I just recently graduated uni and I'm hoping to try and apply what I learned in my finance classes to paying off my student debt. The biggest surprise to me during my studies was the realization that it can often be better to invest money and earn interest than just use what you've currently got and try to clear debt. Specifically, I loved the idea of investing a large sum of money into an annuity and using future cash flows to help pay off debt. Unfortunately, all the examples we dealt with typically used interest rates between 10-12% which makes such an option a lot more feasible than the real world where my savings account earns 0.01% interest.

So I'm wondering if there really are investments (aside from stocks and such) that I can try to use to my advantage with help paying my loans? Or instead, is this approach unwise? And if so, why?

  • What kinds of interest rates are you paying on your loans?
    – Joe
    Commented Jan 23, 2017 at 22:22

2 Answers 2


Paying off your student loan is an investment, and a completely risk-free one. Every payment of your loan is a purchase of debt at the interest rate of the loan.

It would be extremely unusual to be able to find a CD, bond or other low-risk play at a better rate. Any investment in a risky asset such as stocks is just leveraging up your personal balance sheet, which is strictly a personal decision based on your risk appetite, but would nearly universally be regarded as a mistake by a financial advisor. (The only exception I can think of here would be taking out a home mortgage, and even that would be debatable.)

Unless your loan interest rate is in the range of corporate or government bonds -- and I'm sure it isn't -- don't think twice about paying them off with any free cash you have.

  • Paying off student loans is not only risk-free, it’s tax-free. If you made money from other investments and used the proceeds to pay off your loans, it’s likely that you would have to pay tax on the return on the investments, making the whole project more difficult.
    – Mike Scott
    Commented Oct 27, 2018 at 12:51

What you're getting at is the same as investing with leverage. Usually this comes in the form in a margin account, which an investor uses to borrow money at a low interest rate, invest the money, and (hopefully!) beat the interest rate.

is this approach unwise?

That completely depends on how your investments perform and how high your loan's interest rate is. The higher your loan's interest rate, the more risky your investments will have to be in order to beat the interest rate. If you can get a return which beats the interest rates of your loan then congratulations! You have come out ahead and made a profit. If you can keep it up you should make the minimum payment on your loan to maximize the amount of capital you can invest. If not, then it would be better to just use your extra cash to pay down the loan.

[are] there really are investments (aside from stocks and such) that I can try to use to my advantage?

With interest rates as low as they are right now (at least in the US) you'll probably be hard-pressed to find a savings account or CD that will return a higher interest rate than your loan's. If you're nervous about the risk associated with investing in stocks and bonds (as is healthy!), then know that they come in a wide spectrum of risk. It's up to you to evaluate how much risk you're willing to take on to achieve a higher return.

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