Very Low Student Loan Interest Rate - Invest Instead?

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waterlily0924
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Very Low Student Loan Interest Rate - Invest Instead?

Post by waterlily0924 »

I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
ivk5
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by ivk5 »

Still not lower than risk-free rate (comparable duration treasuries). Assuming you have adequate emergency fund, and are maxing 401k match at least, I’d accelerate loan payoff. Sooner you get that off your back, sooner you will have more career flexibility (lower cash flow needs).
fwellimort
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by fwellimort »

It's a variable rate. I would pay off personally because I don't know the future.

You shouldn't compare rates by just the number itself. You have to compare by the risk free rate.
This is the risk free rate: https://www.treasury.gov/resource-cente ... data=yield
There's a good reason the rates got lowered at your side. With this epidemic, the risk free rate plummeted (if it wasn't already low enough).

You might be able to find places with better than 1.66% but do remember you have to find that return "post-tax".
Maybe there are banks that offer such short term CD rates right now but I highly doubt it.
Compound
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Compound »

waterlily0924 wrote: Sat May 09, 2020 2:48 am I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
Without a complete financial picture, it’s a bit challenging to say what you ought to do. Consider updating in this format:

https://www.bogleheads.org/wiki/Asking_ ... _questions

One important data point to consider is if you have other debt. If you have higher interest debt elsewhere, a car loan for example, it may be prudent to focus on that instead. Another point to consider is your other liquid assets. If you decided to hold off on paying extra on the student loans due to the low rate, could you reverse course quickly if the rate jumps to an unacceptable level?
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JonnyDVM
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by JonnyDVM »

This is going to be the rare instance where I think you should forgo loan payoff and invest into equities. It’s going to be almost impossible to not beat the 1.6% long term on your loans. The variable rate doesn’t scare me too much. The rate would have to double before I would begin to rethink this strategy. I’m shocked it’s that low. What are the fixed rates? You might be able to slide into a crazy low fixed at this point.
I’d trade it all for a little more | -C Montgomery Burns
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anon_investor
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by anon_investor »

waterlily0924 wrote: Sat May 09, 2020 2:48 am I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
As someone who previously had 6 figure law school loan debt and used to work in big law, I would suggest putting $3k/mo towards loans and invest the other $1k.

A couple of points to consider:
-Big law is quick to layoff or cut salaries in an economic downturn. Many big law firms have already cut salaries (my old law firm definitely did).
-Big law life is not for everyone, you may not want to work there beyond a couple of years (any other legal job will likely be a paycut).
-No more student loans = additional flexibility (take a job you love regardless of pay).
MedSaver
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by MedSaver »

I was in your shoes several years ago. Why not lock a low (albeit not 1.6%) rate for a short term like 5 years? Pay the minimum on that and invest the rest.
petulant
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by petulant »

Flexibility is good, but you don't get all the flexibility until paying off the loan. Earning more than 1.6% in the stock market is nice, but it's not if you lose your job in a bear market.

My advice is to put your extra money in an online savings account earning around 1.5%. You will slightly underearn the loan after tax, but not enough to matter (e.g., maybe $800 a year). If you lose your job, you have ample liquid savings to make ends meet. If you switch to a PSLF employer, you can move to IBR and avoid "wasting" payments. If you stay long enough to save up a wad that can pay off the student loans, great. Now that's flexibility.
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waterlily0924
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by waterlily0924 »

petulant wrote: Sat May 09, 2020 2:35 pm Flexibility is good, but you don't get all the flexibility until paying off the loan. Earning more than 1.6% in the stock market is nice, but it's not if you lose your job in a bear market.

My advice is to put your extra money in an online savings account earning around 1.5%. You will slightly underearn the loan after tax, but not enough to matter (e.g., maybe $800 a year). If you lose your job, you have ample liquid savings to make ends meet. If you switch to a PSLF employer, you can move to IBR and avoid "wasting" payments. If you stay long enough to save up a wad that can pay off the student loans, great. Now that's flexibility.
Thank you. I refinanced with a private lender so I don't think I can convert back to IBR?
Currently I have about 30K in savings. I live in HCOL area, but have a low housing cost.
Last edited by waterlily0924 on Sat May 09, 2020 4:05 pm, edited 2 times in total.
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Toons
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Toons »

Pay Off the Loan
Then Invest.
:mrgreen:
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Topic Author
waterlily0924
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by waterlily0924 »

MedSaver wrote: Sat May 09, 2020 2:29 pm I was in your shoes several years ago. Why not lock a low (albeit not 1.6%) rate for a short term like 5 years? Pay the minimum on that and invest the rest.
I was thinking about it too. I checked the quotes, and if I want to refinance again the rates will be higher. I guess rates have gone up to cover increased borrower risks. So it doesn't seem like I can do better than my rate right now.
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waterlily0924
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by waterlily0924 »

anon_investor wrote: Sat May 09, 2020 7:29 am
waterlily0924 wrote: Sat May 09, 2020 2:48 am I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
As someone who previously had 6 figure law school loan debt and used to work in big law, I would suggest putting $3k/mo towards loans and invest the other $1k.

