Last Payment on Student Loans!

[Groove]

Sorry, but I just had to celebrate. I just made my last payment on my ~390K of student loans I had waiting for me when I finished residency. That's after I spent my first year paying the minimum IBR payment only to realize it wasn't really doing anything other than paying interest. I had about 2/3 high interest ~7% and a third at ~3.7% I was so depressed looking at that enormous number and calculating the interest I was paying annually. I made a decision to get aggressive with it and started paying about ~10K/mo on average and have been watching it slowly go down ever since. It took me a few years but damn I'm glad to get that monkey off my back!

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[bravotwozero]

Be right up there with ya in about 6 days...but congrats!


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[dchristismi]

Congrats! It's a great feeling!

 

[Hercules]

Congratulations!!


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[TooMuchResearch]

Congrats!

 

[EctopicFetus]

Props!

 

[Birdstrike]

Sorry, but I just had to celebrate. I just made my last payment on my ~390K of student loans I had waiting for me when I finished residency. That's after I spent my first year paying the minimum IBR payment only to realize it wasn't really doing anything other than paying interest. I had about 2/3 high interest ~7% and a third at ~3.7% I was so depressed looking at that enormous number and calculating the interest I was paying annually. I made a decision to get aggressive with it and started paying about ~10K/mo on average and have been watching it slowly go down ever since. It took me a few years but damn I'm glad to get that monkey off my back!

Wow. That's great.
390K in just a few years?
Congrats!
Amazing discipline.

 

[goodoldalky]

Congratulations! That’s awesome!

 

[deleted245139]

Congratulations!!!!

 

[deleted245139]

So... You work community?
I've been thinking about how to strategize this. I have two kids and work academics... It's not as clear cut as I want it to be.

 

[EM4life]

I paid off my loans a few years ago (was lucky my husband started generating a decent income too and we both just hauled ass), it is an amazing feeling! Congratulations!

 

[bravotwozero]

So... You work community?I've been thinking about how to strategize this. I have two kids and work academics... It's not as clear cut as I want it to be.

I put a hold on my 401k contributions to free up more cash to pay down my loans. I don't think you can put a price on lifting the psychological burden of debt, and freeing up cash flow that comes after freeing yourself from debt, so I felt that strategy was well worth it. I also am an IC so no employer match for me.

 

[ThoracicGuy]

I put a hold on my 401k contributions to free up more cash to pay down my loans. I don't think you can put a price on lifting the psychological burden of debt, and freeing up cash flow that comes after freeing yourself from debt, so I felt that strategy was well worth it. I also am an IC so no employer match for me.

If you are a 1099 employee, you can do a solo 401k and then contribute the max employee contribution plus 20% of your net income as an employer contribution up to around 54k a year. I would make sure you max that out. More money in now will be more money when you retire.

 

[The White Coat Investor]

Well done, congratulations!

 

[Boatswain2PA]

If you are a 1099 employee, you can do a solo 401k and then contribute the max employee contribution plus 20% of your net income as an employer contribution up to around 54k a year. I would make sure you max that out. More money in now will be more money when you retire.

Any benefit in doing this versus a SEP IRA? Can put same amount into SEP, meanwhile without a 401 (k) the income limits don't apply so you can fund a ROTH as well (so my CPA said, and Vanguard confirmed).

 

[bravotwozero]

If you are a 1099 employee, you can do a solo 401k and then contribute the max employee contribution plus 20% of your net income as an employer contribution up to around 54k a year. I would make sure you max that out. More money in now will be more money when you retire.

I’m aware of that, and once the loan is paid, that’s what I’m planning on doing. But there’s only so much cash to go around when you’re making 20k loan payments every month...

And as to 401 vs SEP - your contribution limits are equal, and unlike with a SEP, you can fund a backdoor Roth with a 401k.


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[ThoracicGuy]

Any benefit in doing this versus a SEP IRA? Can put same amount into SEP, meanwhile without a 401 (k) the income limits don't apply so you can fund a ROTH as well (so my CPA said, and Vanguard confirmed).

