Is there a general rule of thumb on student loan interest rates and whether or not it’s better to pay off ASAP vs invest in an index fund? Sold a lot of company stock from an ESPP and RSU program that happens to be the value of our household’s student loan debt that is just entering repayment after graduation. Can’t tell if a 5 or 6% is worth drawing out or paying off in one go. Not worried about rainy day or emergency fund and already maxing out my retirement. So really it’s a question of debt payoff or non retirement investment.
at 3% or lower, I’d invest.
at 4% either is fine.
at 5% or more, I’d pay off loans.
And by invest, we don’t mean the latest fad planted on wallstreetbets.
https://www.treasurydirect.gov/savings-bonds/i-bonds/ is a good spot.
I bond yields are tanking. 4.3% isn’t worth it when you can get a shorter-term CD at 5%
Damn, you’re right.
https://www.huntington.com/landing-pages/deposits/cycle/CD-c3-SEM-505
(Just the first one I found.)
Depends on the interest rates. If your rocking a 5% loan, yeah, pay that off first. If you’re rocking a 2-3% loan, invest.
Do you have an emergency fund built up? If you don’t already have 6-8 months of expenses stashed away, I’d start there. Then keep some on hand for unexpected expenses. Like others have said, the decision depends on interest rates for the loans.
Another thing to consider is opportunity cost- if you repay the student loans off, while that helps long term it does deprive you of some liquidity. So, if you need to buy a car or another expensive item, you’ll have a loan potentially at a higher rate than if you’d held onto the cash.
All my loans are sub 5% so I’ve been putting my extra cash in Alliant Credit Union’s 5.15% APY 18month CDs. No point in paying them down if I can basically beef up my emergency fund as a bonus.
It’s hard to rely on a constant 6%+ investment return, but your loan interest rates won’t go down. Pay off your loans.