Should I Pay Off Student Loans or Invest?

First Republic Bank
August 23, 2022

If you’re facing a significant student loan balance, you might be focused on ways to pay off your debt as quickly as possible. But that may also mean you are putting your other financial plans on hold.

However, when it comes to paying down debt, investing for the future and saving for retirement, it is essential to find the right balance between all of your goals.

Here are five questions to ask yourself when deciding whether you should focus on paying off student loans or investing for the future.

1. Are you making the required payments on your student loans?

You should be making at least the minimum monthly payments on your student loans to avoid negatively impacting your credit score or increasing the amount you are required to pay overall. Learn more about the various student loan repayment strategies and see what approach may be most appropriate for your needs.

Bottom line: Make on-time minimum payments (or extra when you can) to maintain your credit history and potentially earn low interest rates.

Note: Currently, all payments for certain types of federal student loans are suspended potentially until June 30, 2023, per an executive order by the President. Interest will not accrue during this time period. For more information, please visit (Note updated on 11/28/2022)

2. Do you have student loans with high interest rates?

If you have multiple student loans, you can focus on paying off the ones with higher interest rates. This can help you reduce overall interest payments and improve your credit score. If your loans do carry higher than average interest rates, you may also consider refinancing your student loans to help lower interest rates or reduce your monthly payment. This could free up funds each month to invest or meet other, more immediate financial obligations.

Bottom line: Prioritize paying off high-interest student loans first to improve your credit score and reduce overall interest payments.

3. Could you refinance your student loans?

Another way to tackle high interest rates is through student loan refinancing, which could potentially lower your interest rate or monthly payment and may decrease the amount you pay over the life of your loans. This enables you to potentially pay off your debt more quickly and have more money to put toward your retirement, other investments or near-term financial obligations.

As you evaluate different refinancing solutions, we recommend you consult with a financial and tax advisor and review the terms and conditions of each refinancing option and those of your current student loans. Refinancing may mean that you sacrifice certain benefits afforded to you by the federal government or your current lender.

Bottom line: Refinancing your student loan(s) can reduce your interest rate, giving you the opportunity to get out of student loan debt faster.

4. How much are you investing toward your retirement?

There’s a limit to how much you can contribute to retirement accounts each year. If you expect to easily meet the 2021 limits, the most common being $19,500 toward a 401(k) and $6,000 toward an Individual Retirement Account (IRA), you might want to use additional funds to pay off your student loan debt. But if you’re not meeting these maximums or haven’t started contributing to a retirement account, bumping up your contributions is worth considering.

Many employers offer matching contributions when you contribute to your 401(k). The amount varies by company and is typically capped at a certain percentage of your salary. It’s recommended to contribute enough to your 401(k) account to take full advantage of your employer match if you are able.

Bottom line: Be sure to use any additional funds to make the maximum contribution possible toward your 401(k). Before you make a decision about your contributions and other investment opportunities, we recommend you take stock of your current financial situation and meet with qualified financial and tax advisors.

5. What are your other financial goals?

Paying off your student loans and saving for retirement probably aren’t the only financial goals you have in mind. You need to balance these objectives with other near-term and long-term goals, such as buying a car, buying your dream home, paying for a child’s education or renovating your home to accommodate a growing family.

Understanding your overall goals, cash flow, risk tolerance and tax implications can help you craft a complete financial plan. Helping you think through these things is where a private banker might come in handy.

Bottom line: Developing a financial plan, in partnership with financial and tax professionals, can help you decide what should take priority in your financial timeline.

When to invest vs. pay your student loans

When deciding whether to invest or pay off your student loans, there are many financial considerations. However, there are some key factors to consider that that can help guide your decision.

Paying off student loans may make sense if

Investing may make sense if

  • You have high-interest rate student loans
  • Addressing your student loan debt is an immediate financial priority for you
  • Your student loan interest rates are manageable
  • You want to take advantage of employer 401(k) contribution matches for maximum investment returns
  • You’re enrolled in a student loan forgiveness plan
  • Exploring investment opportunities or building your retirement savings is a priority for you

Ultimately, the route you decide to take comes down to your personal financial goals and obligations.

How can First Republic Bank help?

First Republic’s Personal Line of Credit may be a great option for those looking to refinance their student loans, better manage their cash flow or fund their future goals. With low fixed interest rates, a Personal Line of Credit can be used for other purposes, such as minor home improvements, medical expenses, auto refinancing, family planning, and more.

Note: By refinancing student loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness. Please consider this as you make a decision to refinance student loans, and talk to a banker if you have any questions.

If you think a Personal Line of Credit from First Republic is the right financial solution for your needs, calculate your rate and connect with a banker today.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of use.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit Applicants must meet a First Republic banker to open account. This is not a commitment to lend. Loan approval is subject to a completed application with associated documentation and confirmation that income, liquidity, credit history and other application information meet the minimum requirements for this product. Applicants should discuss line of credit terms, conditions and account details with their banker.

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