May 2022 – 15 min read
It depends on your situation. Generally, if the interest rate on your student loan is greater than the rate of return you can reasonably expect from investing, then paying off the loan as quickly as you can, will save you money.
If you can make a better rate of return on your investment than the interest rate you’re paying on your student loan, then based on your situation it may make sense to pay the minimum amount on your student loans and invest the rest.
Based on your situation, it may also make sense to do both – invest in your future, and pay down your debt. It’s a good idea to get the advice of a financial advisor.
Investing involves risk and possible loss of principal capital. Past performance is no guarantee of future returns.
Other than when the interest rate is higher than the rate of return you can reasonably expect to make investing the money, it may make sense to pay down your loan when:
- You get a bonus, a raise in pay, or a tax refund
- You want to ease the stress of having student debt
- You have no other more important financial priorities
Other than when you can make more money investing than you’ll pay in interest on your student loan, it may make sense to save and invest when:
- You don’t have an emergency fund to cover at least 3 months of expenses
- You have other higher priority goals such as paying for a wedding, saving for a down payment on a home, or buying a car
If you don’t start saving and investing in your 20s, you risk not taking advantage of compound growth over the 30 or 40 years you’ll be working and earning.
Now that you understand more about how to prioritize paying off your student loan, you may also want to talk with your advisor about:
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
This information is general in nature and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.