I am a 23 year old, employed, Software Engineer working for a startup in an inexpensive city in the United States. I make $71k/year plus stock options that incrementally vest over 3 years. I have no savings currently, as I have graduated college in the few months. I feel comfortable dedicating $2000/month to debt repayment/investing, although I could manage more. I have $210k of student loans, some private, some federal, divided in the following:

Private: $58k @ 11.25% interest 
Private: $30k @ 5% interest
Federal: $120k @ 7% interest

Clearly, I need to refinance the private student loan @ 11.25%. I might as well be in $60k worth of credit card rate at the interest rate they have me at. That being said, I have some options for the others. I have researched the private refinancing options and I could get fixed ~4.8% interest rate with zero fees attached.

Would it be wise to refinance ALL of my student loans at this point? If I were to refinance my federal student loans in private, I would lose all federal protections, as well as the potential for forgiveness that is being hinted at (albeit unrealistically) for the 2020 election. Would it be wise to maintain a loan with better protections at a higher interest rate in the face of potentially declining interest rates?

Additionally, how should I be structuring my income at this point in my career? It's hard to stay out of speculative investing, but given the potential for a downturn in 401k/IRA accounts, should I funnel what percentage of my liquid cash should I be investing in my student loans?

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    People are going to talk a lot about 401(k) match and pretend that 100% match is a higher ROI than loans of 11% or credit cards of 16%. They're wrong. You are 23, so your "100% match toward retirement" has a 45 (and with fiscal pressures on the government, probably over 50) year horizon. The 45th root of (1 + 100%)... actual ROI from a "100% match" is under 2% APY. Do note however that a 100% match withdrawn in 3 years (when it vests) even with the 10% penalty is over 20% APY. – Ben Voigt Aug 13 '19 at 22:02
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    @BenVoigt - doesn't that imply you aren't investing that 100% match? I would think you could invest that match and average a 7-12% return. – TTT Aug 13 '19 at 22:22
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    @BenVoigt - after further though, even without the interest it's still better to take the match. (Assume roth and instant vesting for simplicity.) Put $100 into 401k, suppose match is $100. Immediately take $200 out, pay 10% fee, you keep $180. Now make a $180 payment instead of $100 towards the loan... – TTT Aug 13 '19 at 22:38
  • @TTT: Yes, I believe I mentioned that the match is a good return IF you take it out as soon as it vests. Which in most plans isn't permitted unless you change jobs or qualify for "hardship withdrawal"... and the fact you have money for 401(k) contributions disproves the hardship. – Ben Voigt Aug 13 '19 at 22:42
  • This is a perfect example of financial behaviour anomalies, which is well described by Richard Thaler book: en.wikipedia.org/wiki/Misbehaving_(book) – mootmoot Aug 14 '19 at 14:41

It's hard to stay out of speculative investing, but given the potential for a downturn in 401k/IRA accounts, should I funnel what percentage of my liquid cash should I be investing in my student loans?

How about all of it? You're averaging almost 8% in interest now, which is a fantastic risk-free rate of return.

I certainly wouldn't funnel any after-tax money into investment accounts, and although a 401(k) match is hard to pass up, if you instead attack the student loans and knock them out in the next 5-6 years, you still have plenty of time to make up for the lost time in future years (you're a long time away from maxing out contributions either way). You can earn a 100% match on $2k a year for 10 years now, or on $20k a year for 5 years if you get the debts paid off sooner.

I would not refinance the federal debt unless you can get a 2-3% lower interest rate, which seems unlikely. Attack the private debts first and try to get them out of the way as quickly as possible.

Even then, you are putting $24k per year at $210 in debt. That's a 15-year plan. If you bump that up to $4,000 per month you can knock that down to a 5-year plan. Do some side work or get an evening job to help accelerate your repayment.

I would not base your retirement plan on what might happen in the markets following an uncertain election. Many thought that the markets would crater after Trump was elected, and the opposite happened, so you never know. I would also not sandbag hoping for student loan forgiveness. As you mentioned, it seems unrealistic at this point, and the plans I've seen limit the forgiveness to $50k.

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  • He said he can refinance at 4.8%, which IS 2.2% lower than the federal loan. – Ben Voigt Aug 13 '19 at 22:44

Objectively, that is a lot to repay. Congratulations for acknowledging that it needs to be repaid quickly.

  1. Confirm that the refinancing is truly no-fee, that there are no origination fees, closing fees, or similar built into the loan.
  2. Given 1. is true, you should definitely refinance all the private loans.
  3. I would recommend refinancing all the federal loans as well - they are still extremely difficult to drop in bankruptcy. You should definitely consider the repayment rate before refinancing - many times there will be a payment elevator built in to account for increased earnings. At 4.8% and 10 years, you need to put ~$2200 monthly towards your payments. If you can afford to put in this amount or more, refinancing makes sense.
  4. Given that your company does not match 401k, I would recommend paying off your student debt as quickly as possible. You can think of the debt payments as a guaranteed 4.8% return, vs an uncertain stock market.
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  • The refinancing option would be truly free. No origination fees, early pay off fees, or any other fees attached. My company does not currently off a 401k match, simply because it's very small. Would it be worth it to invest in bonds by myself? Couldn't bonds also become devalued over a recession? – Dupontrocks11 Aug 13 '19 at 20:42
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    106% sounds high but is a horrible return over 50 years. Do not fall into the trap of comparing "return" to APY. – Ben Voigt Aug 13 '19 at 22:03

Besides what @tuxtuxtux says...

given the potential for a downturn in 401k/IRA accounts

This demonstrates a misunderstanding about what Retirement Accounts are (which is "containers"). You can put high-risk, low-risk, medium-risk and any mix you desire (depending of course on what funds the plan administrators support).

Thus, put money in 401(k) and IRA accounts and within that, choose funds based on your forecast of the future.

Would it be wise to maintain a loan with better protections at a higher interest rate in the face of potentially declining interest rates?

What benefits do you derive with an income of $71K/yr + stock options?

I have no savings currently,

I feel comfortable dedicating $2000/month to debt repayment/investing, although I could manage more.

  1. You need an Emergency Fund. Small at first, as a cushion against having to carry a CC balance.
  2. How much (if any) CC debt do you have?
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  • I like the idea of parceling away an emergency fund. Besides my student loans I have no other debts. I use my credit card for simple small purchases and pay it off automatically every month. – Dupontrocks11 Aug 14 '19 at 16:56

Refinance the private and public loan into two low fixed interest loan.

The first golden rules on real investments are never invest using leverage(loan money). By looking at your total debts, any investment is deemed (loan) leveraging, it is similar to borrowing $210K with 8% interest rate ($16,800 interest annually) and try to speculate on investment that gives an uncertain high return to beat the 8% interest rates.

People think about short-term will think a "potential" more than 8% from their 401K but never think about the risk. However, if you go for those short term gains and ignore the risk in life, if shit hits the fan, the average 8% debts will stay. In addition, with that kind of debts, you don't have the chances to average out the investment if the market plunge.

On the other hand, betting on the total student loan forgiveness is also unrealistic, as the most logical way for policies maker to do that is convert it to higher education student tax.

To curb your urge and stay away from speculative investment, Richard Thaler Misbehaving: The Making of Behavioral Economics is a good book to learn all sort of decision making mistake.

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Make steady payments to your loans. Your loans will diminish in the percentage of your salary as you increase in income.

Make hard investments in land, 401k, stocks etc which will increase in value as the years go by.

Buy land anywhere corporate or private, the value of land tends to recover through 10 t0 30 years cycles of recessaion.

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