Should I be paying my student loans right now?

As a financial advisor, I frequently have the preceding question posed to me quite often about how best to pay off student loan debt. For example, should I be paying extra on my school loans, or should I be doing something else with my money? Like many things, it depends on several factors. This is not a coy or flippant response, read on to see why…

What factors come into play when determining whether or not to accelerate paying off student loan debt:

• Holistically, where are you in terms of retirement planning, e.g., if you have saved very little for your retirement, then you need to prioritize investing to some degree; however, if you have a solid pension (in addition to Social Security) that will cover most of your anticipated retirement living expenses, then you may want to consider accelerating some of your student loan payments;

• Do you have an emergency fund? Most financial advisors recommend between 3 and 15 months worth of household living expenses set aside for your emergency fund. If you are asking, what is an emergency fund(?) or what is my household living expense(?), then you need to prioritize this immediately over paying down your student loans;

• Do you have credit card debt? Since credit card debt interest rates can vary between 10% and 20%, you may wish to pay these debts down first before prioritizing student loan debt; you can employ the snowball method (pay down your smallest debt first and roll over this amount into the next smallest debt) or the highest-interest rate first method (wherein you pay of your credit cards in order of highest charged interest rate first); and/or

• Does your employer offer a company match with your retirement plan? If yes, it is hard to turn down free money - make sure you contribute enough to your 401k plan to at least acquire the company match before paying extra on your school loans; Why? Because in some years the S&P 500 returns over 18% like it did in 2020.

Certainly, there are more factors to consider than just these four. That being said, these four provide a good starting point if you are contemplating accelerating your student loan payments (versus what else you can do with your extra cash).

If you have questions about paying down your student loans, your retirement plan, or your investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

Furthermore, if you would like some additional information about student loans, a good place to start is the U.S. Department of Education’s website https://www.ed.gov/.