Another student loan question

[brennon]

So, my wife and I are getting into the DR stuff, and are extremely motivated about shaking things up. We're in a bit of a tight spot with student loans, though. Fortunately, I'm not looking at $150k+ like some other horror stories I've read, but it's scary enough.

To set the context, we're both in Europe working on doctoral degrees, so you might say we're pretty committed. Backing out now would be an incredibly difficult decision to make. Combined, we're up against $63k in loans. Unfortunately, my funding has fallen out from underneath me as the economy has headed south. To finish, I'll need to spend ~$36k more (2.5 more years). I have to take out a loan, as we're not allowed to break tuition into monthly payments, and that's not an amount I can afford up front. I do have a reasonably well paying job, and believe that with our current budget we can commit to paying half of the fees while we're still in school. That would leave us with about $81k in loans leaving school--with a disgusting number of degrees under our belts.

My question is this: I understand that the Baby Steps can take a while. I understand the reasoning behind not tackling the next one until you're done with the previous one. However, the requirement for completing step 2 is to pay off all debt except for a house, and from what I've seen in the classes, this includes student loans. I'm really concerned about the fact that this would mean I'm not putting money away for retirement until it's far too late. Can I get some advice?

Thanks!

[Contrary Housewife]

DR is assuming that you are not currently in school, that you graduated years ago and have just been sitting on the loan debt like all the other debts.

Your loans are deferred until you finish the degree, right? Until then, work on the credit cards and other debts. Finish step 2, the student loans after graduation.

[brennon]

Your loans are deferred until you finish the degree, right? Until then, work on the credit cards and other debts. Finish step 2, the student loans after graduation.

Yes, they're deferred, but that still leaves the heart of my question. I can be out from under all other debt by the time the loans kick in, but that still leaves me quite a long time before they're out of the way and I can think about step 3. Do I still wait to consider retirement until I've only got 20 years to save?

DR doesn't necessarily assume that you're finishing school when you're 32-33...four degrees or not!

[mateosbaby]

Yes, they're deferred, but that still leaves the heart of my question. I can be out from under all other debt by the time the loans kick in, but that still leaves me quite a long time before they're out of the way and I can think about step 3. Do I still wait to consider retirement until I've only got 20 years to save?

DR doesn't necessarily assume that you're finishing school when you're 32-33...four degrees or not!

Do you plan to retire at 53? Because that would be 20 years from graduation. Otherwise, you have 30 years. Which is NOT too late to save. It'll give you great motivation to pay off those loans FAST.

[brennon]

Do you plan to retire at 53? Because that would be 20 years from graduation. Otherwise, you have 30 years. Which is NOT too late to save. It'll give you great motivation to pay off those loans FAST.

I'm afraid you misunderstood me... According to Dave, BS4 isn't to be started until all debt is payed off (except possibly a mortgage). That would mean I'm not starting to save for retirement until 50+...very frightening.

[ladykemma2]

I'm afraid you misunderstood me... According to Dave, BS4 isn't to be started until all debt is payed off (except possibly a mortgage). That would mean I'm not starting to save for retirement until 50+...very frightening.

if you go scorched earth you can pay that off very quickly. especially if you have a larger salary.

[jakkim]

I'm fairly certain Dave says significant debt such as student loans that exceed something like 50% of your take home pay should be lumped in with mortgage type debt and shouldn't hold you back from progressing through the other steps.

[mateosbaby]

I'm afraid you misunderstood me... According to Dave, BS4 isn't to be started until all debt is payed off (except possibly a mortgage). That would mean I'm not starting to save for retirement until 50+...very frightening.

How old will you be when you graduate? And how old will you be when you plan to retire? What I meant was, if you graduate at age 33, then you have 30 years until you retire. So pay off those student loans super fast (you will be highly motivated so that you have enough time to save up for retirement), and then stock that retirement fund super fast. Does that make more sense?

[Greebo]

You're asking a question that isn't really possible to answer w/o knowing more.

Lets say you pay off all your debts first like DR suggests, and when you finish, you really do have only 20 years until retirement?

Then the question to ask next is, how much will you be able to save for retirement?

I mean, if you can get Dave's numbers and earn 10% on your money, and can put $500/month towards retirement (not too hard when you're debt free but the house), then in 20 years you'll be able to live on $30,000 a year w/o touching your nest egg.

You need to sit down and do some comprehensive financial analysis to determine what, mathematically, is the best route. Right now it sounds like you're just guessing - and pessimistically at that.

[kita]

And I think I would "allow" an employer to put money towards a retirement account. I would save the min. for the employer match until the the student loans are paid off using the scorched earth method. Then scorch earth until your have a chunk in your retirement fund.