Comments on: Pay off Student loans before Mortgage?

By: Kevin

Kevin — Fri, 19 Feb 2010 22:22:40 +0000

Mike: While I believe you are correct about not being able to discharge student loans through a bankruptcy, there are other benefits which can help with financial hardship. For example, if you lose your job or have a low income, you can apply for a hardship deferal which could suspend you SL payments for a year or more. If you become legally disabled, the loans are forgiven. Besides, you could pay the $20/month for long-term disability insurance with the money you save by paying your mortgage off before your student loan!

By: hubcityraider

hubcityraider — Wed, 02 Dec 2009 20:03:00 +0000

I ran the numbers in a mortgage calculator on paying off the house 1st vs paying off the student loans 1st. My mortgage is $130,000 @4.75% (15yr, $1010/month) and my SL’s are $70,000 @2.7% (25 yr, $340/month).

Applying my extra money monthly to the house 1st gets me debt free 26 months sooner than if I applied all extra to the SL’s 1st. Getting rid of the mortgage frees up so much more money monthly so that if times got tougher then just paying the minimums toward SL’s would be much easier than paying the minimums toward the mortgage. Plus the difference in interest rates says to pay the mortgage first.

I’m a huge Dave Ramsey fan, but I just can’t come up with any scenario where paying off the SL’s first is in my personal best interests. I guess there’s some merit to the fact that I could always sell the house and get out from under that debt and I can’t do that to the SL’s. But if I die then my SL’s go away. The mortgage would still be owed. Those are somewhat offsetting reasons for either.

By: Mike

Mike — Fri, 02 Oct 2009 16:05:04 +0000

I would advocate paying the student loans off first unless you are either certain of your future (who can be these days?) and have disability insurance or have rich family that can help you out if need be. Student loan debt cannot be discharged in a bankruptcy. No one wants to think that could happen to them, but if you lose your job and can’t pay your mortgage, the worst that can happen is you declare bankruptcy and (possibly) lose your house. They never stop coming after you for student loans; and during the time you’re not paying, the penalties and interest keep building.

For me, the peace of mind of knowing I’ll never be in the situation where I can’t get out of my debt if worse comes to worst is worth the possible loss in net worth from not investing the money (at an interest rate that is not guaranteed), or paying more money overall due to the higher interest rate on the mortgage.

By: MissPolitico

MissPolitico — Wed, 20 May 2009 01:38:51 +0000

Use the Zilch software program – it’s free to try and I used it to pay off all of my debts. It has several calculation methods – including the ability to add an “extra” sum every month toward your debt (on top of the minimums) to show you what would happen if you would just not get that starbucks everyday, etc. A really easy to use awesome program.

By: mike

mike — Tue, 25 Nov 2008 22:50:34 +0000

All fine, but by applying cash to the down payment instead of the loan could dramatically change the interest rate offered. That has the potential to make the difference of thousands of dollars in the long term.

By: longtermer

longtermer — Wed, 20 Sep 2006 02:36:50 +0000

Not only should you get a mortgage before paying it off, if you have public student loans at a low interest rate you should drag the payments out as long as you can.

Why?

Because investing that money will give greater returns in the long run. It is a penny wise and a pound foolish to pay the student loans off early if that means you can’t invest anything. The tax deduction on the student loan interest is just gravy on top.

HOWEVER, if you lack discipline, and if dragging out your student loan means you spend that extra money shopping, then yes, by all means, pay off the loans.

This strategy is more fully articulated at Get Compounding.

By: Jennifer

Jennifer — Thu, 14 Sep 2006 00:08:26 +0000

What if you have some private student loans at a variable interest rate? Wouldn’t it makes sense to pay that off first if the interest were more than the mortgage?

By: A Penny Saved… : Festival of Under 30 Finances August 11, 2006

A Penny Saved… : Festival of Under 30 Finances August 11, 2006 — Fri, 11 Aug 2006 21:23:37 +0000

[...] Make sure and stop by and read all the entries! A Penny Saved’s entry was “Pay off student loans before mortgage?” This weeks question was “Would you rather have a job with high pay and no benefits or a job with ok pay and good benefits?”. The overwhelming answer is all there. It would seem to be unanimous as well. [...]

By: Through a Glass Darkly

Through a Glass Darkly — Tue, 08 Aug 2006 14:08:30 +0000

Dave’s debt roll-over consists of paying down the smallest debt first, even if that debt has a lower interest rate. My husband and I used Excel to calculate whether it would be quicker to pay off the debt by doing it Dave’s way or by starting with the debt with the highest interest. It turned out we would finish in the same month, although we’d end up playing slightly more total (with interest) with the debt rollover. The thing about the debt roll-over is the emotional aspect of debt pay-off. If you are knocking your debts off using the roll-over, you (‘you’ being most people) will get more satisfaction than feeling like you’re paying continually on enormous debts that never go away.

By: thatedeguy

thatedeguy — Mon, 07 Aug 2006 22:34:04 +0000

I think the “Smallest debt” bit you heard is something he refers to often. The idea there is that if you start with the largest debt, it can sometimes seem unsurmountable and that by paying a smaller debt first, it makes human sense in that it gives us a sense of accomplishment.
Mapgirl is correct also in adding that the tax benefit is something to take into effect.
Again, each of us makes that decision on whether it makes sense(financial or human) to pay off the debt that we pay off in the order that we pay it off. As long as it gets paid off, does it really matter? Very little, I think.