this post was submitted on 27 Jul 2023
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Pay off student loan debt or invest? (self.personalfinance)
submitted 1 year ago by Copernican to c/[email protected]
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Is there a general rule of thumb on student loan interest rates and whether or not it's better to pay off ASAP vs invest in an index fund? Sold a lot of company stock from an ESPP and RSU program that happens to be the value of our household's student loan debt that is just entering repayment after graduation. Can't tell if a 5 or 6% is worth drawing out or paying off in one go. Not worried about rainy day or emergency fund and already maxing out my retirement. So really it's a question of debt payoff or non retirement investment.

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[–] [email protected] 8 points 1 year ago (1 children)

Do you have an emergency fund built up? If you don’t already have 6-8 months of expenses stashed away, I’d start there. Then keep some on hand for unexpected expenses. Like others have said, the decision depends on interest rates for the loans.

Another thing to consider is opportunity cost- if you repay the student loans off, while that helps long term it does deprive you of some liquidity. So, if you need to buy a car or another expensive item, you’ll have a loan potentially at a higher rate than if you’d held onto the cash.

[–] Copernican 2 points 1 year ago

That's a good point. Putting the money into the market allows me to access it needed later on if I need to sell at some point. Forever will not have access to that sum of money if I pay off the entire loan.