Should I pay my Education Loan or Put it in the Stock Market?
"2.47% is a really, really good rate, doubly so if it's a fixed rate, and quadruply so if the interest is tax-deductible. That's about as close to ""free money"" as you're ever going to get. Heck, depending on what inflation does over the next few years, it might even be cheaper than free. So if you have the risk tolerance for it, it's probably more effective to invest the money in the stock market than to accelerate your student loan payoff. You can even do better in the bond market (my go-to intermediate-term corporate bond fund is yielding nearly 4% right now.) Just remember the old banker's aphorism: Assets shrink. Liabilities never shrink. You can lose the money you've invested in stocks or bonds, and you'll still have to pay back the loan. And, when in doubt, you can usually assume you're underestimating your risks. If you're feeling up for it, I'd say: make sure you have a good emergency fund outside of your investment money - something you could live on for six months or so and pay your bills while looking for a job, and sock the rest into something like the Vanguard LifeStrategy Moderate Growth fund or a similar instrument (Vanguard's just my personal preference, since I like their style - and by style, I mean low fees - but definitely feel free to consider alternatives). You could also pad your retirement accounts and avoid taxes on any gains instead, but remember that it's easier to put money into those than take it out, so be sure to double-check the state of your emergency fund." For the sake of sanity, pay off your debt maybe not all but some part of it. You never know what the monster, the stock market may turn out to be. It may gobble up all your money without belching or it may gift you with a bounty. But if you pay off all your debt and the stock market monster is rewarding everybody else, you may rue your decision. So put some part of it the markets too, but a more safer one would be a good bet. The proportions of money for loan repayment and for investing in markets is your decision, after you evaluate all your future predictions. "I'd recommend hitting the loan the hardest, but getting something invested as well. It's tempting to see these decisions as binary, so it's good to see you wondering if a ""mix"" is best.  I admit to being a spreadsheet junky, but I think this is a good candidate for working up various scenarios to see where the pain/pleasure point is and once you've identified it, move forward with it (e.g., let's say it's a 10K lump sum you're dealing with, what does 5k on the loan and 5k invested look like over the next 6 months, 12 months, 24 months (requires assumptions on investment performance)? What about 6K loan, 4K invested? 7K loan, 3K invested? etc)" I read your question that you have a comfortable amount toward retirement.  If not, pad your retirement accounts if possible. If your loan rate is locked at 2.67%, invest that money in the market and pay the loan as agreed.  So long as you feel comfortable in your employment and income status for the next few years, I would bet you will get a lot more out of your cash investing in diversified, low cost funds or ETFs that you will save in interest on that loan. Finally, if you decide to lower your debt instead of increasing investments (based on your tolerance for risk) why not pay more on the mortgage?  If you owe most of your mortgage and it is typically long term, you might cut many years off of the mortgage with a large payment. The fact that you are planning to sell the property does not make paying down the mortgage a bad idea. Reducing the principal immediately reduces the amount of interest you are paying every month. Run the numbers to see how much money that actually saves you over the time you expect to hold the loan.
"If I understand correctly, your question boils down to this: ""I have $X to invest over 25 years, are guaranteed returns at a 0.6% lower rate better than what I expect to get from the stock market over the same period?"" Well, I believe the standard advice would go something like: Rational investors pay a premium to reduce risk/volatility. Or, put another way, guaranteed returns are more valuable than risky returns, all things equal. I don't know enough about student loans in America (I'm Australian). Here a student loan is very low interest and the minimum repayments scale with what you earn not what you owe, starting at $0 for a totally liveable wage - Here I'd say there's a case to just pay the minimum and invest extra money elsewhere. If yours is a private loan though, following the same rules as other loans, remember the organisation extending your loan has access to the stock market too! why would they extend a loan to you on worse terms than they would get by simply dumping money into an index fund? Is the organisation that extends student loans a charity or subsidised in some way? If not, someone has already built a business on the the analysis that returns at 6.4% (including defaults) beats the stock market at 7% in some way. What I would put back to you though, is that your question oversimplifies what is likely your more complex reality, and so answering your question directly doesn't help that much to make a persuasive case - It's too mathematical and sterile. Here are some things off the top of my head that your real personal circumstances might convince you to pay off your loan first, hit up Wall Street second:" The way I usually make this decision is to answer the following question: Do I think that I can earn a better   return on my savings than the interest   rate I would get on the loan? Yes= Get a loan No= Use the savings If you have your savings in a fixed income investment like a CD or bond, then it is just simple math to answer the question, for more volatile investments like stocks you just have to make an educated guess based on the direction of the markets and past performance. Nope I live in Orange County. I get to put away some savings no lie but even still it's not like I'm driving a Tesla or BMW.   