student loans

Pay off college debt ahead of retirement?

Don TaylorDear Retirement Adviser,
My husband is 67 years old and nearing retirement, while I am a few years younger. I have about $26,000 in student loans, with monthly loan payments of $335. My husband has the money saved to pay off this loan. Should we pay it off or put the money into our investment account as we now move closer to my husband's retirement?

Thanks,
-- Jill Juncture

Dear Jill,
I understand the desire to make some adjustments before your husband's retirement.

The answer to your question depends on whether you are able to utilize the student loan interest deduction on your tax return, on the interest charged on student loans and how you would invest.

If you expect more after-tax earnings on your investments than you pay after-tax on your student loans, then you'd be better off to invest. The risk is that unless you're investing in certificates of deposit, you don't know your exact future investment returns. You do know how much interest you would be saving by prepaying the student loans.

If you face a variety of interest rates on the loans, you could decide to prepay the higher-interest-rate loans while keeping the lower-interest-rate loans outstanding. Any money you save can go into the investment account over time, at least until your husband retires.

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