in risk free assets like HYSA. Then consider the psychological benefit of being debt free.

Wow! You are doing great! To have that much saved at 29 is such an accomplishment! I think it would be helpful to consider a few other points as you decide your path. What is the purpose of the 90k cash? Is this your emergency fund? If you need it for your emergency fund then I wouldn't recommend using it to pay off student loans. Also, you mentioned you are still able to save/invest even while paying $1500/month for student loans. How much of your take-home income are you saving/investing each month? If you added that amount to your savings (over your emergency fund needs), how many months would it take to get to 119k? How many years will it take you to pay off the student loans at the current $1500/month? How do you feel about those timelines? Are you also investing additional funds in retirement accounts? If you are, then paying off your student loans early isn't going to prevent you from saving for retirement. Good luck with your journey! It seems whatever you decide--you'll be in great shape!

Take 80k from cash accounts today and throw it at the loan balance. Stop investing. Aggressively pay down the loan; put all excess funds each month towards the loan, in addition to the 1500/month payment. Within a year you will be debt free, and you will be liberated to save/invest/splurge without the payments weighing you down. Not to mention, the mental/emotional satisfaction of no longer wasting another second thinking about that student loan. Godspeed.

I empathize, as I have been there and eventually did that. You're definitely going to get there!

Historically speaking, that interest rate is wonderfully low! So the majority of what you're paying is principal, which is great! By the same token, I agree with the last commenter that peace of mind may be appealing to you.

My personal approach was to make sure I had plenty of emergency savings on the premise that debt can be deferred, true emergencies sometimes cannot. And new debt you might accrue to deal with an emergency likely would come with a much higher APR.

Once the emergency savings were truly robust and tax-reduced retirement accounts were maxed out, then I tried to estimate the return on any potential investment on an after-tax basis to see whether I genuinely thought it would significantly exceed the interest rate on the student loans.

At some point, though, I was just eager to be done with the loans and just plowed money in till they were gone. Being debt-free is very nice!

Hi, I am in a similar boat. I am thinking about paying off my 5/1 ARM mortgage. I have been saving up and piling cash in HYSA with a 4.5% rate. The plan is to continue to pile up cash until the rate drops, at which point I will pay off the mortgage.

It's really up to you. Given that you are only 29, every dollar you invest today has the potential to compound.

At the end of the day, its really "maximizing return invest early" vs. "peace of mind".

If i were you, I would keep on saving, and once I reach 119,000 + 3-6 months of emergency fund, I would just pay it off and reinvest the 1500 monthly payment to either HYSA and/or after-tax brokage.

I can't go wrong either way. Good luck and enjoy the journey.