It’s no secret that the cost of going to college has steadily increased, so more students are shouldering more debt to pay for it. The Institute for College Access and Success estimated in 2012 that 66% of those who graduated from a public college had student loan debt. Those numbers have only increased, along with the dollar amount for each student. In fact, there is over $1.4 trillion in outstanding student loan debt today.
The traditional way to pay down student loan debt has always been to pay the minimum balance, effectively taking the long route. For those with a private loans, even that option can seem like a life sentence. The challenge of paying for student loans to get that leg up in society can potentially be solved by investing.
Investing allows you to shield yourself from future debts with steady growth, while you take the necessary risks you need today to build the capital to be debt free. Here are some tips to pull this off.
Sounds a little scary? It can be – but finding the financial balance today to both invest and still service the minimum payments on your student loan debt can help you in the long run!
Stability is all about putting your money into low-risk ventures that offer steady returns. This way you’re insulated from some of the market fluctuations that come with the risk you took on. A good portion of your portfolio should be stable, especially if you’re not starting with very much money. Once you hit the $10,000 mark, it’s okay to start investing in some riskier ventures while you keep pouring cash into more stable accounts.
Stable accounts are things you already know, and probably already use. CDs, money markets, ETFs, and high-interest savings accounts are all examples of stable savings. It grows your money and takes advantage of compound interest for stable returns. Check out our list of the best savings accounts for college students.
Invite Some Risk
Any portfolio is going to include some risk, but there are plenty of opportunities to invest in markets that might seem familiar to you already. Tech is exploding right now, especially Bitcoin. Genesis Mining noted that at the beginning of this year, Bitcoin was soaring at all-time highs. If you had bought a Bitcoin even then, you would have doubled your money if you’d sold seven months from that date.
You can take a risk on new IPOs, or growing companies you’ve probably never heard of. The trick is to work with a professional you trust. There’s a lot of investing you can do on your own, but don’t try and take risks like this unless you have an MBA attached to your list of credentials.
Remember, make sure that you're avoiding initial coin offerings – they are incredibly risky and not worthwhile!
Compound Interest Explained
Every dollar saved is worth more tomorrow than it is today thanks to compound interest. If your bank compounds interest on a daily basis, $20 saved today will be worth a great deal more tomorrow. There are a ton of excellent calculators that help show you this principle in action too.
Compound interest is great because you can re-invest the returns, which generate enough to pay for a decent chunk of any other investment. That’s the true value of continually saving throughout your life.
Bringing it All Together
When you invest to try and pay off student loans, you must also consider your future. You don’t want to lose everything trying to pay off what typically amounts to your lowest interest loan. If you take the necessary steps to isolate a certain portion of your funds you can afford to lose on risky investments, you isolate yourself from some of that risk. Invest smart, do proper due diligence, and use those returns to pay off your student loans while watching compound interest build toward your retirement.