As @bravotwozero said, the solo 401k allows for the Backdoor Roth contribution whereas the SEP does not.

If you contribute to a SEP, that removes the Roth contribution freedom you'd otherwise have. Your contribution limits are the same for both.

 

[ThoracicGuy]

I’m aware of that, and once the loan is paid, that’s what I’m planning on doing. But there’s only so much cash to go around when you’re making 20k loan payments every month...

And as to 401 vs SEP - your contribution limits are equal, and unlike with a SEP, you can fund a backdoor Roth with a 401k.


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It would basically mean a $15k loan payment each month if you want/can max out the solo 401k. You'd have to be the judge if that was worth it. Alot would depend on what your loan rates are. And actually it wouldn't quite be a $5k cost per month as you'd get the tax benefits of the contribution that you don't get with the loan repayment. Just something to consider.

 

[Boatswain2PA]

As @bravotwozero said, the solo 401k allows for the Backdoor Roth contribution whereas the SEP does not.

If you contribute to a SEP, that removes the Roth contribution freedom you'd otherwise have. Your contribution limits are the same for both.

Can you backdoor more than the $5500/year through the solo 401 k?

 

[bravotwozero]

Can you backdoor more than the $5500/year through the solo 401 k?

No, you cannot. Unless, you are making another contribution to a ROTH in your wife's name, then you can sock away an additional 5500 for a total of 11000 a year.

 

[Saddleshoes]

Congratulations!!

You are now a "Financial Adult".

 

[ThoracicGuy]

Can you backdoor more than the $5500/year through the solo 401 k?

So you can sock away:

401k:
18k employee contribution
20% of net income employer contribution
Max total contribution between employee and employer is 54k this year.

Backdoor Roth:
5.5k

Spouse Backdoor Roth:
5.5k

If your spouse doesn't work and you can find a way to hire him/her then your spouse can also contribute to the 401k under their name at the same amounts as above.

 

[The White Coat Investor]

So here's the questions for you-

What do you say to those who say, "You can't do that. You can't pay off your student loans in just a few years?"

Second, what do you say to those who say, "You should carry the debt and invest instead, earning more than the loans will cost you?"

And finally, do you feel a burden lifted? What is the psychological effect of lifting that debt off your shoulders?

 

[chillaxbro]

How old are you?

 

[engineeredout]

Did you do any refinancing of your loans?

 

[link2swim06]

Nice work man. Its a great feeling, just got debt free myself.

I just finished paying off 225K in 4.5 months, kinda went overboard working to get rid of debt.

But having no student loan payments made be more relaxed.

 

[fahimaz7]

Nice work man. Its a great feeling, just got debt free myself.

I just finished paying off 225K in 4.5 months, kinda went overboard working to get rid of debt.

But having no student loan payments made be more relaxed.

70k/month pre-tax income =45k post taxes. 225k in 5 months = 45k/month payments. Either you sold a kidney or you do something other than medicine. That's >230 hours/month @300/hour in the ED to just cover your loan payment. No living expenses, rent, or other!

 

[link2swim06]

70k/month pre-tax income =45k post taxes. 225k in 5 months = 45k/month payments. Either you sold a kidney or you do something other than medicine. That's >230 hours/month @300/hour in the ED to just cover your loan payment. No living expenses, rent, or other!

Nope just medicine. Just EM. Just finished residency in July.

It's possible, but I have to travel, live in undesirable places, work all nights, and yes work >200 hrs/month.

Not sustainable long term but for 6-12 months, its doable.

 

[RustedFox]

I'm getting maaad close to being out. 350+K in between 5 and 6 years time, if all goes well by Q2 of next year.
I didn't save much for retirement, but I did it my way. I paid for many "young life" things in full that I don't regret.
I've seen too many people get sick and pass on far too soon, so I tend to Carpe Diem and be a grasshopper instead of an ant.
Oh well.

 

[bravotwozero]

So here's the questions for you-

What do you say to those who say, "You can't do that. You can't pay off your student loans in just a few years?"

Watch me! I mean, in our profession, it's quite possible to live on half your income VERY comfortably, and put the rest towards your loans.

