This website has already discussed how earning extra money is critical to paying off student loans. The more money you have, the more resources you possess at your disposal to take care of living expenses and devote money to student debt. Prior articles have discussed how individuals can work a number of side-hustles to earn extra money, and part-time work can increase the amount of money you have to pay off debt. However, if you do your research, investing to pay off student loans is possible in a variety of circumstances.
I first became aware of the power of investing while I was still in college. One of my hallmates during my Sophmore year of college was obsessed with investing, and he would talk all the time about how he was making a killing in the market. He convinced my hallmates and myself to open up brokerage accounts, and many of us did. My experience in college first showed me how investing to pay off student loans is possible in some circumstances.
I talked to my hallmate about potential stock picks, and he agreed that I should invest my money in one stock that we both liked. I had some free money available at this time, and I invested most of my extra cash into this stock. To my surprise, within a few months, I made several hundred dollars! I ended up withdrawing my money to pay for some educational expenses, but this experience first showed me the power of investing to pay off student loans.
The timing of my initial investment was fortuitous, since this was in the run up to the Great Recession when stock prices were going through the roof. I later withdrew my money months before the stock market took a dive at the beginning of the Great Recession. I’d like to say that I’m a grand investment strategist, but I really just got lucky with this turn of events, since I was able to ride the market on its way up, and I sold out before the crash.
Towards the end of my law school career, I again thought about investing to pay off student loans. By this time, the stock market was in an upward swing, since the market had reached its floor years before. I worked summer jobs as a law student that gave me some extra cash, and I invested a part of this sum in stocks that I thought had the potential to rise in value.
For years, I rode the upward trajectory in the market. Even though I only invested a four-figure sum in the market at any given time, I regularly earned four-figure amounts each year from my investments, or at least a high three-figure amount. A few years ago, I pulled much of my money out of the stock market, since I expected that a correction would occur, and I would lose money. However, I wish I would have continued investing as much as I did in prior years, since the market has continued its upward trend.
My story demonstrates a few things people should keep in mind while investing to pay off student loans. For one, you should only invest if you think that the rate of return on your investment will be more than the interest rate on your loans. Some people have student loans with interest rates close to 8 percent or even higher. It may be difficult to have a higher rate of return than this with safe investments, and if you have interest rates this high, you might just want to devote available money to student debt repayment.
However, some individuals have student loans with interest rates around three to four percent, or even lower. It is definitely possible to make more than this rate of return with even safe investments. As a result, it might make sense to focus on investing to pay off student loans in such instances rather than devoting all of your money to debt repayment.
In addition, you should only invest money in the market that you could afford to lose. Investments inherently come with some amount of risk, and it is possible to lose some or all of your money investing. Many student debt borrowers are already short on cash as it is, and it is important to devote available money to setting up an emergency fund and other purposes. As a result, investing to pay off student loans should only be a strategy for those who have extra savings on top of all of the money set aside for other purposes.
I have been pretty broad discussing my investment activities in this article, since I am no expert on investing, and I do not want to give anyone investment suggestions. In order to make informed decisions about investments, it pays to watch shows about investing and read financial publications. Being well-informed about the happenings of companies, as well as understanding the basics of stock information and charting will go a long way toward investing to pay off student loans.
It may sound counter-intuitive, but devoting money to investing rather than debt repayment can actually help you pay off your student loans sooner. However, you should only try investing to pay off student loans in limited circumstances. In addition, it is important to stay informed about the market in order to have the most success investing to pay off student loans.