Use incoming cash flow to invest or pay down student loans?

[Hoosier Daddy]

I am well on my way to being worthless (net zero net worth ) and I have about 30k left of student debt. I am selling my house and getting a bonus at work for a total of 13k (I have already moved to my new location so now moving expenses to worry about). I can either pay off this student debt with a weighted average interest rate of about 5.6% or I can throw this into a vanguard account and likely earn 10% with the way the market is going. However market corrections would erase the principle and it was 6 years from 2002 to 2008 corrections and it has now been 6 years since 2008... Financially theory would tell me to go for 10% instead of avoiding. 5.6% by paying more on the debt... Anyways, what are your thoughts?

[workathome]

Pay off your debt before investing. There's absolutely no guarantee you'll get 10% a year. Indexing shouldn't be speculating!

[chipmunk]

30k @ 5.6% is a bit rough. Get the loan paid off and then worry about investing.

[subgard]

You could do both. Kind of a hedge against the market going either way.

[Tyler9000]

To me this is a no-brainer. Pay off the student loans -- Take the guaranteed 5.6% return and run, freeing yourself from onerous and impossible-to-discharge student debt in the process. Then invest any new money after that.

[Felix]

You could consider doing both. 75% paying off the loan and 25% gambling on the stock market. Or some other percentage. I'd go strong on paying off the loan, though. Trusting the market can bite you. The 10% you envision are not guaranteed. A paid-off loan is a paid-off loan and 5.6% is quite some interest to compound.

[jennypenny]

If I could get a guaranteed 5.6% ROI, I'd move all of my money into it.

I'd pay off the loan.

[Dragline]

I think I'd go with something like the Felix plan. Because his avatar looks much smarter with spectacles. But he'd look wealthier with a monocle.

[Felix]

Thanks. I think I'm not wealthy enough for a monocle, yet.

[44deagle]

I'd go with paying off the loan.

[Hoosier Daddy]

Seems like it's pretty unanimous haha. At my current rate I can pay off the whole thing off by the end of 2014 so I'll just keep trucking away. Thank you all for the input!

[Gilberto de Piento]

It looks like you made a decision but I also would recommend paying off the loan. I recently chose to pay off my student loan rather than investing and I don't regret it.

Not everyone likes him (I have some disagreements too) but Dave Ramsey's podcast helped to keep me motivated.

[Seneca]

Other than the tax authorities, student loans are about the most toxic form of debt. No question, get them out of your life, they own you!

[Chad]

Other than the tax authorities, student loans are about the most toxic form of debt. No question, get them out of your life, they own you!

That's a good point. Bankruptcy doesn't even get rid of them. I wish they would change that, as I think that would go a long way towards stopping the massive inflation in the cost of college.

[JohnnyH]

In this market (most investments, especially stocks are looking insanely expensive) I would jump for joy at a risk free 5.6% return... I'd definitely pay the loans off.
_______
Excluding the fact about the default exclusion on student loans, I think they're one of the better forms of debt... Many nonprofit, government, medical jobs and internships qualify for forgiveness... Also, seems plausible that there will be a bailout of student loans at some point... And they're tax deductible... AND [even R] Congress seems unwilling to not keep the rates low.

BUT, all that said, still a debt (unless you have arbitrage ) and a net drain that should be eliminated ASAP.

I should calculate how much I've made of off investing my Federally deferred, artificially low interest rate loans (it's a lot)... But sadly, mine will be paid off this year before the rate jumps out of the 2%s... Farewell, old money making friend.

[SimpleLife]

I would pay it off. You could end up losing the money in the market and then you still have the debt. If you pay off the debt and save up again to invest in the market but lose it all, you're still ahead because your debts are paid off and it will be that much easier to save up again.