As a senior in college, should I focus on investing into my Roth IRA, or save for my student loan debt?
I am only two semesters away from receiving a BBA in Finance. I'm having issues on whether to invest for my retirement, or save for my student loans.
Don't fall for the animosity and hype about how 'horrible' student loans are.
While it's currently trendy for gurus and media pundits to advise people to pay their student loans off immediately, the math doesn't work out in favor of this strategy. This article explains the math of why focusing on rapidly paying off your student loans is a bad idea. Focusing exclusively on paying off your student loan debt will leave you less money in retirement, and place you at greater risk if a job loss or other emergency were to occur.
Assuming you have Stafford loans, your interest rate is likely around 4% - 5% for your student loans. At these rates, there is no financial need to pay them off any faster than required. Make your minimum payment and use the rest of the money to fund your other financial goals. If your loans are PLUS loans or private loans, they may carry significantly higher interest rates and you might want to pay just those loans down quicker.
Making minimum payments on low-APR student loans will free up more money to invest in your Roth IRA, your 401(k) at work, an emergency fund, and for major goals like buying a house. If you have funded most of your goals, then paying back your student loans faster can make sense.
At the same time, if you become stressed or anxious about your student loans, then paying them down faster can provide a significant non-financial benefit.