A couple of points to consider:
-Big law is quick to layoff or cut salaries in an economic downturn. Many big law firms have already cut salaries (my old law firm definitely did).
-Big law life is not for everyone, you may not want to work there beyond a couple of years (any other legal job will likely be a paycut).
-No more student loans = additional flexibility (take a job you love regardless of pay).
Thank you for your advice. I fully understand that my job situation is not the most secure. In addition to considering what will maximize returns, I'm also debating whether liquidity provided by investing/saving will be especially more valuable during this difficult time, given that if I use the $$ to payoff the loans, I can't get it back when I need cash. (I have about 30k in savings account right now). I'm not planning on spending the extra money on elsewhere, so it will be there if I want to use it to pay off the loans.
Herekittykitty
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Herekittykitty »

Is it one loan for $140,000 or is that the sum of several loans that could be paid off separately?
I don't know anything.
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waterlily0924
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by waterlily0924 »

Herekittykitty wrote: Sat May 09, 2020 4:09 pm Is it one loan for $140,000 or is that the sum of several loans that could be paid off separately?
It is one loan.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Herekittykitty »

Double post.
Last edited by Herekittykitty on Sat May 09, 2020 4:52 pm, edited 1 time in total.
I don't know anything.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Herekittykitty »

Here's a link to the Boglehead Wiki article on paying down loans versus investing. You may find it helpful to read the perspective of the article and also the "talk page" linked to at the top of the article.

https://www.bogleheads.org/wiki/Paying_ ... _investing

Note that at the top of the article is a box, in the box is a statement that the neutrality of the article is disputed and giving a link to the "talk page." I would click on that link and read the discussion.)

As you can see, the question regarding paying down loans versus investing draws various opinions.

Which is optimal for any particular person depends on their financial situation (age, family situation, other debt, savings, job security, job satisfaction, additional income sources) and personal inclination including debt aversion, risk tolerance, feelings and opinion of spouse. (I'm sure I've left things out but I'm not sure what things."

In general, many would consider refinancing the loan to a lower rate whatever you decide.

In addition some would have a fully funded emergency fund (3 months to a year living expenses depending on situation and inclination).

Then fully funding pre-tax investing such as 401k, IRA, and HSA if applicable.

At that point some would invest, some would pay down the loan as quickly as possible, and some would split their disposable income between the two.

Personally, in the absence of further information about you which we would need to make the best recommendation, I would consider refinancing to a lower rate (run the numbers first), fully funding 401k, IRA (yours and spouse's if applicable), and possibly HSA. Get a solid emergency fund that would carry you through a significant period of unemployment (because life is uncertain anyway and especially so now). Then decide between investing and paying off the SL or some combination that makes sense to you and spouse if applicable.

My inclination is to pay off the SL as fast as you can, having fully funded retirement accounts first. Hard to say without knowing more about you what would make the most sense in your case. But my personal bias is that debt takes away options and I want it gone asap. There is nothing to me as good as the knowledge that one can walk away from one's job, even if one has no desire to do so.

YMMV.
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tashnewbie
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by tashnewbie »

I agree with @Herekittykitty. We can’t really offer tailored advice without more information.

My inclination would be to have a year of expenses saved in an EF, given the uncertainty of the current situation. Then I’d probably max out my 401(k) contribution and any other pretax accounts. After that, I’d probably throw any disposable income at the SL.
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anon_investor
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by anon_investor »

waterlily0924 wrote: Sat May 09, 2020 4:10 pm
Herekittykitty wrote: Sat May 09, 2020 4:09 pm Is it one loan for $140,000 or is that the sum of several loans that could be paid off separately?
It is one loan.
Not sure the terms of your student loan, but for my old ones any extra payment actually pushed back the due date for the next payment. Not sure if yours has that feature.