Second, what do you say to those who say, "You should carry the debt and invest instead, earning more than the loans will cost you?"

This is where I believe Dave Ramsey is right on the money. So, paying down your balance is a constant. The rate of return on your investment is a variable. Once you pay down your debt, it's paid. It's gone. It's not coming back from the dead like the zombie trumpcare bill. The repo man can't show up at your home and take away your furniture for unpaid loans. This is what the people who say you should invest instead don't take into account - the liability/uncertainty factor. What if the wall street cronies crash the market again by investing your lifesavings into junk bonds? You think 2008 can't happen again? You think disability insurance is going to cover that? What if your taxes go up, or salary goes down? What if your group loses its ED contract? I'm not comfortable with that kind of uncertainty.

And finally, do you feel a burden lifted? What is the psychological effect of lifting that debt off your shoulders?

To put it simply, priceless. This is the difference between being able to sleep at night, vs waiting it out for years thinking how long am I going to be a slave to the lenders. DEBT = SLAVERY. I honestly can't understand how one can argue otherwise.

 

[TooMuchResearch]

Watch me! I mean, in our profession, it's quite possible to live on half your income VERY comfortably, and put the rest towards your loans.



This is where I believe Dave Ramsey is right on the money. So, paying down your balance is a constant. The rate of return on your investment is a variable. Once you pay down your debt, it's paid. It's gone. It's not coming back from the dead like the zombie trumpcare bill. The repo man can't show up at your home and take away your furniture for unpaid loans. This is what the people who say you should invest instead don't take into account - the liability/uncertainty factor. What if the wall street cronies crash the market again by investing your lifesavings into junk bonds? You think 2008 can't happen again? You think disability insurance is going to cover that? What if your taxes go up, or salary goes down? What if your group loses its ED contract? I'm not comfortable with that kind of uncertainty.



To put it simply, priceless. This is the difference between being able to sleep at night, vs waiting it out for years thinking how long am I going to be a slave to the lenders. DEBT = SLAVERY. I honestly can't understand how one can argue otherwise.

If the market crashes, equities are cheaper, and you can more of them for the same money. Likely markets will recover to much higher levels than they were at the time of the crash, and you will make money.

If we lose our contract, I'm credentialed with other institutions within a reasonable driving distance and would likely either get picked up by whoever takes the contract or one of the local employers. I would pick up shifts at other institutions in the meantime.

If I die, my estate will pay off my loans from my large life insurance policies.

Part of that is being comfortable with debt. I am.

I'm not disagreeing with your strategy, just providing my alternate viewpoint.

 

[bravotwozero]

Everything you mentioned seems like a reasonable counter argument to me, except for this:

If the market crashes, equities are cheaper, and you can more of them for the same money. Likely markets will recover to much higher levels than they were at the time of the crash, and you will make money.

Um, I'm going to be buying equities during a stock market crash if I would still have outstanding student loans to pay...? Don't think so. And let's face it man, neither me, you, or anyone else has a friggin clue what the markets will do in the future. There is no way you can say with any amount of certainty that "markets will recover to much higher levels than before a crash", and even if it does, you have no way of determining how long that would take. What if it takes 85 years to get to post market crash levels? That's simply crazy talk. You cannot predict the market.

 

[BoardingDoc]

To put it simply, priceless. This is the difference between being able to sleep at night, vs waiting it out for years thinking how long am I going to be a slave to the lenders. DEBT = SLAVERY. I honestly can't understand how one can argue otherwise.

Have to agree with toomuchresearch here. I don't think you're wrong for doing any of what you're doing, I just don't share the viewpoint that debt = slavery. I think that debt is a healthy part of one's financial portfolio. While I agree that the vast majority of Americans manage their debt poorly and as such it is a financial burden, lumping debt into the category of "necessary evil" is something I personally disagree with. You hit the nail on the head by discussing how risk averse you are. That's a perfectly reasonable position. I'm just saying that it's also entirely reasonable to accept a higher level of risk in exchange for significantly higher returns than you get by simply paying down your debt.

