Investing Vs Pay Down Student Loans: Why I’m Gonna Aggressively Save for Retirement and Just Pay the Minimum

I’ve been taking stock of my complete financial life: mortgage, credit cards, savings, and other debt.

At one point, I became obsessed with getting rid of my student loans. They’re an ugly stain, a black cloud always marring my ideal financial vision. Last year, I made a $7,000 payment just to start chipping away at the principal. I see now it was an emotional, not logical, decision.

Since then, I don’t feel like made much progress. And deep down, I want to save more in my IRA account. I was paying so aggressively that I wasn’t saving as much.

After running the numbers, I’ve decided to say screw the student loans. I’m gonna pay the bare minimum and invest everything else.

Past Harlan went to school. Future Harlan is gonna save his pennies. (Third person tense activatedddd!)

I just wanna be carefree. For me, that means giving up the ghost of paying off my student loans – I’m gonna invest the rest

I’m tired of missing out on opportunities.

Why I’m forgetting about paying off my student loans

First things first: my loans are all federal. That means I make payments to a government loan servicer, have protections against hardship, and most importantly… with my IBR plan, they’ll be forgiven after 25 years.

My loans originated in 2011, so they’ll be gone in 2036 – which is in…

*gulp*

17 years. I’ll be in my 50s by then – and I signed those promissory notes when I was 17. Isn’t that crazy?

I don’t have a fixed payment. Instead, I re-certify every year. And somewhere along the line, I decided I wanted them gone and even got a 0% APR credit card to pay them down. I currently owe ~$46,000 (the average is $30,100).

I hate everything about Mohela – the apples, the logo, everything

That pains me to write, but my retirement savings far exceed that.

It wasn’t a financial decision rooted in reality. I decided removing the mental burden of having them would be worth more than saving. After all, with a 6.75% interest rate, that’s a guaranteed savings as opposed to hypothetical returns.

And then, once they were gone, I’d put all my resources into padding out my nest egg. Until I slapped myself in the face and looked closer at the numbers.

Despite how I feel about having the student loans, I was forgetting one huge truism: the sooner I invest, the more I’ll earn with compound interest + time on my side. The 8th wonder of the world – duh. And all my returns were actually over 7%.

Plus, going back to feelings, it bummed me out to max out my 2018 IRA contributions before filing taxes in 2019. In other years, I maxed it out at the earliest moment – not the last.

I maxed out 2018, but 2019 has a ways to go. It will happen

I spent time thinking about it and looking at the numbers. Investing is the clear winner. Those student loans will just have to deal.

By the numbers, I can earn 10s of $1,000s more

I played around with online calculators and liked Student Loan Hero’s Student Loan Payoff vs. Invest Calculator the best.

That’s a huge difference

For this equation, I set:

Investment returns at 7%
Loan interest at 6.75% (cuz it is)
Extra payment at $500 per month (how much I’d need to max out an IRA at $6,000 / 12)
Contribution timeframe at 17 years (at which point, my loans will be forgiven)

This is crazy to me. And now I feel salty for having “wasted” that $7,000 payment – should’ve thrown into into an index fund and called it a day.

Or saved it to put down toward more real estate. Or just kept it. That’s money I literally threw into the wind. And the sad thing is most of it went to interest and didn’t even touch the loan principal…