I’m sitting on a dilemma and could use some advice.
I have about $250,000 in student loans, average interest rate ~6%. I also have about $200,000 saved in cash/investments. I make around $200,000/year and my only other debt is my mortgage.
I’m torn on whether it makes sense to:
• Pay off all the loans ASAP and wipe them out.
• Pay off some chunk of them to reduce the interest burden but keep a good cushion.
• Just hold on to the money and make the monthly payments.
Here are a few other factors:
• My wife and I are planning to buy a house in the next year, so I’ll need cash for the down payment.
• We’re also thinking about having a kid soon, so financial flexibility feels important.
• I’ll probably need to replace my car in the next couple years.
• Loans are 5–7% (average 6%), so technically paying them down is a guaranteed return compared to investing.
• Emotionally, it’s hard to stomach draining nearly all my savings to pay them off, especially since the government keeps floating new forgiveness/relief ideas. Knowing my luck, they’d announce something like “5% forgiveness” the day after I zero out my balance.
One other thing I’ve wondered about: is there any way to negotiate or settle student loans down, even a little? I keep hearing about people negotiating medical debt or credit card balances, but I don’t know if that’s even possible with student loans. Has anyone actually had success lowering the principal or getting a lender to work with them outside of just refinancing?
I guess I’m looking for advice from people who have been in a similar position. Do financially savvy folks typically just rip the Band-Aid off and pay them down as fast as possible, or is there a smarter middle ground?
Should I throw all my savings at my student loans or hold onto the cash?
byu/bearlife2020 inStudentLoans
Posted by bearlife2020
11 Comments
You can not negotiate student loan balances. What kind of investments are these? Is the money in a brokerage account, IRA, or something else? Definitely don’t drain your savings to zero, but depending on your goals and how the money is invested, it may make sense to liquidate some of your investments to make a large student loan payment.
If you lose your job your loan payments go to 0. No other debt does that. If the payments aren’t a problem I would pay all other debts off first, including your mortgage.
6% is less than the current real inflation rate. If you put $200k into gold, (18% or better) you would “make money” vs. paying the student loan debt. IF interest rates drop below 5% and there are no other assets earning better then consider paying off your debt. NOT FINANCIAL ADVICE.
Definitely not. You would have zero emergency savings left (you need at least 3-6 months of expenses saved outside of what you’ll pay to the loans) *and* you want to buy a house, start having children, and potentially buy a car, all in the near future? How are you going to pay off $250k loans if you have $200k in savings? Also, while you’re right that there are no guarantees, the average historical stock market return is higher than your interest rates.
People on Reddit will tell you to put it all toward the loans. That’s the wrong move. Put it all in the market (except a three month emergency fund – no more than that) and pay the minimum on the loans (or at the very least do not pay so much that you have to tap into that 200k). That 200k at your age (I assume you’re under 35) is a complete game changer. At that age, it effectively safeguards your financial future, and you’re getting to a point where the compound interest is going to get explosive. You wouldn’t believe it if I told you how fast my portfolio doubled from 200k to 400k. Don’t blow that away on relatively low interest debt. If you’ve got a bunch of credit card debt at 15+ percent interest this would be another story, but don’t waste these savings on those student loans.
>Emotionally, it’s hard to stomach draining nearly all my savings to pay them off, especially since the government keeps floating new forgiveness/relief ideas. Knowing my luck, they’d announce something like “5% forgiveness” the day after I zero out my balance.
All you’re doing is moving some numbers from one account to another. Your net worth doesn’t move a dime when you pay it off.
There isn’t going to be a blanket forgiveness, especially not for someone in your situation.
Pay it off. Don’t burn *all* your cash at once, but hit it big and then aggressively as you earn more money.
Don’t pay extra on federal student loans at the expense of an emergency fund and retirement savings.
Student loans have simple daily interest.
Retirement investments = compound interest + tax benefits + potential free money from employer.
I would suggest paying off the loan at 7% and maxing out your retirement savings. Then plan on paying off the remaining loans within 10 years (while maxing out retirement contributions).
The two best strategies in your case are either:
1) pay everything off immediately. The major advantage is pay interest this way. You have a high salary so you can save a down payment quickly.
2) pay the minimum and take forgiveness in 10 years. You’ll owe 200,000 at the end which will be taxed at about 37% = $74,000. But the dollar value of that in 2025 dollars will be $44,000. You pay more overall with this option but not as much as it seems because of inflation. The advantage to this is you can invest all that money in a house.
We were going to do number 1 this year. But then we got a very good deal on a house and took option 2.
Are they federal loans? Use a calculator and see if you would pay less over time on an income driven payment plan and/ or pslf.
Do not give up the savings. Make the payments and pay it off as fast as you can. You will have more difficulty saving that amount and the compound interest you will
Gain will be lost.. it’s not worth it. Go another route and maybe consult with a finance investor and get some professional advice.
Hold onto it.