EDIT: just saw your followup post....
Yes, you should absolutely be buying equities during a stock market crash. I feel like that's intuitively obvious. And while you're again completely right that noone has any idea what the markets will do, and yes it is possible for them to catastrophically fail, the scenario you posit of taking 85 years to get back to pre-crash levels is something that has never happened in the history of this country. Moreover, if it did, anything causing a crash like that would mean that we all had bigger problems than debating whether we think Dave Ramsey or Jack Bogle/Warren Buffet have better financial plans.

 

[Groove]

If you have debts on the order of 2.5-3.5% interest, then sure... You have an argument for the merits of protracted payback during the course of your career. However, with the new interest rates on the order of ~7%, it really mandates a completely different financial strategy. It's really difficult to justify hanging onto large educational loans with that kind of interest. There is no safe, guaranteed investment that will yield you an assured 7+% interest rate every year. When you sit down and do the math on the combined interest you'd pay back over the course of 15 years, it's really egregious. Personally, I can't stand the psychological burden of educational debt. I can't stand knowing the satisfaction the federal gov or some of these financial institutions are getting being able to charge me astronomical interest rates. I'm living proof that you don't have to live like a resident or college student on ramen noodles in order to aggressively pay these things back. I live in a 4000 sq ft house in a nice part of town, drive an expensive SUV, own a rolex, and am about to take my 3rd ski trip this year, 5th vacation this year. My philosophy is there's no reason you can't live comfortably, within your means, with a few splurges and still aggressively pay these things back as long as you are willing to work hard. I work 160 hours a month with a work hard, play hard attitude. Sure, I haven't been able to save for retirement as I would have liked, but I'm so used to paying big chunks on my loans every month that I intend to do the same for retirement from here on out as long as I'm working as much as I do. By my calculations, I should reach my retirement goals with ease by the time I'm 59. I can't describe the psychological freedom that I feel after getting these things off my back allowing me to completely focus on retirement. It's a great feeling. I'd encourage everyone to do it if you have high interest loans but definitely am of the opinion that you can easily balance lifestyle with an aggressive payback strategy as long as you are willing to work hard.

 

[Groove]

Nope just medicine. Just EM. Just finished residency in July.

It's possible, but I have to travel, live in undesirable places, work all nights, and yes work >200 hrs/month.

Not sustainable long term but for 6-12 months, its doable.

Way to go man, that's insane. Watch out for the IRS and make sure you've got enough to pay taxes. It's easy to get behind as an IC with all that pre-tax money dumping into your bank account every month.

 

[BoardingDoc]

If you have debts on the order of 2.5-3.5% interest, then sure... You have an argument for the merits of protracted payback during the course of your career. However, with the new interest rates on the order of ~7%, it really mandates a completely different financial strategy. It's really difficult to justify hanging onto large educational loans with that kind of interest. There is no safe, guaranteed investment that will yield you an assured 7+% interest rate every year. When you sit down and do the math on the combined interest you'd pay back over the course of 15 years, it's really egregious. Personally, I can't stand the psychological burden of educational debt. I can't stand knowing the satisfaction the federal gov or some of these financial institutions are getting being able to charge me astronomical interest rates. I'm living proof that you don't have to live like a resident or college student on ramen noodles in order to aggressively pay these things back. I live in a 4000 sq ft house in a nice part of town, drive an expensive SUV, own a rolex, and am about to take my 3rd ski trip this year, 5th vacation this year. My philosophy is there's no reason you can't live comfortably, within your means, with a few splurges and still aggressively pay these things back as long as you are willing to work hard. I work 160 hours a month with a work hard, play hard attitude. Sure, I haven't been able to save for retirement as I would have liked, but I'm so used to paying big chunks on my loans every month that I intend to do the same for retirement from here on out as long as I'm working as much as I do. By my calculations, I should reach my retirement goals with ease by the time I'm 59. I can't describe the psychological freedom that I feel after getting these things off my back allowing me to completely focus on retirement. It's a great feeling. I'd encourage everyone to do it if you have high interest loans but definitely am of the opinion that you can easily balance lifestyle with an aggressive payback strategy as long as you are willing to work hard.

