Should I Pay Off Low Interest Rate Student Loans or Should I Invest?

Should I Pay Off Low Interest Rate Student Loans

Having graduated from college in the recent past, at one point or another, you will have to clear your student loans. Making a choice between having to invest and paying off your student loan may be challenging. Each path has shortcomings and advantages which may affect one’s life Economic experts and former graduates have different opinions about which one should be given the upper hand. Below is a brief discussion of the benefits and disadvantages of each decision.

Benefits of Paying Off Your Student Loans As Soon As Possible

a)  It Is Easier To Focus On One Agenda At Single Time

Having to focus on two big agendas can drain you financially if you are not adequately prepared. Focus on the loan and, in no time, you shall have clear your loan and steer away to invest in your field of choice. When you are done paying the loan, you shall have learned how to focus on a goal for best results.          

b)  Early Payment Reduces The Interest Rates Charged On Your Loan

Your loan obligations start to reduce the moment you commence your student loan repayment. A good repayment record goes a long way in cutting down the interest rates on your loan. The low-income rates are better than investments opportunities which have low-interest rates per annum.

c)  You Can Dedicate More Funds Towards Clearing Your Student Loan

By halting other projects which can wait for example the investment opportunities, you get to clear your loans faster to get the freedom to focus on other projects. The freedom you get allows you to invest more aggressively with adequate funds.

d)  Clearing Your Debts Boosts Your Self-Esteem

Debts accrued tend to taint our public images. When you pay off your student loan, you boost your confidence as you gain more independence. By the time you are done, your confidence also increases at your place of work as you have covered all the education charges.

e)  You Get More Control Over Your Finances

Managing finances can be a challenging task for the most individual on a payroll. By having a fixed allocated amount for paying off your student loan, you learn to allocate the remainder of your income to sustain you until you receive your next paycheck. When you are done, you have the liberty to choose any sector of your choice to invest your income.

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Disadvantages of Focusing On the Payment of Student Loans

a)      The Payments Made Are The Same

No matter how soon you start making the payments, you shall have to make the required minimum monthly payment. The minimum monthly payment does not disappear until you have fully paid your debt. The total amount may be slightly higher than the loan amount.

b)      You Miss Out On The Time Value Of Money

Low-interest student loans can take a very long time to have the payments made completely in full. The long time is part of your window period to make an investment. You may realize that you have not yet invested a dime for your future life.

c)      You May Be Broke For A Long Time

Hefty payments made to clear your student loans will take a huge percentage of your income. You may have to end up being broke long before the payday is near. You shall need to learn the essentials you need to balance your paycheck.

Advantages of Investing Before Paying Off the Loan

a)      Your Money Grows

When you invest any amount of your money in a field with good returns, your money gets the opportunity to grow. In a few years’ time, you shall be better off financially and at a later point, you shall be having a bigger portfolio to show it.

b)      You Get Closer To Your Life Goals

Early investment opportunities and choices are a clear pathway towards achieving your set life goals. The earlier you start to achieve your life goals, the more you get the motivation to invest more and create a bigger portfolio.

c)      The Earlier you Invest the Better

The best time for investment is around 20-30 years according to most specialists. Invest at the slightest niche you get. A student’s loan is not a debt which you can easily evade. At one point in time, you shall have to make the full payment in order to clear your name.

d)      You Can Raise Enough Money To Pay Off The Loan

Investing in a great market gap will earn you more income. More income from your investments increases the size of your portfolio. At this juncture, you are able to clear your loan arrears in a single pay installment and remain financially safe.

e)      You Start Building Your Future Securities Early

The process of making payments for your low-interest student loans slightly puts one’s life on hold. By taking the early opportunity to invest in the field of your choice, you have the opportunity to unbuckle your life. You are able to move on with your life as you desire.

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Disadvantages of Investing Before Clearing Student Loans

a)      The Though Can Haunt You

The low student loan debt can haunt you for several days to come. In some instance, this may dent your self-esteem and confidence at work. The only medicine to get it out of your head is by making your payments. The record constantly appears next to your financial records.

b)      You May Lose Your Money

An investment is an opportunity which has two possible outcomes. A bad investment opportunity may led to the loss of huge amounts of money which would have been used in other projects. One of the projects is the repayment of your low-interest rate student loan you owe.

Tips: Invest Funds Vs. Pay Off Debts: What’s the Difference? Know more details from Investopedia

What Is The Possibility Of Paying Off The Loans As You Invest?

By doing both simultaneously, one arrives faster at financial freedom having made more money from investments. A better portfolio record is maintained as both moves in a healthy manner.

The major setback of investing while paying the low-interest rate student loans is the need to raise more money to cover both projects. The time taken to clear the loan may be longer.


Both decisions have an impact on your financial status and future life goals. Most people have tried the move of paying off their student loans while investing at the same time and reported desirable results like financial independence in all fronts. Choose the method that best suits your financial capabilities.

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