Selling financial advice here… I currently have $16,673 worth of student loans that I pay $240 a month towards… Average interest rate is 4.02%. I have nearly 31k in savings, with an interest rate of less than 1%. I’d I paid off every single penny of my student loans now, I’d still have nearly 15k left in my savings.
I plan to purchase a home in the spring/ summer of 2022. I figure if I keep saving at my current rate, with no debts to pay, I could still have, at the very least, 80k to play with. I’d like to put down around 60k on a house costing no more than 250k.
Is it wiser for me to continue to pay my student loan debt bit by bit, or just pay it all off now?
Definitely pay off all the loans first. The ongoing debt will eat up your money more severely, and at a costlier rate, than what it would take to prioritize the house first. The exception would be if you see a good house for an unusually low price in an area that is poised for a boom in housing prices and you cannot afford to pass up a great house deal.
Does your student loan allow you to pay it all off in one fell swoop?
I would pay it off. According to the Bankrate student loan calculator, it’s going to take you a little over 6.5 years to pay off that student loan at $240/month and cost you a little over $2300 in interest.
If you were looking for a house sooner I’d wait, but on your timeline you have plenty of time to build it back up.
The only reason I can think of not to pay off the student loan is, the slim possibility that (a) after the 2020 elections, a student debt forgiveness law will be passed, and (b) it would not do anything for people who had already paid their loans off - and I think there are enough people who have paid off their loans who would throw a fit if (b) happened that there would be some relief for them, so you might as well pay them off now, especially with a 4% rate (and if the rate is variable, I expect it to go up before 2022).
I suspect that when you go to apply for a mortgage they will look askance at the outstanding loan. Anyway, I would pay it off on general principles. When I had a student loan (all of $500 in 1957) I paid it off the following summer just as soon as I got a paycheck (also for $500, as it happened).
If someone offered you the opportunity to move your investment yielding 1% to one yielding 4%, would you?
Plus, you would not have to save at the same rate - you can put the $240 a month into savings. So you’d reach your downpayment goal faster. I can’t tell if you included this in calculating you’d have $80 k available.
OP why do you have $31K in savings at less than 1%? You need to get away from the big banks and their miserable interest rates. For example the Charles Schwab Money Market fund SWVXX pays 2.29%, Ally pays 2.2% for their regular savings account, Alliant Credit Union pays 2.1% for their regular savings account, CDs will bring more. Rewards checking accounts might pay 3% for up to $20,000 (you have to make 15 or so debit card purchases each month as well as e-statements and a monthly ACH transfer or direct deposit into the account). Spend some time at: https://www.depositaccounts.com/
Many economists are predicting a recession within the next two years or so. You’re more likely to get a better deal on a house when the economy is crappy than when it’s popping, like it is now (or so they say).