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Millennials with college debt are often left with the choice between making a student loan payment or investing in the future by saving for retirement. Some financials experts say that you should save for retirement as soon as you can. However, other experts say that you should pay off your student loan first.

Here are the options:

Student Loan Payment First

Many financial experts believe that you should prioritize your student loan payment first. This includes before thinking about investments or saving for retirement. In fact, radio host Dave Ramsey recommends putting off retirement savings until all of your debts are paid off. He says that when people hit hard times, they often rely on retirement accounts to make ends meet. By paying off your student loan debt, you can later devote all of your financial resources for investing.

Invest As Early As You Can

Depending on your student loan interest rate, most experts support saving for retirement as soon as you can. The average annual return with an investment in the S&P 500 is about 10 percent. If your student loan interest rate is lower than 10 percent, then it makes sense to start saving for retirement immediately.

“Millennials are going to be so much more dependent on their own savings for retirement,” Judith Ward, senior financial planner at T. Rowe Price, told CNN. “We don’t want to see young people shortchange themselves trying to pay off student loan debt sooner than it needs to be.”

Compound interest is the main reason why young people must save for retirement — even if they have student loans. Contributions made when workers are in their twenties can be worth twice as contributions made later. Giving your investments more time to grow will help you tremendously.

Exceptions To The Rule



There are two variables at play that might determine if you should pay off your student loan or invest right away. According to a popular flowchart, if your employer offers you a match for your company’s 401k, then that should be your priority. After all, it is free money.

On the other hand, if you don’t have the 401k match, you should prioritize paying off high interest debt first. However, if you can refinance your student loans and get a very low interest rate, then the priority jumps back to saving for retirement.

What’s The Right Answer For You?

The truth is, every person’s financial situation is unique. For some people, paying off a student loan makes the most sense. For other people, it is appropriate to invest as early as you can. If you need help determining what course of action you should take, here is a financial calculator that will help you.