The Real Fear Factor: Coupling Student Loan Debt With Your Investment Portfolio

One of the biggest concerns we hear from potential investors is that they are too scared to invest their money until they have fully paid off of their student loans. For that reason, many young people do not put money away into investments until they are older and have completely paid off their loans. While these concerns about trying to save money while having residual debt are certainly understandable, we believe that they should not entirely inhibit an individual from investing from a young age. Why is that? Well, for many young investors, the costs to not investing young could actually end up being larger than the costs paying off student loans more slowly. Allow us to explain.

First, it is only right to point out that the student loan debt is not uncommon among millennials and is definitely not something to be shirked off. In fact, according to the numbers, 68% of all students who graduate with a bachelor’s degree incur some type of student loan debt. In fact, the average debt per student in 2015 was just above $30,000. We know that this is no small cost – especially with the interest rates that come with paying off student loans. Additionally, paying off student loans is no small time commitment. In 2014, a federal study found that, while most individuals are given a 10-year track to repay their loans, the average graduate does not pay off his or her loans until the age of 41. For reference, that is almost 20 years after the average student graduates.

Now, it is also true that the decision to pay off student loan debt within a specific time frame depends heavily on an individual’s financial situation. For many people, it may be best to take an aggressive stance on paying off student loans in order to “get them out of the way” more quickly. However, others may find it wiser to save their extra money and only make their minimum loan payments. These decisions will depend on many factors including your income, your debt level, your interest rates, and your other relevant cash flows. But, before deciding that you cannot also invest right off the bat, it might be best to create a budget of your cash flows. How much money do you have coming in each month and what are your necessary expenses? Can you channel any of your “inessential” expenses into investment funds?

With that, we have some good reasons why you should consider adjusting your budget to accommodate for investing as much as possible while paying off your student loans. For starters, your first few years as a professional in the working world are often considered your “prime saving period” for many people. While you may be making student loan payments, the overall expenses that younger workers incur are typically lower than the expenses that older workers incur. For example, you may not have incurred certain costs yet, such as the financial costs that come with having children or taking on a mortgage for a house.

Furthermore, investing any or all of your discretionary money while you are a young adult will give you the added benefit of investing early. You might consider investing a little bit of your money now and focusing on your loans thereafter. That way, you can have both processes moving at the same time – your investments can sit while you work to pay off your loans.

Lastly, for those of you who are lucky enough to have lower interest loans, you might consider creating a personalized investment plan where you can include both saving, paying off your loans, and investing at the same time. Determine what funds you can push into these areas each month and work from there. This can be a good way to ensure that you will pay off your loans in a timely manner, while also setting yourself up to have the funds you’ll need in the future.

Ultimately, the point is that investing your money is just as timely as your student loans. You should consider creating a financial plan that will allow you to do both within the confines of your cash flows. Just remember, it can be done if you create a budget!