Totally agree. With high interest loans you should be prioritizing them 100% of the time. That said, if you're able to refi to a range like you said (and with attending income, I don't know why you wouldn't be able to do so) it's not unreasonable to hold onto 2.6% debt and invest instead

 

[bravotwozero]

and in the click of a button, I just made my final loan payment! 365k gone in 2.5 years. Initial refinance with SoFi for 3.2 variable. However, it crept up to almost 4%. At that point, I refinanced again with citizens bank, down to a rate of 2.88%. Was supposed to be in 4 more days, but since today was payday, couldn't wait any longer lol.

 

[namethatsmell]

Count me in the group that favors paying it all off ASAP. It allows you to comfortably control your future rather than your current employer.

I paid off my debt within my first year as an attending and turned out to be the best thing ever. It allowed me to tell an employer "I'm out" when they starting making staffing changes I didn't think were safe and were burning me out. I didn't have other work lined up at the time and they kept trying to get me to stay and gave me lines like "what will you do without us to pay all those loans you almost certainly have?" Fortunately I'd been living like a resident and had a decent rainy day fund which allowed me to be fine without work for a bit while lining up the next job.

Being without debt allows you to avoid feeling stuck in any job because you "need" the cash. I haven't been out of residency that long, but since I'm not underwater I can more focus on gigs that promote my longevity/enjoyment of EM (actually getting out on time, reasonable work load and support, minimal nights, etc) rather than jobs that pay $eleventy/hr. If things get bad enough in medicine, I can leave immediately with no chains holding me down.

And call me a pessimist, but whenever somebody says "I refi'd for 3% and am making minimum loan payments so I can get my money into the market" I vomit a little in my mouth. They're not taking inflation into account which diminishes their ROI (if there are any actual gains at all). If they make 7% raw over time and there's 3% inflation during that period then their true gain would be closer 4%--oh, and that's before investment fees. Does the risk accompanying a possible gain of ~4% on an investment rather than paying off a sure win to save 3% sound like a good move? Not to me. IMHO, first max out any employer retirement match (and generally your pre-tax retirement allowances and backdoor roth) and then throw the rest at loans and enjoy the early freedom over your life.

 

[Groove]

and in the click of a button, I just made my final loan payment! 365k gone in 2.5 years. Initial refinance with SoFi for 3.2 variable. However, it crept up to almost 4%. At that point, I refinanced again with citizens bank, down to a rate of 2.88%. Was supposed to be in 4 more days, but since today was payday, couldn't wait any longer lol.

Way to go man, now go celebrate!

 

[Apollyon]

If you have debts on the order of 2.5-3.5% interest, then sure... You have an argument for the merits of protracted payback during the course of your career. However, with the new interest rates on the order of ~7%, it really mandates a completely different financial strategy. It's really difficult to justify hanging onto large educational loans with that kind of interest. There is no safe, guaranteed investment that will yield you an assured 7+% interest rate every year. When you sit down and do the math on the combined interest you'd pay back over the course of 15 years, it's really egregious. Personally, I can't stand the psychological burden of educational debt. I can't stand knowing the satisfaction the federal gov or some of these financial institutions are getting being able to charge me astronomical interest rates. I'm living proof that you don't have to live like a resident or college student on ramen noodles in order to aggressively pay these things back. I live in a 4000 sq ft house in a nice part of town, drive an expensive SUV, own a rolex, and am about to take my 3rd ski trip this year, 5th vacation this year. My philosophy is there's no reason you can't live comfortably, within your means, with a few splurges and still aggressively pay these things back as long as you are willing to work hard. I work 160 hours a month with a work hard, play hard attitude. Sure, I haven't been able to save for retirement as I would have liked, but I'm so used to paying big chunks on my loans every month that I intend to do the same for retirement from here on out as long as I'm working as much as I do. By my calculations, I should reach my retirement goals with ease by the time I'm 59. I can't describe the psychological freedom that I feel after getting these things off my back allowing me to completely focus on retirement. It's a great feeling. I'd encourage everyone to do it if you have high interest loans but definitely am of the opinion that you can easily balance lifestyle with an aggressive payback strategy as long as you are willing to work hard.

