Paying off high Student Loans vs. saving / investing....HELP!

[mpweaver4]

I am 25 and looking for advice in regards to where I should apply any money I have in addition to my minimum monthly expenses. Below I have tried to capture a snapshot of my financial situation:

- Yearly income - $44K
- $71K balance ($624 min monthly payment) on a private student loan with an adjustable rate based on the 3 month LIBOR (right now its sitting at about 5.3%, but was around 7% before rates recently dropped)
- $7K in my 401k, I am contributing 10% right now, employer doesn't match anything
- $1K in an online savings acct
- No car payment.
- No credit card debt

I have around $700 to $800 leftover after my monthly expenses.

I have a few questions I am looking to shed some light on:
Should I start an IRA since my employer does not match any in my 401K?
Should I put all my additional money towards paying down my student loan? Or, should I balance additional money between the student loan, savings, and maybe the IRA?
I was told the next administration might do something to assist those with student loans, and was advised to save / invest more of my additional income as a result of that rather than putting it towards the loan, any validity to that?
I greatly appreciate any and all advice!

[creditcardfree]

At your age, saving 10% is awesome. You might look to increase to 15% or more at some point. That student loan will hang around a long time if you don't start putting more than the minimum towards it.

Is the $1,000 an emergency fund or some sort of goal fund?

I did a few quick calculations on bankrate.com. Paying the minimum on your student loan at the current rate, it will take you 13 years and 3 months to pay off the loan. You would be 38 years old.

If you pay $624 plus an extra $700 for a total of $1,324/mo, you will pay the loan off in 62 months, which is 5 years and 2mos. You would be 30 years old.

Because you have an emergency fund, you are already saving 10%, I would have you put all the extra on that loan. Get it off your back, so you can pursue other goals.

[disneysteve]

Originally Posted by mpweaver4

Should I start an IRA since my employer does not match any in my 401K?
Should I put all my additional money towards paying down my student loan? Or, should I balance additional money between the student loan, savings, and maybe the IRA?
I was told the next administration might do something to assist those with student loans, and was advised to save / invest more of my additional income as a result of that rather than putting it towards the loan, any validity to that?
I greatly appreciate any and all advice!

Yes, you should max a Roth IRA ($5,000 for 2008) first before contributing to a 401k with no match. You get a virtually unlimited choice of investment options and more favorable withdrawal conditions in retirement. After you max the Roth, then you can move on to the 401k for the remainder of the year.

I would balance additional money. A $1,000 EF is a good start but not enough. You should get that account up to at least 3 months worth of living expenses and preferable 6 months.

I have no clue what the next administration will do with student loans, nor does anyone else including the candidates. I think you should do your planning based on current law until something actually changes.