Pilfer my Bond Fund to pay down Student Loans?

[StepRightUp]

Hi Everyone...

I have about $3500 in TRowe Spectrum Growth Fund. This is in addition to a 4 month emergency fund.

I have about 21K in student loan debt at 3.25%.

Considering that the rate of returns on just about everything nowadays is <3.25%, should I take any/all of this fund to pay down my student loan debt?

Or should I just let it sit in the Fund for a while?

-thanks

[jeffrey]

I personally wouldn't just due to the fact that historically 3.25% is low. Over the long term you should be able to invest that $3500 and make more than 3.25% on it.

[Broken Arrow]

Hey, Jeffrey speaks!

I agree, $3500 won't do anything against $21k right now.

It is better off left alone as an extension to your emergency fund. 4 months is good, but 6 to 12 months would be ideal.

[illinigamer]

I agree with the above, do not apply it to the loan.

I am in a very similar situation. I have about 12k in student loans and could pay them off with funds that are currently earning lower returns. However, the interest rate is below the historic returns on pretty much everything and, over the term of the loan, could even be below inflation. Now is a good time to be investing and I have to think there is a very good chance that whatever you decide to invest in will outperform the interest you are paying over the life of the loan.

One other thing to keep in mind is that, depending on your income, part or all of the interest may be tax-deductible which would effectively lower the interest rate you are paying.

[StepRightUp]

thanks, guys

makes sense - I was leaning that way but I wanted to doublecheck. I just have this violent reaction to debt it seems - even "good" debt

[arthurb999]

I'm not a huge fan of the idea of doing taxable investing until you have all debt cleared and tax advantaged investing maxed.

[Broken Arrow]

I'm not a huge fan of the idea of doing taxable investing until you have all debt cleared and tax advantaged investing maxed.

Yeah, generally, I agree with that as well. In this situation though, I think his emergency fund could be bigger, and that bond fund can be diverted to that purpose. Perhaps there is a more suitable asset class for such a task, but the priority of emergency fund still overtakes paying off student loans.

I just have this violent reaction to debt it seems - even "good" debt

That's a good thing! I do too, and got rid of my student loans as fast as I could.

[parafly]

I would leave the student loan alone.

Your rate is 3.25%, but did you take into account the federal tax deductions for interest paid on student loans? In effect, the rate on your student loans is actually lower than 3.25%.

[jeffrey]

Hey, Jeffrey speaks!

It's not that I don't want to, it's just that most of the time I visit in the evening, someone has already written what I would have said