You’d think that student loan repayments were the Sisyphean rock for American millennials – doomed to a life of never-ending debt repayments as we delay buying homes and starting families. A monthly payment to retroactively fund an expensive education is crippling for many, but new data shows a different story for many young Americans.
We help over 1.3 million Americans track their net worth at Personal Capital. Among them are 43,000 people monitoring student loans, 17,000 of which have at least $100,000 in investable assets. We analyzed this well-off group and found that they carry nearly $90,000 in student loan debt but have almost $200,000 in investment savings on average. So why aren’t these well-off Americans, and others like them with the means to pay off their student loans, actually paying them off? As a millennial with my own student loans, here are three reasons I think it pays not to pay them off with my investable assets:
Cash is king – Liquidity is important, especially when it comes to having a solid emergency fund and planning for long-term financial priorities like buying a home.
Retirement savings – Saving for retirement takes priority over quickly paying off my loans. There are powerful compounding effects of time on money and severe penalties and taxes I’d incur if I prematurely liquidated my nest egg to pay my student debt.
Market return – Interest rates on federal student loans are less than 5%. The average annual return on the stock market right now is 7%. Sometimes if you’re willing to take the risk, you can make more over time in the stock market.
Popular rhetoric claims that student loan debt is crippling an entire generation’s future. But why not consider if some millennials are simply being thoughtful with how they prioritize their money and making a wise financial choice not to pay off their student loans just yet?