I have 2 Rolexes, and live in the nice part of town, but none of the other things you mention (including NOT a 4k square foot house). Hmm...

 

[TooMuchResearch]

If you have debts on the order of 2.5-3.5% interest, then sure... You have an argument for the merits of protracted payback during the course of your career. However, with the new interest rates on the order of ~7%, it really mandates a completely different financial strategy. It's really difficult to justify hanging onto large educational loans with that kind of interest. There is no safe, guaranteed investment that will yield you an assured 7+% interest rate every year. When you sit down and do the math on the combined interest you'd pay back over the course of 15 years, it's really egregious. Personally, I can't stand the psychological burden of educational debt. I can't stand knowing the satisfaction the federal gov or some of these financial institutions are getting being able to charge me astronomical interest rates. I'm living proof that you don't have to live like a resident or college student on ramen noodles in order to aggressively pay these things back. I live in a 4000 sq ft house in a nice part of town, drive an expensive SUV, own a rolex, and am about to take my 3rd ski trip this year, 5th vacation this year. My philosophy is there's no reason you can't live comfortably, within your means, with a few splurges and still aggressively pay these things back as long as you are willing to work hard. I work 160 hours a month with a work hard, play hard attitude. Sure, I haven't been able to save for retirement as I would have liked, but I'm so used to paying big chunks on my loans every month that I intend to do the same for retirement from here on out as long as I'm working as much as I do. By my calculations, I should reach my retirement goals with ease by the time I'm 59. I can't describe the psychological freedom that I feel after getting these things off my back allowing me to completely focus on retirement. It's a great feeling. I'd encourage everyone to do it if you have high interest loans but definitely am of the opinion that you can easily balance lifestyle with an aggressive payback strategy as long as you are willing to work hard.

I refinanced at 3.85%. Might give more aggressive paydown more thought if 7%.

 

[namethatsmell]

I refinanced at 3.85%. Might give more aggressive paydown more thought if 7%.

What’s your plan to extract more value from your paycheck rather then pay your debt now to avoid the loss from the 3.85% interest? I’m curious.


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[BoardingDoc]

And call me a pessimist, but whenever somebody says "I refi'd for 3% and am making minimum loan payments so I can get my money into the market" I vomit a little in my mouth. They're not taking inflation into account which diminishes their ROI (if there are any actual gains at all). If they make 7% raw over time and there's 3% inflation during that period then their true gain would be closer 4%--oh, and that's before investment fees. Does the risk accompanying a possible gain of ~4% on an investment rather than paying off a sure win to save 3% sound like a good move? Not to me. IMHO, first max out any employer retirement match (and generally your pre-tax retirement allowances and backdoor roth) and then throw the rest at loans and enjoy the early freedom over your life.

You're not a pessimist! You have a very realistic evaluation of the world which happens to have a lower risk tolerance than I have. Perfectly acceptable in both of our cases. While I think aggressive loan repayment is a perfectly viable option, I do want to offer a slight rebuttal to your comment which seems to imply that not doing that is wrong.

1: You state that if you make 7% raw over time with inflation of 3% you only make 4%. Yes, that is perfectly correct. That said, those numbers aren't really related to what historical data have been. Looking at the S+P 500 from 1950 - 2009, the average return has indeed been 7%. After adjusting for inflation. Before adjusting, it was 11.0%. Again, I'm not saying that this is guaranteed to be what will happen in the future, but if we're going to quote specific numbers, lets at least use the ones we know are real.
2: Before investment fees? If you're paying an investment fee which eats into your margins then yes, I completely agree this is foolhardy. That said, I have ZERO funds with an expense ratio over 0.07%. This isn't difficult to do. Vanguard has tons of low cost funds. Fidelity is getting more competitive lately as well. Lots of options out there where your investment fees are negligible.

