student loans

Should You Pay Off Student Loans or Invest Your Money First?

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Last updated on May 24, 2021

With student loan debt well in excess of $1 trillion, you may be one of the millions of people wondering what you’ve gotten yourself into.

Not only do you have to fit your student loan payments into your budget, but you must also take into consideration the impact it’ll have on your future. For example, if you throw more money at your student loans today, you won’t have as much to invest in your future.

Below, we help you address the question of should you pay off student loans or invest.

Why Student Loans are Different than Normal Loans

As you decide if investing or paying off debt is the way to go, it’s important to note that student loans are different from normal loans. Here are some of the many differences:

If you don’t earn enough, you don’t have to repay immediately

For example, if you’re unable to secure employment after graduation, you can put your loans on hold. The same holds true if you don’t earn enough money. Just remember this: interest will continue to accumulate during the deferral period.

If you lose your job, you can pause repayments

If you lose your job, you can request that your lender pauses your payments until you secure employment. While this buys you some time, interest will continue to accumulate on your account.

The debt is wiped after approximately 30 years, or if you die

If your student loans still have a balance after 25 years, they’ll be wiped out. The same holds true if you pass on.

The Advantages of Paying Off Your Student Loan

If you’re on the fence about if you should pay off debt or invest, it makes sense to learn more about the benefits of tackling your student loans as quickly as possible.

You’ll have one less debt to worry about

Student loan repayments have a way of bogging down your budget. By paying off your loans, it’s one less debt you have to worry about. That can give you peace of mind.

You’ll end up paying less interest in the long run

Take a strong look at your student loan interest rate to better understand how much it’s costing you each month and over the long run. This will show you that paying off your loans sooner rather than later will save you on interest charges.

Tip: you can also save money on student debt interest by consolidating your student loans.

The Advantages of Investing

Now, it’s time to look at the advantages of investing as opposed to paying off your student loans.

You may be able to earn more than the loan costs

A student loan investment can have a positive impact on your future. After all, a college degree can go a long way in helping you earn more money.

However, you should consider the loan costs, as a student loan interest rate are not always reasonable.

You may find that you’re able to earn more than the loan costs. Finding the best investments for students will allow you to do just that.

You will avoid having to borrow back at higher rates

As you consider the pros and cons of student loan repayment, turn some of your attention to the future. You don’t want to find yourself borrowing money at a higher rate down the road.

You can put the cash to better use

When investing as a college student, there are multiple options available to you. From the stock market to a money market account to real estate, don’t sell yourself short. Keep an open mind.

Enables you to build an emergency fund

Investing often starts with building an emergency fund. This has the chance to come in handy as you embark on your career and begin to think about starting a family.

Makes it easier to pay off higher interest debts first

When it comes to paying off debt vs. investing, consider which loans are costing you the most money.

Save more money for your retirement

Retirement savings is one of the best investments for students. It’s never too soon to plan for your future.

How to Decide Whether to Pay Off Your Student Loans or Invest

What are your priorities?

Should I pay off student loans? Should I look into student loan refinancing?

These are the types of questions you’ll face. The best way to answer them is to know your priorities.

Some people opt to pay off their student loans as quickly as possible, as they want to free up money in their monthly budget. Others would rather build an emergency fund first.

Are you happy to carry a long-term debt?

A student loan payment can be long-term debt. Are you comfortable with that, or would you rather eliminate your student loan payment as soon as possible? This is a personal preference.

What are your student loan interest rates?

Your student loan interest rate will affect your decision. The lower the rate the more it makes sense to invest your money elsewhere.

Compare the interest you pay with the interest you could earn

The question to pay debt or invest often comes down to one word: interest.

If you can earn more money with an investment than you pay on your student loan, you know what you should do.

Consider tax deductions for student loan interest

Student loan interest is tax deductible. That’s a big benefit when tax season rolls around.

Explore student loan forgiveness programs

There are a variety of student loan forgiveness programs, one of which you may qualify for. This can help you wipe out your debt sooner than you ever thought possible.

Consider if refinancing your student loans could lower your monthly payments

Student loan refinancing can lower your interest rate, which results in a lower monthly payment. This gives you more money for investing.

Will you earn enough to actually pay off your student loan?

If you don’t earn enough to pay off your student debt, it’s simple to see that you shouldn’t throw extra money at this type of loan. A slow and steady approach is better.

What are your other financial goals?

The question to save or pay off debt often comes down to one thing: your financial goals.

Everyone is different, with some looking to eliminate debt as quickly as possible and others wanting to invest for their future.

How to Pay Off Your Student Loans Early

If you’ve been thinking about student loan repayment — more specifically how to repay your loans early — there are some simple steps you can take.

  • Pay more than the minimum amount due
  • Reduce your student loan interest rate by refinancing
  • Reduce your student loan payment through consolidation

Tips for Investing with Student Loans

Just because you secure a student loan doesn’t mean you have to use all or any of it on your education. It’s not illegal to invest this money. Here are some tips for investing as a college student:

  • Set short and long-term goals: Are you saving money for your first home? Are you saving for retirement?
  • Research every available investment: Any type of investment is a risk. Know which student loan investment is best for you, your budget, and your future.
  • Position yourself for success: The best investments for students are those that position them for future success. This generally comes down to finding an investment that earns you more money than you pay in interest.

Best Investment Apps

If you’re learning more about investments for students and need help managing the process, there are two investment apps to consider.


With Betterment, you have access to robo-advising and cash management services. Even if you’re only looking for a savings and checking account, this platform is a good place to start. You’ll receive up to $1 million in FDIC insurance coverage, which should put your mind at ease.


If you’re new to investing, Wealthfront — an automated investment service — can help you manage the process. It’s full of high-level features, such as automated investing, high-interest checking, portfolio rebalancing, and more.


Deciding to save or pay off debt is never easy. Answering these questions will help.

Why are student loans different from normal loans?

Student loans are different from normal loans in many ways. For instance, you can put off paying — without penalty — if you lose your job. This is known as deferring your payments. The downside is that interest will accumulate during this time.

When do student loans get wiped?

After 25 years of payment, your student loans are wiped away. The same holds true upon your death.

How can you pay off your student loans faster?

The best way to make student loan repayments faster is to pay more than the minimum. Even if it’s only a few dollars a month, it adds up over time.

Do student loans help your credit score?

Yes. If you stay current on your student loans, it can help boost your credit score.

What happens if you don’t pay off your student loan?

It’s important that you have a student loan repayment plan in place, as defaulting will result in your debt being sent to collections.


Paying off debt vs. investing. No two people look at it the same way.

With the above information, you should be able to more easily answer this question: should I pay off student loans or invest for my future?

It doesn’t matter if you decide to pay debt or invest, as long as you’re confident in your decision and the impact it’ll have on your future.

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