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Should You Pay Down Student Debt or Start Investing?

Sterling White
2 min read
Should You Pay Down Student Debt or Start Investing?

What’s smarter—to pay off your student debt first or to start investing in real estate first?

One of the biggest dilemmas that my generation is facing is whether to tackle and pay off their student debt completely before investing or to work on increasing their income and net worth first.

It can be a tough choice. There are many different voices, columns, and books out there arguing for each option. This can be made even tougher due to the fact that many millennials are leaving school facing a job market with stagnant wages.

Why I Started Investing First

My personal choice was to leave college and start investing in real estate before making payments on my student loans. I wouldn’t change that decision at all, even if I could go back today. This strategy certainly worked out for me. I know it has worked out for plenty of others, as well.

Then, I see those who took the opposite approach. Many are still working on those student loan bills, still aren’t making the money they wanted, and surely aren’t enjoying the lives they dreamed of.

Man counting college savings fund, tuition fee or student loan with calculator. Education price and expenses concept. Money and papers on table. Calculating budget and planning finance.

Related: How to Be Smart About Credit Card Debt When You Have Student Loans

I think it’s backwards to pay your loans off as quickly as you can. You can be using that capital to put into investments that you can live off in the future—even for the rest of your life. Do you really want to work for the next five years or more to essentially just be a machine generating income and investment profit for banks, colleges, and the government? That sounds like a miserable life to me.

Yes, you should pay anything you borrowed back. There is no question about that. But there are massive advantages to investing first. The most obvious are the discounts on property. Real estate values have kept rising over the long-term since the beginning of recorded history. Less than 1 percent of individuals can really hope to save as fast as inflation. So if you don’t invest early, owning a home or rental property will keep getting further out of reach.

What Gives You the Best Returns?

In most cases, you can defer your student loan payments, too. That means putting your student loan payments on hold until you are making real money. Take advantage of that and invest so that you have the surplus to pay your student loan payments later.


Related: How to Use Real Estate Investments to Cover Student Loan Debt, Car Payments & More

The quick and easy test to decide what you should do first is to determine which choice gives you the best returns. For example, if you are paying 5 percent interest on your student loans but can reasonably expect 8 or 10 percent returns on a real estate investment, invest first. You can then both pay back the student loans and keep the change.

Plus, consider if you just plow everything you have into debt payments—what are you left with? Nothing. Absolutely nothing. If you invest first, you get to pay off your loans, and you may end up with a valuable asset and ongoing passive income for life.

What will you do?


What do you think about this topic?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.