Sounds like you have $1.8k/mo over your student loan minimum to work with. You could split it up, some for student loan prepayment, some for investing, some for cash savings. And remember if you get laid off you would get unemployment and maybe severance.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Aku09 »

We are in very similar circumstances (although I’m in healthcare and not law). I make 200k a year now and graduated with 150k in student loans. For the past year and a half I have tried to pay them off more aggressively. I’m currently at 65k principal and should be done by the end of next year at my current payoff rate (hopefully sooner).

I have refinanced a total of 4 times and went with a 5 year variable in October of last year. It has decreased in rate nearly every month and mine this month is 0.45% (yes you read that right). I’ve been making $3500 a month payments for the past bit. I have struggled with should I invest more now as it is essentially no interest currently. I max my 401k and HSA but don’t do any more than that currently.

I decided to continue to pay my loans as a priority and try to pay them off ASAP. Most of my payment is going to principal now and it is making a significant dent. I do obsess a bit over my student loans and for my mental health I need to get rid of them sooner rather than later.

I did have to take a 25% pay cut due to this coronavirus stuff going around, but I’m still able to pay my current payments due to my savings. The talk is that I will be back paid what they owe me once surgeries pick back up but I will believe it when I see it.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by petulant »

waterlily0924 wrote: Sat May 09, 2020 3:53 pm
petulant wrote: Sat May 09, 2020 2:35 pm Flexibility is good, but you don't get all the flexibility until paying off the loan. Earning more than 1.6% in the stock market is nice, but it's not if you lose your job in a bear market.

My advice is to put your extra money in an online savings account earning around 1.5%. You will slightly underearn the loan after tax, but not enough to matter (e.g., maybe $800 a year). If you lose your job, you have ample liquid savings to make ends meet. If you switch to a PSLF employer, you can move to IBR and avoid "wasting" payments. If you stay long enough to save up a wad that can pay off the student loans, great. Now that's flexibility.
Thank you. I refinanced with a private lender so I don't think I can convert back to IBR?
Currently I have about 30K in savings. I live in HCOL area, but have a low housing cost.
:oops: You're right, I had a brainfart on the PSLF part.

I still think you get a lot of flexibility just saving up more for a long time. Like I said, even if you save up $140,000 against a $140,000 loan, you might be losing $800 a year. And you're a long way off from that.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by mortfree »

The low rate helps you to pay it off quicker.

If it were higher it would be more of an uphill battle to pay it off.

Enjoy making an aggressive pay down while the rate is low.

Borrowing the money did what it was supposed to. An education that led to a well paying job.

Now you can pay it off
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by HootingSloth »

For what it is worth, I have been in biglaw now for many years, graduating shortly after the global financial crisis. I applied a laser focus early on to paying off my loans in full. In retrospect, I would have ended up getting a far higher return if I had invested more early on, but I have never for an instant regretted paying off the loans as early as possible. Work stress is far, far more manageable when the loan payments are not looming over you. Getting a good financial result from biglaw is a marathon, not a sprint, so I think the value of doing everything you can to reduce stress levels is worth much more than any differences between expected stock returns and interest rates.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by hbdad »

I’m a lawyer who had a similar amount of loans when I finished law school and had about 40% of your income to start. My recommendation is pay off the loans! Take advantage of the low rate. It allows more of your money to go to principal. Would you rather have 120k at 1.6 or 3 or 4 or whatever amount? Let’s say you invest the extra money instead. What do you do when you want to buy a house? Have a family and kids? I make close to what you make now and even at your minimum payment, 2.2k is a lot of money. As someone else said, what will you do if you quit or get laid off? Can’t discharge the student loan in bankruptcy. You can probably always get another law job but the real question is, can you get one at a salary that allows you to make a 2.2k loan payment every month and still live comfortably? Very hard. So pay it off or at least a large percentage. Maybe when you get it down to 30k you start investing some of your extra payment instead.
123
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by 123 »

It is far cheaper and easier to pay off the loan when the rates are low than when the rates are high. If you wait to mount an effort to seriously attack the loan balance until interest rates are much higher you would likely see the mountain of debt grow steeper before your eyes.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Tamarind »

No, I'd keep shoveling money into it as you planned to do before the drop in rates because unlike other loans you might take out it's not dischargeable in bankruptcy. If you were to invest the difference, lose most it in a crash, and lose your job, you would still be stuck with the full loan amount.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by avenger »

Only you can decide.

I had a similar situation 8 years ago. $160k of medical school debt at 2.something%. I just paid it off.

It’s a matter of risk tolerance (increase debt = increase risk).
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by MBB_Boy »

Aku09 wrote: Sat May 09, 2020 6:03 pm We are in very similar circumstances (although I’m in healthcare and not law). I make 200k a year now and graduated with 150k in student loans. For the past year and a half I have tried to pay them off more aggressively. I’m currently at 65k principal and should be done by the end of next year at my current payoff rate (hopefully sooner).

