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Student Loans


Though annoying to have an overhang, don’t rush to pay off your student loans since your interest rates on these loans likely ranges from 4 to 7%. This rate is well below returns you can expect by fully funding your 401(k) to get an employer match and long-term equity return averages of about 10%. So, look at your budget and set your monthly payment to give you the ability to fully contribute to your 401(k) and still have some scratch left over to start building some personal savings. Student loans are not viewed as “bad debt” unlike consumer debt like credit cards, so a lingering student loan balance will not significantly hurt your credit score.

Look at the various lenders you have for your student loans and see if you have the ability to consolidate with one lender at a lower overall interest rate. Consider using a fixed rate refinancing provider like www.sofi.com and stretch the repayment length out over a longer time frame. This way your monthly payments are lower and you will have more flexibility to save and invest. If you save the difference in the payments between a 10-year and a 15-year repayment schedule then you will hopefully have a sizable amount of investment assets after a 10-year period. Then, you can pay down the remaining balance if you wanted to and you are in the same position! Or, you can keep those funds invested and gradually and strategically pay down your debt while building your investment assets.

Use the annoyance of having the overhang of student loans as motivation to save and invest so your children can have their tuition covered in full due to your wise investing. If you have a little one already then open a 529 college savings account and start monthly contributions early to give them time to see potential long-term investment gains (learn more about 529 plans here).