This article reveals the financial strategy of a
Pennsylvania engineering student after graduation with current student loan
debt of $55,000. The common
mentality after graduation is to desperately attempt to tackle your debt as
soon as possible, which is exactly what he started to do. With a starting salary of $48,000
dollars, he began making payments monthly of $460. After awhile, he began wondering why he was rushing to pay
off 3% to 6% interest rates when the S&P has historically returned
11%. He then began paying the
lowest amount he possibly could on his debt and started putting the monthly
$460 into an investment account instead.
By age 26, his debt amount and investment account each equaled
$35,000. He then had the choice to
either cash out and wipe out his loans, or continue on course allowing the
investment account to continue growing.
This sounds like a very enticing idea, except that when he came up with
the plan of investing the year was 2009, when stocks were very cheap and he got
bargain deals. So now that the
stock market prices have recovered, would the plan still be worth the risk for
today’s graduates?
http://money.cnn.com/2014/12/11/investing/dont-pay-off-your-student-loans/index.html?iid=HP_LN
This is a really interesting idea. I totally agree with this article that we have a culture in which the sooner one can pay off his or her loans, the better. But we rarely turn to nonconventional methods like this engineering grad. I am also curious if this plan would be effective in today's economy.
ReplyDeleteThis is an interesting way to deal with your loans but right now is a weird time to invest in a lot of companies because the stock market has been inconsistent. I will definitely consider this.
ReplyDeleteThis is a unique way to approach debt, but I don't know if it is the smartest decision. There seems to be a lot of risk involved in investing in the stock market, especially today. I wouldn't want to lose money in the stock market that I could've been putting toward my loan.
ReplyDeleteDefinitely worth looking into. If the stock market were less volatile, I would absolutely consider this, but the truth is, I don't really trust it. I think there's a lot of acceptance of the high loan rates, so maybe a more effective path would be to try to get those cut down. Either way, this is an interesting article, and the methodology is very creative and admirable.
ReplyDeleteThat's a great plan and he picked the perfect time to execute it. Like discussed above, it is a little harder to decide now what the '09 graduate did a few years ago. The stock market is volatile. The way I would think of it would involve measuring the losses you could have. I obviously don't have the knowledge or time to crunch the numbers but I think, even now, it may be a risk worth at least considering because with bad interest rates, you are guaranteed to waste your money where with the stock market, it is only a possibility (and if you're optimistic, you can always just keep waiting for it to get better). My point is just that maybe the risk involved in investing is worth considering rather than just throwing your money away at loan payments with unreasonable interest rates.
ReplyDeleteThis article is very interesting and brings up an exceptional plan when faced with student loans. I guess the big question you asked is whether this will work today or not? I guess if you didn't have the knowledge to do so you could consult with someone who does know. I think its a risk willing to take either way to see how it plans out as time progresses.
ReplyDeleteThis is way too risky of a plan. He was a very smart student that realized the potential long-term gains in the stock market. This would be an awful idea for any student right now. He rolled the dice with his credit and struck it big as a result. However, you don't read stories about the people that tried and failed doing the some course of action.
ReplyDelete