How to invest with debt

Hello,
I'm 27 and have $160K in debt from school. I have started a Roth IRA
and have a money market account. My parents want to give me a
significant sum of money over the next few years, and I was wondering
if anyone had advice on the best way to manage it.

Should I use it all to start paying off loans?
Can I invest some in either mutual funds, I-bond, or my money market?

I'll be making enough money to pay off the loans over 10 years myself
anyway, but how should I take advantage of this?

Thanks!

Re: How to invest with debt

I agree with DWS. Interest rates for most federally backed student
loans are at historically low levels. Since you can only get ~$20K in
fed subsidized loans each year, I am assuming that at least part of
your loans qualify for this lower interest rate. I bet you have
already consolidated those loans. For the low interest rate loans, you
will probably want to pay those off for the maximum amount of time
allowed (some student loans have a fixed 2% or less interest rate --
even if you invested in treasuries you could beat that return).

But your other loans are probably carrying a variable rate. With the
inverted yield curve and the fed promising to continue to raise rates,
you will probably want to pay those off first (I would guess that your
other loans have an interest rate of ~8-10%, which would be difficult
to beat in the market on an after tax after expense basis).

I am assuming that you are married as well (otherwise you would be
earning less than ~$100K per year, if you qualified to set up a Roth
IRA). In that case, you really should look at your spending and see
what is reasonable for you and your wife/husband, set a budget for
repaying/investing, and stick to it.

As a side note, most federally backed student loans are automatically
paid off if you pass away and you have the right to defer payments if
you become disabled; however, they are not dischargeable in bankruptcy
(if that should occur) and they are generally not divisible in divorce
proceedings.



Good luck,


Gary Brolis