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Should I pay off my student loans or invest?

By ATB Financial 24 January 2024 3 min read

Maybe student loans were necessary for you to meet your goals, and kickstart your career path. While paying them off is probably a priority, with smart budgeting and financial planning, you might be able to invest in your financial future, too. 

Why is investing early a good idea?

The short answer: compound interest. Say you finish school in your twenties. That means you’ll have decades of investing ahead of you, decades of interest compounding, building your wealth (and getting you that much closer to what you’re saving for).

Decades of compound growth, even at the lowest rate of return, is significant. Plus, registered accounts provide tax-efficient options for your investments, allowing you to accumulate more in the long run.

“The years you spend only paying off student loans are years you’ve lost substantial investment opportunities,” said Desmond Chow, Senior Financial Advisor, ATB Securities Inc. “If you’re able to do it, starting to invest while paying off your student debt is the best way to grow your savings for the short and long-term.”

Read more in Student Loans: Understanding your options.

Student loan interest rates vs. investment returns

With federal student loans being interest-free, there’s now extra incentive to start investing. For interest-bearing student loans, consider the interest rate expense in comparison to the average rate of return over time on an investment product, like a mutual fund. In addition, a non-refundable tax credit is available for interest paid on provincial student loans.

“Most student loans are relatively manageable and will have a lower interest payment over a period of time,” said Chow. “In those cases, taking your time to pay off the average student loan in order to invest will be more financially beneficial.”


Budgeting to repay debt and invest 

“Depending on your income, I would generally coach someone to meet their commitments and then ‘pay yourself first’ by contributing extra funds to an investment portfolio,” said Chow.

“Pay yourself first” means making your minimum student loan debt repayment and setting aside funds to invest, rather than saving what’s leftover. You’ll want the minimum repayment amount to pay down the principal (the original amount you borrowed). Even investing a small amount, compounding over several years, can mean big returns—your future self will thank you.

Making regular loan payments and investment contributions can also help you set good money management habits. It might be debt payment now, but being in a rhythm of putting money aside each month can help you manage future expenses and meet new goals, like paying the mortgage on your new place, or prepping for the future with a retirement savings plan.

“We live in a society that demands instant gratification, and this can make paying off debt and investing difficult for some. I try to teach my clients that are new to investing that in order to accumulate sizable wealth, you must give money today so you can get it back in 30 or 40 years.”

Updating your plan as your income increases

As you advance in your career, it’s likely that your income will increase. Depending on your budget, your higher income will allow you to increase your investment contributions or pay off any remaining student debt in larger chunks. 

Start investing in your future, today

ATB Prosper makes investing simple. On the digital platform, you can talk with an ATB Prosper advisor, and start building a portfolio for your short- and long-term goals. In five minutes, you can get started with as little as $100. Give investing a try with ATB Prosper.

If you found this article helpful, check out 'Just graduated? Time to start your retirement plan (really)' for more investing advice.

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