By: Elijah Braswell, Staff Writer
College students need to take a more active interest in the stock market.
I know this is hard to do. In college the vast majority if not all of a students income may go toward simply paying down student loans. Putting money toward paying down loans is certainly a smart financial decision; according to CNBC, the average interest rate on student loans is 5.8%. Paying down your student loans as quickly as possible will save you about as much money you could make if you put money in the stock market and it rose 5.8% in value. But what if you could both invest money in the stock market while paying down your student loans, with the same money at the same time?
Disclaimer: Chances are you probably will not make a significant amount of money just using stocks to pay down student debt. However, in this market if you play it safe and invest in stable stocks you’re likely to make more than the 5.8% average interest rate of student loans.
According to Miranda Marquit at Student Loan Hero, “When you invest for the long haul, there’s a real possibility that your returns will make up for your student loan interest payments — and beat inflation to boot.”
If you pay down $10,000 in student loans at a 6% interest rate you save about $600. But if you invest that $10,000 in the stock market and make a return of 8% over the year; you just made $200. And that’s money you made over the same period of time with the same amount of money- just by moving it around differently. Money you can then use to pay off more student loans than if you had just paid them off initially.
Now what’s the catch? This is not “free money.” You are essentially choosing to risk some of your money now buying a stock in the hopes that it will increase in value overall, long term. The issue with that is you can lose money. In fact, if you invest very poorly or take too many risks you could lose all your money. I am certainly not recommending that; after all, then you can’t pay off those student loans at all- which was the entire point.
So how do you make enough money to beat the student loan interest rate, without a significant amount of risk?
Money Instructor recommends long term investments into mutual funds and indexes. Mutual funds pool your money together with other investors, where it is then managed by professionals. This takes a lot of the risk out of the equation; if you pick a reputable one, chances are they will invest better than you or I could on our own.
However, indexes are another relatively safe method of investment. A stock index contains multiple stocks meeting a certain criteria. Usually, indexes are based around industries (such as the Dow Jones industrial Average).
There is one other reason you should take an interest in the stock market; it just crashed. That definitely sounds scary- and the truth is, it could go down even more. As of early April 2020, the Dow Jones industrial average is down over 30% from where it was just a month ago. The last time it was valued at the same price it is now was in 2016. But if you look at every crash we’ve had (and we’ve had worse) the market will always rebound. Maybe not tomorrow, maybe not next month. However, it will eventually go up again.
And when it does, wouldn’t you rather come out on top?
