The average graduate leaves college with a five-digit student loan debt attached to them. Many owe $100,000 or more when it’s all said and done. In addition to making large monthly payments for years to come, student loan debt often prevents people from making smart financial investments.
How to Invest When You Have Student Loan Debt
If you’ve been around enough financially savvy people, you’ve probably heard the terms “good debt” and “bad debt.” As you consider real estate investing, it’s important that you consider good and bad debt. The latter could also be classified as high-interest debt. This includes things like credit card debt and car loans. The rates are high, terms are constricting, and carrying the debt is rarely, if ever, beneficial for your long-term financial picture. Good debt, on the other hand, typically has a low interest rate and is tax deductible.
Real estate falls into the category of good debt. It’s still debt, but there are benefits that come with investing. And in addition to getting the opportunity to deduct mortgage interest from your tax bill, you also gain access to an appreciating asset that will (by historic measures) increase in value over time.
Related: 6 Tips for Investing Despite Your Student Loans
But how? How do you invest in real estate when you’re already burdened by student loan debts? While it would be a whole lot easier to go to the bank and pull out a traditional loan, this probably isn’t going to work. Assuming the numbers aren’t in your favor, you’ll need to consider some other options. Here’s some food for thought.
1. Try alternative forms of lending.
The first thing to consider is an alternative form of lending that doesn’t take your existing student loan debts into account. Thankfully, there are lots of alternatives in today’s market, including private money lenders, hard money lenders, home equity loans, and crowdfunding.
2. Check out an income-driven repayment program.
The problem with your situation is that the student loan debt is like a black mark on your financial resume. When you go to a lender and ask for a loan, they look at your debt-to-income ratio. What you really need to do is change how the debt looks on your application.
In 2017, Fannie Mae made some changes to its requirements for individuals who are overwhelmed by student loan debt. According to MortgageLoans.co, certain people who qualify for an income-driven repayment program can actually set monthly payments to $0 per month for a period of time. This offers buyers the ability to qualify for a mortgage, despite their heavy debt burden.
3. Develop better strategies for attacking debt.
When it’s all said and done, the best thing you can do is attack your student loan debt. If you’re only making minimum payments, it’s going to be years before you even make a dent. You need to get aggressive and start biting off big chunks at a time. Buckle down for 12-18 months and work your rear end off. Pick up side gigs and focus all of your energy on paying down debt.
Don’t Let Student Loans Hold You Back
By no means is this article saying you should invest in real estate if you have a large amount of student loan debt. There’s considerable risk that comes with investing in any asset you can’t control and, as always, more debt means more payments.
However, if you do it strategically and develop a strict budget for how you’ll handle income and expenses in your life, an income-producing property could help you in your pursuit of paying off loans by providing you with additional fiscal resources.
There are options and you should pursue them.
Are you looking to invest despite student loan debt? What’s your plan?
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.