I have refinanced a total of 4 times and went with a 5 year variable in October of last year. It has decreased in rate nearly every month and mine this month is 0.45% (yes you read that right). I’ve been making $3500 a month payments for the past bit. I have struggled with should I invest more now as it is essentially no interest currently. I max my 401k and HSA but don’t do any more than that currently.

I decided to continue to pay my loans as a priority and try to pay them off ASAP. Most of my payment is going to principal now and it is making a significant dent. I do obsess a bit over my student loans and for my mental health I need to get rid of them sooner rather than later.

I did have to take a 25% pay cut due to this coronavirus stuff going around, but I’m still able to pay my current payments due to my savings. The talk is that I will be back paid what they owe me once surgeries pick back up but I will believe it when I see it.
And I was sitting over here with my 0.7% feeling smug. 0.45% is bonkers!
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by bayview »

Dupe.
Last edited by bayview on Sun May 10, 2020 5:22 pm, edited 1 time in total.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by bayview »

waterlily0924 wrote: Sat May 09, 2020 4:03 pm Thank you for your advice. I fully understand that my job situation is not the most secure. In addition to considering what will maximize returns, I'm also debating whether liquidity provided by investing/saving will be especially more valuable during this difficult time, given that if I use the $$ to payoff the loans, I can't get it back when I need cash. (I have about 30k in savings account right now). I'm not planning on spending the extra money on elsewhere, so it will be there if I want to use it to pay off the loans.
How many months’ worth of laid-off, ramen-eating expenses does that $30k represent? Including the minimum payments on the loan, unless you could get forbearance?

In other words, how many months is your emergency fund?
Last edited by bayview on Sun May 10, 2020 5:49 pm, edited 1 time in total.
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MetaPhysician
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by MetaPhysician »

Aku09 wrote: Sat May 09, 2020 6:03 pm I have refinanced a total of 4 times and went with a 5 year variable in October of last year. It has decreased in rate nearly every month and mine this month is 0.45% (yes you read that right). I’ve been making $3500 a month payments for the past bit. I have struggled with should I invest more now as it is essentially no interest currently. I max my 401k and HSA but don’t do any more than that currently.
My goodness 0.45%!? That is incredible. Well done. May I ask which lender this is with? Perhaps it would help other bogleheads out. Thanks.
simas
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by simas »

waterlily0924 wrote: Sat May 09, 2020 4:03 pm
anon_investor wrote: Sat May 09, 2020 7:29 am
waterlily0924 wrote: Sat May 09, 2020 2:48 am I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
As someone who previously had 6 figure law school loan debt and used to work in big law, I would suggest putting $3k/mo towards loans and invest the other $1k.

A couple of points to consider:
-Big law is quick to layoff or cut salaries in an economic downturn. Many big law firms have already cut salaries (my old law firm definitely did).
-Big law life is not for everyone, you may not want to work there beyond a couple of years (any other legal job will likely be a paycut).
-No more student loans = additional flexibility (take a job you love regardless of pay).
Thank you for your advice. I fully understand that my job situation is not the most secure. In addition to considering what will maximize returns, I'm also debating whether liquidity provided by investing/saving will be especially more valuable during this difficult time, given that if I use the $$ to payoff the loans, I can't get it back when I need cash. (I have about 30k in savings account right now). I'm not planning on spending the extra money on elsewhere, so it will be there if I want to use it to pay off the loans.
in the bolded part above, please consider separating them in your head - the investing is not saving and saving is not investing. Equity Investing is and expected to be risky

- is 30k of your emergency fund/savings. how comfortable are you with this? how many months of expenses is this for you? how do you feel about that number?
- if needed get your savings to the level of comfort desired. do not invest until then.
- at that point decide if you want to deal with debt (my preference ,regardless of specific rate - lead anchor that would crush you at worst possible time, especially if rate is variable) or willing to take equity investing risk

what you do NOT want is losing income, have debt to pay and having rate spike , having low savings, and have your investments down 40% from where you invested. for a lot of boggleheads, down 40% is excellent sale and buying opportunity (or at least aggressive rebalance) but that is if and only if you are willing and able to take risk and have cash flow that allows you not to sell at the loss. you can have that cash flow either from limited expenses, no debt, and/or high income (or all free).

you have high income (3x median household in US). get cash reserves for stability, figure out your cash flow needs, deal with debt. investing time would come.
Aku09
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Aku09 »

