Forum: money.stackexchange.com
Tags: <investing><student-loan>
Title: Should I pay my Education Loan or Put it in the Stock Market?
Question: I currently have a Student loan at a 2.47% interest rate, I owe most of my home mortgage and have a minimal amount invested in the stock market (not counting retirement).  I have some money that can reduce my student loan by 58% or add 46% to my stock portfolio.  My stock portfolio has been giving decent returns but at this point is almost all unrealized gains (other than dividends).  Should I put that extra money in the student loan or towards my stock portfolio or a mix?

Answers:
sents: text: For the sake of sanity, pay off your debt maybe not all but some part of it.
text: You never know what the monster, the stock market may turn out to be.
text: It may gobble up all your money without belching or it may gift you with a bounty.
text: But if you pay off all your debt and the stock market monster is rewarding everybody else, you may rue your decision.
text: So put some part of it the markets too, but a more safer one would be a good bet.
text: The proportions of money for loan repayment and for investing in markets is your decision, after you evaluate all your future predictions.
answer_details: author: money.stackexchange.com/users/2001/DumbCoder
score: 7
sents: text: 2.47% is a really, really good rate, doubly so if it's a fixed rate, and quadruply so if the interest is tax-deductible.
text: That's about as close to "free money" as you're ever going to get.
text: Heck, depending on what inflation does over the next few years, it might even be cheaper than free.
text: So if you have the risk tolerance for it, it's probably more effective to invest the money in the stock market than to accelerate your student loan payoff.
text: You can even do better in the bond market (my go-to intermediate-term corporate bond fund is yielding nearly 4% right now.)
text: Just remember the old banker's aphorism: Assets shrink.
text: Liabilities never shrink.
text: You can lose the money you've invested in stocks or bonds, and you'll still have to pay back the loan.
text: And, when in doubt, you can usually assume you're underestimating your risks.
text: If you're feeling up for it, I'd say: make sure you have a good emergency fund outside of your investment money - something you could live on for six months or so and pay your bills while looking for a job, and sock the rest into something like the Vanguard LifeStrategy Moderate Growth fund or a similar instrument (Vanguard's just my personal preference, since I like their style - and by style
text: , I mean low fees - but definitely feel free to consider alternatives).
text: You could also pad your retirement accounts and avoid taxes on any gains instead, but remember that it's easier to put money into those than take it out, so be sure to double-check the state of your emergency fund.
answer_details: author: money.stackexchange.com/users/None/
score: 7
sents: text: I'd recommend hitting the loan the hardest, but getting something invested as well.
text: It's tempting to see these decisions as binary, so it's good to see you wondering if a "mix" is best.
text: I admit to being a spreadsheet junky, but I think this is a good candidate for working up various scenarios to see where the pain/pleasure point is
text: and once you've identified it, move forward with it (e.g., let's say it's a 10K lump sum you're dealing with
text: , what does 5k on the loan and 5k invested look like over the next 6 months, 12 months, 24 months (requires assumptions on investment performance)?
text: What about 6K loan, 4K invested?
text: 7K loan, 3K invested?
text: etc)
answer_details: author: money.stackexchange.com/users/2124/gef05
score: 4
sents: text: I read your question that you have a comfortable amount toward retirement.
text: If not, pad your retirement accounts if possible.
text: If your loan rate is locked at 2.67%, invest that money in the market and pay the loan as agreed.
text: So long as you feel comfortable in your employment and income status for the next few years, I would bet you will get a lot more out of your cash investing in diversified, low cost funds or ETFs that you will save in interest on that loan.
text: Finally, if you decide to lower your debt instead of increasing investments (based on your tolerance for risk) why not pay more on the mortgage?
text: If you owe most of your mortgage and it is typically long term, you might cut many years off of the mortgage with a large payment.
answer_details: author: money.stackexchange.com/users/91/MrChrister
score: 1
sents: text: The fact that you are planning to sell the property does not make paying down the mortgage a bad idea.
text: Reducing the principal immediately reduces the amount of interest you are paying every month.
text: Run the numbers to see how much money that actually saves you over the time you expect to hold the loan.
answer_details: author: money.stackexchange.com/users/12439/keshlam
score: 1

Summary of the answers:
You should pay off some of the loan with that money, but keep the rest of it invested.
Most people would probably recommend paying off at least part of your loan early. However, if your interest rate is low and locked for the loan, then you might want to leave it as it is and invest instead.