Thoughts on savings?

[MKCP5]

My DD is a senior in college. She works very hard year round and has some great opportunities to earn well during the summer. When she graduates she will have about 25K in student loan debt. (all government loans) She will also have about 20K in savings from all her hard work. Here's what we have been discussing. Is it better to slowly pay off those loans at a low interest rate and keep the savings as a nest egg for when she wants to buy a little place of her own, or maybe put a big down payment on a car, (she bought a car with her own money a few years ago but it is getting older) help with first last and security on her first apartment, (we live in a very expensive part of the country. rent is HIGH) etc. or should she put as much as she possibly can on the loans immediately to reduce the principal of what she needs to pay off. Just curious what other peoples perspective on this is.

 

[afan]

While it's nice to pay it off if I was her I would want to keep the savings. Look at what she makes the first job and pay more each month.

If the interest rate is lower than she would get on a car loan if she needed a new one it's better to buy the car with cash and keep the low interest rate. Student loans with a low rate aren't bad debt.

 

[mousehockey37]

Check your PM.

 

[mousehockey37]

While it's nice to pay it off if I was her I would want to keep the savings. Look at what she makes the first job and pay more each month.

If the interest rate is lower than she would get on a car loan if she needed a new one it's better to buy the car with cash and keep the low interest rate. Student loans with a low rate aren't bad debt.

Current student loans are about 6%.

 

[runwad]

eww that's a tough call. I'd like having that savings account but on the other hand I hate loans and try to pay things off as fast as I can. I'm hoping when my kids graduate they will live at home a year and just knock those babies out and then maybe stay a little longer and save up whatever money they may need to start life. But my kids should get out with between $10-15k in loans.

I guess I would have to know how much their starting salary would be before I could really decide what I would advise them to do.

 

[MKCP5]

Building her credit as she pays them off and keeping a cash reserve for a big dream some day may be the best option. Thanks for your thoughts

 

[tvguy]

A vote for slowly paying them off. And maybe put off the car and just fix any issues with the old one.

 

[dosekies]

I graduated in 2015 with about 60k in loans. I'm currently down to about 40k and have also bought and paid off a used car that was about 15k. I also just moved into my first apartment. I NEED to save money. It is just how I am. I need to know I am prepared and have money in the bank.

I suggest paying monthly on her loans while she can without touching her savings. I lived at home for about 2 years after graduation and pretty much all i made went to my loans or my savings. I pay as much as I can towards my loans each month without sacrificing my savings. It comes out to about double my minimum payment, sometimes more. Once things change, like how they did with me moving out, I reevaluate, but still pay significantly more than the minimum.

In terms of a car, I would suggest kind of the same thing. I found a really great used car that I loved. I had enough saved to put half down and still have a good cushion in the bank. I only took out a two year loan, paid more than the minimum, and once I got to a certain point where I was comfortable, I just paid off everything that was left with my savings. I ended up having it paid off in under a year.

I HATE having my student loans, but want to build up a good savings to buy my own place. I would much rather build that while still comfortably be paying off school than throwing all my money towards school and being worried about all other expenses.

 

[MillauFr]

Check your PM.

What is a PM? Project Manager?

 

[clh2]

Our DD also had 25k in student loans when she graduated a year ago. One of her years, her student loan had a really high interest rate, she did not consolidate her 4 loans, so that she could knock off the highest rate Liam first. That was gone before she needed to even start repayment.

DD has opted to really reduce her student loans to the minimum after the high rate loan was paid off. She has opted instead to contribute what she can to a 401k, as well as save money for a housing down payment. And...then she decided to get married too, which is little bit of a drain on her budget.

She could pay more on her loan, but she doesn't want to risk not having a house down payment.

 

[MKCP5]

A vote for slowly paying them off. And maybe put off the car and just fix any issues with the old one.

She loves her car She's in no hurry to get a new one. And when she does she would buy used again

 

[MKCP5]

What is a PM? Project Manager?

Private message

 

[TwoMisfits]

For any other type of loan, I'd say keep the savings.

