Ah… the more things change, the more they miraculously manage to stay the same. Just a few days ago I posted an “update” on my student loan repayment progress. In that update, I noted that there really wasn’t an update to provide because I haven’t been making excess payments to the USED / MOHELA. No excess payments = no major principal balance drops to write about on the blog. It’s a pretty simple equation, right?
The update from the other day was based on the premise that my roommate was leaving to take a job in another state and that I needed to find a new place to live. That update also noted that I’ve been holding back the excessive additional student loan payments so I can use those funds to purchase a home in the next few weeks.
Could this all be over soon?
It turns out that the organization that was going to hire my roommate has decided to cancel all hirings for the time being. The next possible time that they’ll be bringing in new hires is this October… maybe. This is another topic entirely, but I’ve been telling my roommate for a few years that he needs to diversify his career prospects. He’s in the process of doing so right now, but let’s not digress from the purpose of this entry.
With the change in my roommate’s career switch I’ve been presented with a unique opportunity. Clearly, I’m going to push back my plans to purchase a home for a few more months. It just makes sense to rent the townhouse that I’m in through at least October, if not through next spring (I would stay through next spring in the event that my roommate doesn’t make/isn’t offered the career change in October). The unique opportunity that I now find myself in is that through saving to increase the size of my down payment, I’ve been able to put away more than the $17 thousand that I need to eliminate the remaining balance of my student loans. Most folks would make the quick decision that since I’ll be staying in my rental for a few more months, if not longer, then I should some of these funds that I’ve saved up to retire the student loan debt once and for all.
After all the aggravation that I’ve been through with my student loans, that’s an extremely appealing option!
However, as a guy who tries to be reasonable and thoughtful on issues of money and personal finance I can’t help but think that I should just save this money and use it to increase the amount of my down payment when I do eventually purchase a home. Retire the remaining balance of my student loan debt or keep hording money for an eventual down payment? It’s an interesting dilemma to consider.
Trust me, I’ve been giving this issue some deep consideration.
I think the benefits of saving the money for a future down payment are obvious. The total amount of the mortgage is reduced and since I didn’t plan on putting 20% down for the new home, by increasing my eventual down payment I’ll be able to put down 20% and avoid having to pay private mortgage insurance. Further, the more you put down, the better rate you can demand (even in a world of low rates). As a guy with near-perfect credit, increasing the amount of my down payment would be an ideal use of these funds.
And yet… I can’t shake the idea from my head that if I decide to use these funds to retire my loans, then I’m literally about two weeks away from having absolutely no student loan debt, period. Gone. Done. Eliminated. Game over.
The benefit of repaying my student loan debt? In financial terms I’d be retiring debt that is currently accruing interest at 4.25% and (when I purchase a home) replacing it with a mortgage at a lower interest rate. That’s good for my financial health over the long-term. The bigger benefit to retiring my student loans, though, isn’t something that you can easily quantify. The bigger benefit is the combination of financial freedom and the incredible feeling of accomplishment that comes with repaying such an immense amount of debt. The benefits of saving this money aside, I just can’t shake the idea of how awesome it would feel to know that I repaid $121 thousand in student loan principal and another $30 something thousand in interest in under 7 years.
For those of you who are analyzing whether or not I would suffer from using $17 thousand to retire my student loans, here’s some information for you. If I wait until November or December to buy a home, I can pretty much replace that entire $17 thousand with new income from the summer months. In essence, I’d net out even and wind up in a state of stasis, but with one less bill each month. My minimum student loan repayment is $333.50 per month – so that amount would be put towards my future down payment, too.
What to do… decision, decisions… What do you think? If you were in this situation – what would you do?
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