I agree with DWS. Interest rates for most federally backed student
loans are at historically low levels. Since you can only get ~$20K in
fed subsidized loans each year, I am assuming that at least part of
your loans qualify for this lower interest rate. I bet you have
already consolidated those loans. For the low interest rate loans, you
will probably want to pay those off for the maximum amount of time
allowed (some student loans have a fixed 2% or less interest rate --
even if you invested in treasuries you could beat that return).

But your other loans are probably carrying a variable rate. With the
inverted yield curve and the fed promising to continue to raise rates,
you will probably want to pay those off first (I would guess that your
other loans have an interest rate of ~8-10%, which would be difficult
to beat in the market on an after tax after expense basis).

I am assuming that you are married as well (otherwise you would be
earning less than ~$100K per year, if you qualified to set up a Roth
IRA). In that case, you really should look at your spending and see
what is reasonable for you and your wife/husband, set a budget for
repaying/investing, and stick to it.

As a side note, most federally backed student loans are automatically
paid off if you pass away and you have the right to defer payments if
you become disabled; however, they are not dischargeable in bankruptcy
(if that should occur) and they are generally not divisible in divorce
proceedings.



Good luck,


Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechanicsofMoney.com/blog.php

"DWS" <schopfermd[at]hotmail.com> writes:

- quote -

There's more information necessary to offer suggestions. The
interest rate on the debt, for example, your income and tax bracket, etc.

- quote -

The thing is - where will you get the best return on the money
and, moreover, where can you tolerate risk?

Every dollar used to pay off the loan saves you a guaranteed amount
of loan interest. Ever dollar used to invest elsewise may or may
not have a greater return than that interest. In the long term,
equities (ie. the stock market) has always done better than fixed
income investments (which is effectively what paying down a loan
amounts to) - but with greater volatility, and sometimes falling
substantially behind for years along the way. So what's your
risk tolerance and time-horizon?

If you have, say, employer-matching at a 401k, I'd certainly invest
as much in that as I could because that employer-match - usually
either 50 or 100% of a certain percentage of your 401k investments -
is a massive immediate return.

After that, things like the Roth, the rest of your 401k, building
up other savings, etc all need to be balanced against the interest
rate and your risk tolerance.

160k is a huge nut to carry about, but if you're paying some very
low subsidized rate on it, you may not necessarily be in a huge
rush to pay it off. I'd lean towards maxing out retirement accounts -
Roth, 401k, etc first, but you need to find your own comfort level.

--
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No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Hello DWS,

- quote -

I am wondering if loan payments for a school loan qualify as education expenses
eligible for a 529 withdrawal. Afterall, they are deferred education expenses,
aren't they ?

If they are, then you should open a 529, have your parents take advantage
of the annual gift tax exclusion by contributing in their gift money (just
enough to pay off the loan - they can put up to $110,000 the first year),
and you should withdraw cash to payoff your loan.

The rest of the money, you are young enough to be very aggressive (but not
silly) with it. If you go down the mutual funds road, go for growth, pick
funds with small fees and make sure their managers like to hold on to their
stocks for some 10 years. The others will eat your money with high-fees,
volatility and smaller returns.

I don't know much about money markets.

--

In article <1140500864.979783.285880[at]o13g2000cwo.googlegroups.com> ,
"DWS" <schopfermd[at]hotmail.com> wrote:

- quote -

How does this debt help you or make your life better on a day
to day basis? It doesn't. In fact, the interest is sucking
your life blood down the drain. You want to kill this debt
before it kills you. So attack it like a mad man who is
defending his family from the attacking vandals.

So yes, use the incoming money to pay off the debt. Invest
only what you need to in order to take advantage of your
tax advantaged retirement funds. Beyond that, your best
investment is getting rid of this debt.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Hello,
I'm 27 and have $160K in debt from school. I have started a Roth IRA
and have a money market account. My parents want to give me a
significant sum of money over the next few years, and I was wondering
if anyone had advice on the best way to manage it.

Should I use it all to start paying off loans?
Can I invest some in either mutual funds, I-bond, or my money market?

I'll be making enough money to pay off the loans over 10 years myself
anyway, but how should I take advantage of this?

Thanks!