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In a word: Yes. I’ve mentioned a number of times on RealWorldReally.com (although it bears repeating) that the average college student graduates with almost $20,000 in student loans. While this is a daunting sum, it is still possible to build wealth even while paying off student debt. it can be (and has been) argued that, unlike most types of debt, student loans are usually best when paid as slowly as possible. Someone who saves diligently and generally pays attention to their money and how it’s being spent can actually use student loan debt to their advantage.

David John Marotta and Beth Anderson Nedelisky, financial planners from Marotta Asset Management, Inc., write that,

Students often assume the best thing to do is to pay off student loans as quickly as possible. The sooner you pay off your loans, the sooner you can start building wealth, or so the thinking goes. But, given the opportunity, which answer should you choose: A) Make extra principle payments on your loan each month, or B) Pay the minimum amount due and save and invest the difference?

In reality, the lower the interest rate on your loans, the better off you’ll be just paying the minimum monthly payment and nothing more, than taking the extra money you were going to pay on your loan and invest it instead.

According to Marotta and Nedelisky,

The lower the rate of interest on your loan and the higher the average market return, the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between these two rates is known as the “spread.” If market rate of return is 11% and the interest on your student loan is 4%, then, the “spread” is 7% (11% minus 5%).

And remember, as stated before, the interest on your student loans is tax deductible (up to $2,500), helping to subsidize the cost of your loan. The faster you pay off your loans, the faster you lose that deduction.

Remember, though, that in order to benefit from this loan repayment strategy, you must save and invest your money. If you don’t invest the extra money, this type of repayment plan is worthless.

“Student Loans: How to Pay Them Off & Build Wealth” [SavingAdvice.com]
[image by Lowry Lou]

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