I think I've made my position fairly clear with this and previous posts but I'll end by saying that the psychological benefit to paying off one's loans is significant. The guaranteed ROI on a loan repayment (particularly if you have a high interest rate and haven't refinanced) is absolutely a solid option. There is certainly risk in investing as opposed to aggressive loan repayment. All of that said, I think there is a case to be made for doing it my way. All of your concerns are valid, but if you pay attention to fee schedules (I do), you don't care about the psych factors (it's all just numbers to me), you refinance your loans to a good rate (sitting at 2.6%) and you're comfortable with an increase in short term risk knowing that historical data suggests that the long term gains will be in your favor (I am, and being in a bull market which has been producing >10% returns over the past few years hasn't hurt)... I think that this approach is at least equally valid.

 

[namethatsmell]

You're not a pessimist! You have a very realistic evaluation of the world which happens to have a lower risk tolerance than I have. Perfectly acceptable in both of our cases. While I think aggressive loan repayment is a perfectly viable option, I do want to offer a slight rebuttal to your comment which seems to imply that not doing that is wrong.

Yeah I definitely didn't mean to imply it's "wrong" per se to not aggressively repay loans. Rather, it's just my opinion that you should have a very clear reason to do otherwise. I agree I'm more risk adverse than you on this subject, and nothing wrong with that for either of us.

1: You state that if you make 7% raw over time with inflation of 3% you only make 4%. Yes, that is perfectly correct. That said, those numbers aren't really related to what historical data have been. Looking at the S+P 500 from 1950 - 2009, the average return has indeed been 7%. After adjusting for inflation. Before adjusting, it was 11.0%. Again, I'm not saying that this is guaranteed to be what will happen in the future, but if we're going to quote specific numbers, lets at least use the ones we know are real.

Your comments on the S&P are correct. A challenge with discussing the "average" ROI though is that most folks asset classes are varied, just like the chunk(s) of time they happen to be invested in the market and the inflation rates during that period as you mention. Very few people have 100% of their portfolio in the S&P. If you have a diversified portfolio with bonds etc--as most people do--you may very well expect a ROI of 5-8% (often before inflation). At least those are the expectations some of the big sites discuss on the interwebs (ie investopedia, morningstar/interest.com) when you google "average roi on 401k." However that's just my cursory (and admittedly concervative) expectation of ye old ROI...I hope I'm way too low!

2: Before investment fees? If you're paying an investment fee which eats into your margins then yes, I completely agree this is foolhardy. That said, I have ZERO funds with an expense ratio over 0.07%. This isn't difficult to do. Vanguard has tons of low cost funds. Fidelity is getting more competitive lately as well. Lots of options out there where your investment fees are negligible.

We're in complete agreement here that expense can be minimal (the majority of my funds ERs are in your range), but I'd guess most people don't have the ERs you mention. Not everybody realizes how big a deal ERs are or have any idea what they pay, and some folks company 401k may only offer funds with crap expenses.

I think I've made my position fairly clear with this and previous posts but I'll end by saying that the psychological benefit to paying off one's loans is significant. The guaranteed ROI on a loan repayment (particularly if you have a high interest rate and haven't refinanced) is absolutely a solid option. There is certainly risk in investing as opposed to aggressive loan repayment. All of that said, I think there is a case to be made for doing it my way. All of your concerns are valid, but if you pay attention to fee schedules (I do), you don't care about the psych factors (it's all just numbers to me), you refinance your loans to a good rate (sitting at 2.6%) and you're comfortable with an increase in short term risk knowing that historical data suggests that the long term gains will be in your favor (I am, and being in a bull market which has been producing >10% returns over the past few years hasn't hurt)... I think that this approach is at least equally valid.

I appreciate your opinion and think it's absolutely legit as long as you are reasonably trying to get good value from your dollars--which it seems you are especially with your 2.6% (nice rate!). Also, to be clear when I say "value" I don't mean it's all about making money either. Yup, there's the psychological gain you mentioned. There's also benefits to taking a pricey exotic trip after residency with your husband/wife as the things it'll do for your relationship and all the experiences/memories can be...priceless. Donating cash to fund a make-a-wish kid or some other cause you believe in...priceless. Spending money to help care for a loved one...well, actually this is pricey but you get the point.

