For some background, I’m 25 years old and make about $5k to $6k a month after taxes and maxing out my contribution to my 401k employer match (5% if that matters). I am told my job (retail pharmacist) is more entry level pay and I am relatively underpaid for my position so I imagine there is much room for growth in the future (which in itself is a whole different conversation of living at home vs. moving for a better job opportunity). I live at home and have very little expenses otherwise (gas, basics, etc.).
The important part here is that I currently have $390k in student loans from my time in college:
287k in private loans (6.34% interest)
103k in federal (2.75 to 7% interest)
My private loans I currently pay $2.5k (minimum payment) to $3k a month and I currently have my federal at $0 minimum payment so I’m able to focus more aggressively on the private loans, however, this will only last for about 5 more months then I’ll be paying around $750 a month.
I have no investments beyond the 401k I mentioned, and no accounts beyond my basic checking account.
Looking for some advice on what is realistically the best option on what to do. I’ve done plenty of my own research and majority directs towards aggressively paying off private (4 to 4.5k a month minimum) but is this realistic?
I know investing the earliest is the best but is it even worth it in my current situation, even like $100 a week?
I figure this is the time I should be attempting to save as much as possible in order to eventually move out when the time comes and for other future expenses like a “new” car when mine falls apart like a lego set.
Anyways, always happy to hear what people think and I’d really appreciate any tips/advice or valuable references where I could go and learn more and educate myself better.
Thank you all in advance for your time and have a good rest of your day/night! 🙂
EDIT: for further clarification, went to pharmacy school and graduated this past year. I have a doctorate in pharmacy, no residency. Also, I’m currently in New York for a more clear picture.
Student Loans vs. Investing vs. Saving, what do I do?
byu/Aggravating_Win3781 inpersonalfinance
Posted by Aggravating_Win3781
13 Comments
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Sounds like you are asking about a framework for what to do with money.
Start with reviewing the Prime Directive in the PF Wiki. It will answer your question and many other questions you didn’t realize you should be asking.
* https://www.reddit.com//r/personalfinance/wiki/commontopics
Omg 400k in student loans? What degree did you get? What is your gross salary?
$390k is genuinely terrifying. I picked trade school partly to avoid this exact situation and seeing posts like this confirms I made the right call – at least between my possibiities
Your on the right track, and yes in your case investing beyond the 401k match probably doesn’t make sense with that much debt at 6-7% interest.
Hopefully your degree is in medicine or law with a high income ceiling. This debt won’t be easy to tackle until you’re making 150k – 250k a year
You have $390k in student loans and only take home $60-70k a year?
Yea, I would find a way to pay off those loans aggressively. That interest is going to eat you alive. I **really** hope you’re in a role that offers aggressive loan forgiveness.
Wow. Yeah, most calculators will put paying off the student loans at the top of the list. Those interest rates are just barely bad enough that it becomes hard to beat in investing. You got severely hosed. I’m so sorry you didn’t have a mentor in your life to stop you from making that decision. I hope you are in law or high-level medical. In terms of reducing expenses, if I were in your shoes I’d be begging my parents to let me live with them for a while. See if they’ll be willing to let you stay rent-free if you put every penny towards the debt. I also wouldn’t care if I was making $500k a year, those loans are so painful I’d still live with my parents till they were gone.
Again, I’m just so sorry. The system should have *never* allowed a young 20s, late teens to take out over a quarter million in government-backed debt. The system catastrophically failed you. There are supposed to be protections in place for this exact kinda thing.
The most important thing you need to do is make more money. I don’t know what you do or went to school for but to justify that level of debt you need to be making $250k+/year. The interest from these loans alone is eating up more than 1/3 of your take home pay.
Keep maxing the 401k match. Open a Roth IRA and max that out. Make sure to save a few thousand for an emergency fund and toss every extra penny you can at those loans.
Those student loans, ouch. I hate that we don’t teach financial feasibility stuff on going to Private School.
Don’t know if someone mentioned this yet, but I would make interest only payments on the federal loans also, because basically you are going to be fighting compounding interest.
Up to 7% APR loans are not great, but they’re not terrible. I would still target 15% to retirement if I could do that while paying the minimums. You’ve got a *lot* of years left before retirement, and it’s not unreasonable to expect >7% nominal annualized returns on retirement savings as a long-term average.
If you had a $400k mortgage at 6-7% instead of student loans, I suspect that hardly anyone would be telling you to not contribute to retirement beyond the match, but to stick to normal retirement savings targets and pay what extra you can *after* that toward your loan.
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A Pharm D degree and job in the industry should be paying far better than what OP is making. And, TBH, with that heavy a debt weight, they should not be investing anything at all in an Employer tax-advantaged retirement plan. Hell, they shouldn’t even be investing in a self directed IRA. Every single spare dollar over the next 5-7 years should be going directly to this onerous student loan debt.
Hi! I am also a pharmacist and was in a similar position with $250k in student loans. I would recommend potentially refinancing your private student loans with a credit union for a more manageable payment and lower interest. For the govt loans, I would see what kind of repayment plans you qualify for.
It sounds like you are in retail, for which I can agree you are underpaid in New York if you are a staff pharmacist. If you have at least a year experience I would recommend potentially looking at other retail stores to negotiate better pay. I am not sure if you qualify for PSLF but I would focus on the private loans first.
Good luck!
I have read many of the responses, I think your only real option is to get your student loans discharged, though any programs you can find.
Even if you double your income I expect 30 years from now you still can not pay all of this off.
It would be better to find a program that would pay off your debt, even if it takes 4 year plus commitment. At lease in 5 years you are staring off debt free and can live a normal life.
I feel so bad that many young people are getting taken advantage of by Universities, there should be some class action recourse to snap these University’s back in to reality.