patrick.net

#misc

Hi guys,

I've been asked to advise on the following situation:

Husband and wife are both in their early to mid 30s. Wife finished up a medical program in 2013 that left her in school debt of $173K:

Starting Principle: $173K
Federal Interest Rate: 8.5%
Loan Term: 10yrs
Min payment: $2,147
First Payment: 1/1/2013

They've been paying down the loan and today owe $95K. They have about $200K in savings and a combined income of about $200K/yr so the interest is not tax deductible since their salaries are too high. They don't currently need the money, have no plans to start any business, etc. However, they would like to purchase a home in the next 2-4yrs.

Question: Should they pay off the loan in full now? By doing so, they save about $400/mo in interest (or $24K over the next 5yrs or so).

My initial impression is that they should probably go ahead and pay off and close the loan. With all the changes in the current tax system, I just wanted to check with the savvy folks on patnet to make sure I'm not missing anything before I advise them to pay off the loan now.

Since they don't have a need for the money in the near future and since $400/mo savings is substantial and it wouldn't stress them significantly to do so, my impression is that they should close the loan.

What do you guys think?