As a college student, should I continue investing or save to pay off my debt first?
I currently have $9,000 dollars in student debt, and I still have one more year of college left which will cost roughly $10,000 or more with food expenses for that year, plus an additional one year of grad school at a NYS public university which will I have to pay tuition and living expenses for.
Should I maximize contributions to my IRA for this year? I have $11,000 in savings and I will be going back this summer to my internship where I will earn $5,000 and then will have an internship for the following summer making roughly $25 an hour (about double my current pay rate). I don't want to miss out on a year or two of investing, but I also want to pay off my debt and anticipated debt. I currently have two years worth of full contributions in my IRA.
The good news is you are choosing between two good options, so you really can't go wrong with either decision. If your student loans are subsidized loans, then the U.S. Government is paying the interest for you, so there is no reason to pay anything on the loans until you graduate. If they are not subsidized loans, then you may want to consider paying just the interest on the loans and then contributing to (or even maxing out) your IRA. This will give you the best of both worlds: being able to invest in your IRA and at the same time keeping your student loans from growing too much bigger.
Carefully Consider Whether quickly Paying Off Loans is Right For You
When you graduate, don't be too quick to pay off your student loans, though. While the media and the general public will demonize your loans, there may not be a compelling financial reason to pay them off quickly. Instead, look at your finances as a whole, and try to accomplish multiple goals rather than being focused on just one. Making minimum payments on your student loans can allow you to save a larger emergency fund, invest for retirement, and prepare financially to buy a home or start a business. As this article points out, rapidly paying off your student loans can leave you in a worse financial position. Additionally, there are many government programs for student loan forgiveness, where the most financially responsible thing to do would be to make minimum payments on your student loans and take advantage of a forgiveness program.
If you'd like help determining the best course of action for yourself, or in exploring the government forgiveness programs, look at working with a fiduciary adviser. The costs can be less than you think. For example, I offer financial planning designed for young professionals at a cost of just $35 per month.