A Reddit user is contemplating whether to pay off $23,000 in student loans with rates from 2.75% to 5.5%, or invest his extra cash. Generally, it’s advisable to invest instead of paying off these loans early. The student loan interest deduction can save borrowers money, making gradual repayment more appealing. Furthermore, with typically lower interest rates on student loans, investing in avenues like S&P 500 index funds may offer a higher return on investment than early repayment. Additionally, student loans provide valuable borrower protections that other debts do not.
Most people (except high earners) can deduct up to $2,500 in student loan interest from their taxable income. The student loan interest deduction helps to reduce the cost of paying off student loans slowly over time.
In this case, the Reddit user very likely could earn a better ROI by investing in safe investments such as an S&P 500 index fund rather than paying off his student loans early.
Student loans offer lots of borrower protections. While carrying most types of debt is risky because you're committed to payments even if you experience economic downturns, student loans provide a cushion.
As a general rule, it's usually better to invest than to pay off student loans at affordable rates.
Collection
[
|
...
]