Student loan or 401k??

[digman]

First post here, was hoping I could get a little advice.

I'm trying to figure out whether I should be putting my money in a 401k or use it to pay off my student loans. I'm 28 years old and currently have $22k in my 401k account. I'm currently putting in 10% of my salary monthly and my company puts in ~5% (not a match, they put it in whether or not I contribute).

My student loans are significant, around $70k in private loans currently at 6%, but variable based on prime rates. I'm currently making the minimum payment on them.

My question is whether I should divert that 401k payment to pay off my student loans faster. I figure that by doing so, and using my annual bonuses to pay it down, I could pay it off by Jan 2010. Otherwise, I would pay it off with my bonus in Jan 2011.

This question came up as I had a discussion with some co-workers who are in a similar situation as myself, and they are not contributing to their 401k but are focused on paying down their debt.

Any advice?

[Broken Arrow]

Wait, so, your employer puts in a 5% on your behalf regardless of whether you actually contribute or not?

Can you consolidate or re-finance your student loan, locking down a lower interest rate somewhere?

[digman]

Right, my employer puts in 5% regardless of my contribution.

I looked into consolidation at one point, but interest rates were higher than my rates.

[humandraydel]

If the difference in payoff is only 1 year (from Jan 2010 to Jan 2011), I would continue to contribute to the 401k.

[disneysteve]

That's a tough call. Since the employer money goes in whether you contribute or not, that's not a factor in the decision. Earning a guaranteed 6% on your money by repaying the loans isn't such a bad deal right now given recent market performance. However, the best time to be investing in the market is when prices are down as they are now. That would put you in the best position to benefit from the eventual recovery, which many analysts anticipate will happen as soon as later this year. Miss the initial stages of the recovery and you'll miss a lot of upward growth in your portfolio.

Also, keep in mind that by contributing to your 401k you reduce your taxable income and lower your taxes, so that is an added advantage.

The private loan rates are variable, so they could go up.

If I were in your situation, I'd probably compromise. Reduce the 401k contribution to 7 or 8% and use the other 2 or 3% to accelerate loan payments, or something like that.