MetaPhysician wrote: Sun May 10, 2020 5:30 pm
Aku09 wrote: Sat May 09, 2020 6:03 pm I have refinanced a total of 4 times and went with a 5 year variable in October of last year. It has decreased in rate nearly every month and mine this month is 0.45% (yes you read that right). I’ve been making $3500 a month payments for the past bit. I have struggled with should I invest more now as it is essentially no interest currently. I max my 401k and HSA but don’t do any more than that currently.
My goodness 0.45%!? That is incredible. Well done. May I ask which lender this is with? Perhaps it would help other bogleheads out. Thanks.
That is with sofi. When I refinanced in the fall my initial rate was around 2.3% and it has dropped a bit ever since then. Technically my rate is 0.7% but there is a 0.25% discount for autopay. I’ll be happy if it stays here for awhile. I found I didn’t get the best rates for refinancing until my student loan debt was less than 50% of my yearly income.
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Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Valuethinker »

waterlily0924 wrote: Sat May 09, 2020 2:48 am I'm a lawyer with annual income of $200k. I'm in biglaw, so I don't know how long I will be able to last there, and how long my income will be high around this level. I currently have ~$140k of student loan, which I refinanced last year with a variable rate. Monthly minimum payment has been ~$2200, and I have been paying $4k per month.

The interest rate resets every month. When I first refinanced, the interest rate was about 3.2%. However, it has gone down to 1.66%. I feel like this rate is too low for me to be pay more than the minimum. If that is the case, what should I do instead? It seems like short term or medium term bond is the most comparable. Or should I invest in equity instead? This will be for a taxable account. Thank you in advance!
1. maximize allowed tax deferred saving first. 401k etc.

2. return on repayment, post tax, is still higher than the return on investing in safe bonds. So any free cash flow post 1 should go to repaying debt, generally - a guaranteed return.

Medical debt is a little different in that most doctors have 20+ high earning years ahead of them. Biglaw is a series of "cuts" on the road to partner (and then, salaried partner not equity?). The culling never really eases off these days, even at the partner level, I gather. So a legal career stays high risk, high pressure.

So I would listen to people here, lawyers, who aggressively paid down their debts. That was worth it. The quiet satisfaction (which you must never air in your highly indebted peer group!) of knowing that you have dealt with that debt wall, and it no longer hangs over you.

Low interest rates are, as above, an opportunity to retire principal quite quickly.

The main constraints are:

- liquidity - you need to keep a decent slug of monthly expenses (including interest on your loans) out of the pot, because you could lose your job (you have to take a view on how long that reserve should be).

-tax deferral - such opportunities usually expire at the end of the tax year, never to be regained. In 30-40 years time, the compounding of that can be quite phenomenal.
masha12
Posts: 74
Joined: Tue Jan 24, 2017 2:34 pm

Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by masha12 »

A wise and successful farmer once told me, “When you borrow money, you are working for the bank.”

Crushing your student loans will give you freedom. It will also prevent lifestyle creep.

By my rough calculations, you could be debt free in 3 years by paying $4k a month. That is a good goal.

If you need encouragement, I recommend the white coat investor blog. He is all about not having student debt.
Renzi
Posts: 16
Joined: Wed Nov 07, 2018 9:32 am

Re: Very Low Student Loan Interest Rate - Invest Instead?

Post by Renzi »

I had 250k in federal loans for law school (7%) and paid down about 150k before refinancing. 100k 5 yr Sofi variable which is now down to 0.58%. Plan was to pay them off as quickly as possible but with rates that low I've reverted to paying minimums. Your rate is a bit higher but right now I can still get 1.5% in my Goldman savings account, so it makes ZERO sense to quickly pay down 0.58% debt.

30k in savings doesn't seem to be enough for a $2200 minimum payment and rent in a HCOL, will last you 6 months at best. I would want to bump that up to at least a year. Maybe you are a restructuring guy, but if not I would want to hold some cash because most firms are not above firing associates if the market isn't working out. 200k in biglaw is a first year associate basically (or a non-market paying firm), which means if you do get laid off don't expect finding a new position will be easy or will pay close to what you make now. Paying down your debt aggressively makes sense at 7% rates in a good economy, but I don't think its the best use of cash if your debt is at under 2%, you are in a market oriented position, and we are heading into a recession. Play it safe for now.

FWIW I also left biglaw without paying down my loans and it was a great decision. Some people get myopic about debt and end up leaving biglaw with no debt, but with zero savings and zero assets. Personally, I would rather leave biglaw with 100k in debt at 0.58% and 100k in savings, than zeroes across the board.
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