For student loans, I am a believer in getting rid of them asap b/c of how hard they are to discharge in bankruptcy and how high their interest rates are vs mortgages (for example). I would not take her entire savings to pay the loans, but I probably would put at least 1/2 directly onto those loans after she gets her 1st real job...before that job, she needs her savings to live and make her 1st payments, so wait until her 1st real paycheck arrives...

 

[tzolkin]

For student loans, I am a believer in getting rid of them asap b/c of how hard they are to discharge in bankruptcy and how high their interest rates are vs mortgages (for example). I would not take her entire savings to pay the loans, but I probably would put at least 1/2 directly onto those loans after she gets her 1st real job...before that job, she needs her savings to live and make her 1st payments, so wait until her 1st real paycheck arrives...

This would be my suggestion as well as long as she has a job and is willing/able to budget for savings.

I would keep maybe $10,000 for an emergency fund, put a large chunk toward the student loans, and have a plan in place to build back up the savings for future goals.

 

[mousehockey37]

So I'll chime back in somewhat here...

It'd be a wise idea to consolidate and make the monthly payments. Yes, it can get a little pricey, but current rates, last I knew, for Federal loans were around 6%. The basis for me saying to keep the repayment is.... Credit.

The student loan servicers all report monthly to the 3 bureaus. The OP's daughter making those monthly payments will help build her credit (which is something that most kids right out of college don't necessarily have). Also, with the payments being a monthly expense, she can double up and make additional payments when she can to give herself a buffer. Another thing is that if she would get into some tougher times, the Federal student loans have many different options available to postpone payments if necessary.

In the end, there's no penalty for paying off student loans early, but it does have a great benefit of a credit score booster (just like a car payment). If the OP's daughter had Private student loans, I'd be on board for dumping the money to get rid of them as they are evil, but this not the case.

 

[runwad]

^Regarding the above and not for the OP but for anyone reading along. At 16 put your kids on one of your credit cards as an authorized user, your credit score will transfer to them. When they start college around 18 or 19 have them get their own credit card. We've done this with all our kids. Our two in college have credit scores of 720 or better. They both charge things like gas and school books to their discover and pay it off monthly.

No reason to have to pay student loans to have a credit score. Do some planning and they can have a good credit score long before all their friends

 

[kymom99]

^Regarding the above and not for the OP but for anyone reading along. At 16 put your kids on one of your credit cards as an authorized user, your credit score will transfer to them. When they start college around 18 or 19 have them get their own credit card. We've done this with all our kids. Our two in college have credit scores of 720 or better. They both charge things like gas and school books to their discover and pay it off monthly.

No reason to have to pay student loans to have a credit score. Do some planning and they can have a good credit score long before all their friends

I was told I couldn't do that till my son was 18. A bank manager told us that.

 

[runwad]

I was told I couldn't do that till my son was 18. A bank manager told us that.

Well I have 2 Disney Visa cards, one I use and the other I got to put trips on for the 6 mos same as cash when they changed how they applied payments. Since that 2nd card is hardly used I made my kids authorized users on that one. They very rarely charged, maybe if I needed something from the store or they were going out last minute for a bite with friends. No problem adding any of them at 16. Maybe a bank card is different??

 

[georgina]

I am a bit confused why someone with 20,000 in savings would have 25,000 in student loan debt. I took out student loans because I did not have the money to pay my tuition bills. I would pay the loans off at an accelerated rate, but not put all the savings toward them at once.

None of my kids ever had loans or car payments and their credit is good. They were authorized users on one of our cards through college (one which gave them each their own account number so we would not have to cancel ours if they lost it). It's funny, my DH and I occasionally have credit score reviews which say our only negative is the fact that we have no debt! Fine by me! I am not looking to apply for loans at this stage of my life.

 

[kymom99]

Well I have 2 Disney Visa cards, one I use and the other I got to put trips on for the 6 mos same as cash when they changed how they applied payments. Since that 2nd card is hardly used I made my kids authorized users on that one. They very rarely charged, maybe if I needed something from the store or they were going out last minute for a bite with friends. No problem adding any of them at 16. Maybe a bank card is different??

That could be. We bank at 5/3. I was surprised when she told us that. I would think if it's my card and I pay on time I could put my cat's name on it if I wanted to.