 

[goodoldalky]

And call me a pessimist, but whenever somebody says "I refi'd for 3% and am making minimum loan payments so I can get my money into the market" I vomit a little in my mouth. They're not taking inflation into account which diminishes their ROI (if there are any actual gains at all). If they make 7% raw over time and there's 3% inflation during that period then their true gain would be closer 4%--oh, and that's before investment fees. Does the risk accompanying a possible gain of ~4% on an investment rather than paying off a sure win to save 3% sound like a good move? Not to me. IMHO, first max out any employer retirement match (and generally your pre-tax retirement allowances and backdoor roth) and then throw the rest at loans and enjoy the early freedom over your life.

Debts such as a mortgage or other long term debts are a hedge against inflation, as are equities if you hold them for a long time. Paying a loan off early? That’s the opposite of what you should do if you are concerned about inflation.

 

[TooMuchResearch]

What’s your plan to extract more value from your paycheck rather then pay your debt now to avoid the loss from the 3.85% interest? I’m curious.


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Currently all we're doing is maxing out employer 401k x2 and backdoor Roth IRA x2. The 401k is an easy argument as there is immediate tax savings and we have low cost index funds in both accounts. I have a good employer match (around $11k or something per year) and spouse has some amount of match. I'm not claiming it will always return more than my loans, or my mortgage (not a fancy doctor house mortgage), though historically it has/would have. I feel similarly about the Roth IRAs.

With any additional income would I kill the loans or add to a taxable investment portfolio? Probably loans, but if there was a market downturn, I'd be tempted to take a bit more risk and put the money towards taxable investments.

 

[goodoldalky]

What’s your plan to extract more value from your paycheck rather then pay your debt now to avoid the loss from the 3.85% interest? I’m curious.


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If one were to use math to answer this question, the correct answer is that he should invest that money in any asset which has generally been shown to return over 3.85% less taxes and fees. The answers are probably:
1. Max out pretax 401k or equivalent
2. Max out Roth IRA
3. Invest in a combination of low cost mutual / index funds

There are other combinations of more complex things that can be done, including real estate investment and individual equities, which in general are not beneficial to the average investor as it tends to require more time and is difficult to do well.

There is also another big advantage when one elects this approach rather than paying a loan down early: liquidity.

Edit: just saw the poster’s reply

 

[namethatsmell]

Debts such as a mortgage or other long term debts are a hedge against inflation, as are equities if you hold them for a long time. Paying a loan off early? That’s the opposite of what you should do if you are concerned about inflation.

I'm talking about student loans, which last I checked had no asset behind them to sell off should you need to and has no chance of increasing in value. Student loans aren't an equity.

A home mortgage at a good rate? Sure, I'd be on board with holding onto that.

 

[namethatsmell]

Currently all we're doing is maxing out employer 401k x2 and backdoor Roth IRA x2. The 401k is an easy argument as there is immediate tax savings and we have low cost index funds in both accounts. I have a good employer match (around $11k or something per year) and spouse has some amount of match. I'm not claiming it will always return more than my loans, or my mortgage (not a fancy doctor house mortgage), though historically it has/would have. I feel similarly about the Roth IRAs.

With any additional income would I kill the loans or add to a taxable investment portfolio? Probably loans, but if there was a market downturn, I'd be tempted to take a bit more risk and put the money towards taxable investments.

Thanks for sharing -- glad to hear you're not just giving your cash to a "money guy" like many of my colleagues at one of my shops...who have found a way to pay a 1.5% AUM fee and aren't beating the market. Maxing your 401s and IRAs before your loans sounds totally reasonable.

 

[TooMuchResearch]

Thanks for sharing -- glad to hear you're not just giving your cash to a "money guy" like many of my colleagues at one of my shops...who have found a way to pay a 1.5% AUM fee and aren't beating the market. Maxing your 401s and IRAs before your loans sounds totally reasonable.

Yeah, all index funds for me. Financial situation is simple now, but if I need financial advising on the future, I'll hire an hourly fee only advisor. No AUM fees.