Pay off student loan before starting retirement savings?

**Hedy** · 07-06-2007, 01:51 PM

In the interest of full disclosure, I'm saving while paying down my loans, but I think it's award-winningly foolish not to start saving until 30 if it's not a hardship for you.

**Cassandra** · 07-06-2007, 03:59 PM

I think you should start the retirement plan now. Put what you can into it-even if it's only $50 a month. As your income grows and your student loan gets paid you can add more into your retirement fund.

As you said, you have time on your side. I would take full advantage of that!

Cassandra

**humandraydel** · 07-06-2007, 06:32 PM

Originally posted by Hez View Post

I have no idea what % an rrsp would earn, and know it can vary, but I imagine it would earn more than the interest I'm paying for the student loan, right?

Essentially, it comes down to this. If you earn more on your investments than pay in interest on your loan, it makes sense to save for retirement. Typically the interest rates on student loans are low and retirement plans offer some sort of tax advantages, so it makes sense to fund a retirement plan before paying off a student loan.

**cptacek** · 07-06-2007, 07:05 PM

I think you need to get some more information to make an informed choice. The main things I would look at are:
1. Does your job offer you a retirement plan that matches anything that you put in? If so, start the plan.
2. How much is the interest rate on the student loan? If it is less than, say 6%, then start saving for retirement.

I have another question...why will it take you 7 years to pay off $13,000? You have been scrimping and saving to pay off the larger balance; why can't you continue that for a few more years and do both?

Another thought...get inertia on your side. Starting something and stopping something are usually the hardest parts...doing the same thing becomes a habit, and is the easiest thing to do. So, start the retirement fund so you get used to saving for your retirement. It is easy to move the amount up, but if you wait a while before beginning, I think it will be harder to get it started.

Finally, you say you are itching to get started. Scratch that itch! That is a great itch to have. It's not like you are itching to buy a brand new car. For your peace of mind, I would start investing.

**disneysteve** · 07-07-2007, 06:31 AM

I would, and I did, save while repaying my loans. I graduated med school with $102,000 in loans. I paid them off over 13 years (12 years ahead of schedule) but simultaneously built a 6-figure investment portfolio.

Bottom line is it would have made more sense to not pre-pay the loans and take the full 25-year repayment schedule. My investment portfolio would have grown much better, but I hated having the loans. I didn't still want to be paying for my education when my own daughter was in college.

So I say do both. Pay the loans AND invest for retirement.

**humandraydel** · 07-07-2007, 08:14 AM

Originally posted by disneysteve View Post

So I say do both. Pay the loans AND invest for retirement.

Just don't forget to be explicit about two things: the type of loan and the interest rate on the loan. There are some private student loans out there with variable interest rates of 9-12%. Even some federal loans are up to 7.5%. At these interest rates it may make sense to pay off the loan first.

On the other hand, my loan is consolidated at 3%. Not only that, but I went with the "interest only" option for the first 2 years. Plus, soon I'll be going back to grad school part time and will defer my loan for 3 more years. So, 5 years after graduating I'll finally begin to pay the loan...but by that time, inflation will have helped me a little

**Aleta** · 07-13-2007, 01:56 PM

If you're working for an employer that will match your contributions, by all means don't delay contributing to this. Your employer is giving you free money. I think that you could pay on both. You are young and if you start saving now, you won't have to save as much if you wait to sta rt contributing. It would be easy to say get rid of this or that, but I think that your retirement plan shoud ALWAYS come first even before contributing to children's educational funds.

**Hez** · 07-14-2007, 09:51 AM

Unfortunately, my employer doesn't have any plan that would match my contributions. But you all make good points. I'm going to contact the financial guy next week to talk about setting my savings up.

**Hez** · 08-05-2007, 09:25 AM

Well, it looks like I won't be starting retirement savings any time soon, after all. The interest for my student loan is higher than I thought, a little under 9%, so I'm going to wait until the loan is gone first. I'm disappointed, I'll be honest.

But on the plus side, this gives me a kick in the pants to get this loan gone asap!

**Aleta** · 08-06-2007, 03:04 PM

Do you owe alot on your student loan?

**JasonEngler** · 08-20-2007, 07:15 PM

Pay yourself FIRST...ALWAYS! Pay the minium on your student loans and get your retirement account going! Don't default on your student loans, but don't rush out and pay them off immediately either!

**mekish** · 08-20-2007, 07:31 PM

If you live with parents and focus all your extra income on the loan, it wouldn't take you that long to pay off 13k. so, i think its best to pay off the loan so you're free!

**moneymatters** · 08-26-2007, 04:48 PM

Hi Hez,
I'm a 20 yr old college student with $22k in student loan debt. One of the well known posters recommended the following book for me to read, and I think it may help you as well:

The Complete Idiot's Guide to Personal Finance in Your 20s and 30s (pg 171 -186 talks about investing)

Maxed Out: Hard Times, Easy Credit, and the ... - Google Book Search

Hope this helps!

**moneymatters** · 08-26-2007, 04:52 PM

Oops (Silly Me!).

Please forget the link in the fore mentioned post. Here is the proper link:

The Complete Idiot's Guide to Personal Finance ... - Google Book Search

Pay off student loan before starting retirement savings?