Most parents who have kids that are facing huge student loans may find themselves in a real dilemma: to pay off their loan or not? But here are four reasons why you should look into investing instead of paying off those loans, for their betterment and yours.
Investment Leads to Greater Annual Earnings
Invest the money that you would use to pay the loan off with. There will be risks involved, as with any investment, but you will end up average annual earnings that are far greater than the annual amount of the loan to be paid (if return after fees annually is assumed to be 5 percent). Make sure to keep reinvesting the returns too. Even with selling investments to make annual loan payments, you’ll be better off in the end.
You Can Still Help Out While Investing
If you want to continue helping your children out by paying off their loan, the investment doesn't stop that from happening. You can make the investment in your child's name so that they may benefit from the additional return on investment. Or you may invest using your name and save the return to provide the kids with a financial cushion.
You’ll Be Helping Out More in the Long Run
It would do you, and your children, better to keep the money invested. Because your child may end up in a career that doesn’t leave them with much after they’ve paid off their debt. And that is when you should step in to help with the money you’ve earned through investments. If you want to help, invest now for their future needs like a car or a house deposit.
Paying Off Student Loan Up Front Makes No Sense
Don't pay off the student loan as early as you can. While most of us think that the logical order is first to pay off all existing loans and only then to start investing, you should instead reverse the order. Invest first and keep earning interest on your investment over the years while you don’t pay off the student loan.
To Sum It All Up
Loans aren't that scary as they've been made out to be. If you want to help your children, the best thing you can do is invest for them. Because not only will this leave you capable of paying off the loan, but it will also leave you with some extra money in the long run!