It has been almost two years since publicly-held student loan debt reached the $1 trillion mark. According to The Institute for College Access & Success (TICAS), seven in 10 undergraduates had taken loans to fund their education, averaging over $28,0400 per student. Senator Elizabeth Warren has been outspoken on the matter, noting students are oftentimes burdened not only with the nominal value of debt, but also annual interest rates reaching 10 percent and beyond. However, others are seeing value in keeping the debt, paying only the minimum payments.
One of the hottest young actors in Hollywood today, Miles Teller, is just fine with keeping his debt. He and others like him are weighing the value of paying down these debts with gains that can be made from investments. Market rates are at all time lows and student loans can be refinanced to as low as 2%. Such competitive interest rates makes investing a favorable choice. With the Dow Industrial average up over 100% (and climbing) since the 2008 recession, some financially savvy debt holders are beating interest rates with investments in stocks. The so-called low interest rate rationale works as long as investors can find vehicles that return more than the modest rate on their loans.
Teller isn’t alone in his decision to forgo paying back his college loans. In a recent article on CNNMoney, recent grad Mohammad Majd was able to earn exactly as much as his student loan balance by investing in stocks. Even when he reached the level at which he could pay off his loans, he chose to keep investing. This ultimately put him ahead compared to if he had just paid off his loans all at once.
The low interest rate rationale is a strategy worth considering for those who are saddled with debt, earning an entry-level salary, and trying to determine how best to spend each dollar. A basic understanding of the time-value of money is helpful since it goes against standard student loan repayment practices. Still, investments can be risky and inflation should also be taken into account when making financial decisions. However, as long as investors are disciplined in where money is put to work and they ensure that each dollar that would have gone to their loans is put into an interest-bearing vehicle, they can remove some of the stress that comes with with student loans.
To learn how you can lower your interest rate and make the most of your student loans, visit Credible.