No student loans that are out of control although I did pay off my education loans a bit fast but I only got stuck with those after dropping out and being unemployed for over a year.  Learned to code and it helped a lot. Afterwards I had a bit of a personal fall out with drug and alcohol abuse when someone close to me passed away and since lifted myself up but it's not been easy because rent for a 1bedroom 600 sqft is around 1200-1500 here. After taxes I'm taking home maybe 2,2k plus car payment insurance personal insurance since I own my own business and being young and single means I get raped by taxes for whatever reason. What's the present value of using the payment plan? In all common sense the present value of a loan is the value that you can pay in the present to avoid taking a loan, which in this case is the lump sum payment of $2495.  That rather supposes the question is a trick, providing irrelevant information about the stock market. However, if some strange interpretation is required which ignores the lump sum and wants to know how much you need in the present to pay the loan while being able to make 8% on the stock market that can be done. I will initially assume that since the lender's APR works out about 9.6% per month that the 8% from the stock market is also per month, but will also calculate for 8% annual effective and an 8% annual nominal rate. The calculation If you have $x in hand (present value) and it is exactly enough to take the loan while investing in the stock market, the value in successive months is $x plus the market return less the loan payment.  In the third month the loan is paid down so the balance is zero. I.e. So the present value of using the payment plan while investing is $2569.37. You would need $2569.37 to cover the loan while investing, which is more than the $2495 lump sum payment requires.  Therefore, it would be advisable to make the lump sum payment because it is less expensive: If you have $2569.37 in hand it would be best to pay the lump sum and invest the remaining $74.37 in the stock market.  Otherwise you invest $2569.37 (initially), pay the loan and end up with $0 in three months. One might ask, what rate of return would the stock market need to yield to make it worth taking the loan? The APR proposed by the loan can be calculated.   The present value of a loan is equal to the sum of the payments discounted to present value.  I.e. with  ∴ by induction  So by comparing the $2495 lump sum payment with $997 over 3 x monthly instalments the interest rate implied by the loan can be found. Solving for r If you could obtain 9.64431% per month on the stock market the $x cash in hand required would be calculated by This is equal to the lump sum payment, so the calculated interest is comparable to the stock market rate of return.  If you could gain more than 9.64431% per month on the stock market it would be better to invest and take the loan. Recurrence Form Solving the recurrence form shows the calculation is equivalent to the loan formula, e.g. becomes v[m + 1] = (1 + y) v[m] - p where v[0] = pv where In the final month v[final] = 0, i.e. when m = 3 Compare with the earlier loan formula: s = (d - d (1 + r)^-n) / r They are exactly equivalent, which is quite interesting, (because it wasn't immediately obvious to me that what the lender charges is the mirror opposite of what you gain by investing). The present value can be now be calculated using the formula. Still assuming the 8% stock market return is per month. If the stock market yield is 8% per annum effective rate and if it is given as a nominal annual yield, 8% compounded monthly I agree with the advice given, but I'll add another angle from which to look at it. It sounds like you are already viewing the money used to either pay off the loan early or invest in the market as an investment, which is great. You are wise to think about opportunity cost, but like others pointed out, you are overlooking the risk factor. The way I would look at this is: I could take a guaranteed 6.4% return by paying off the loan or a possible 7% return by investing the money.  If the risk pays off modestly, all you've done is earned 0.6%, with a huge debt still hanging over you. Personally, I would take the guaranteed 6.4% return by paying off the debt, then invest in the stock market. Now this is looking at the investment as a single, atomic pool of money.  But you can split it up a bit.  Let's say the amount of extra disposable income you want to invest with is $1,000/mo.  Then you could pay an extra $500/mo to your student loan and invest the other $500 in  the stock market, or do a 400/600 split, or whatever suits your risk tolerance. You mentioned multiple loans and 6.4% is the highest loan.  What I would do, based on what I value personally, is put every extra penny into paying off the 6.4% loan because that is high.  Once that is done, if the next loan is 4% of less, then split my income between paying extra to it and investing in the market. Remember, with each loan you pay off, the monthly income that previously went to it is now available, and can be used for the next loan or the other goals. "given your time frame I'm not sure if investing in a 529 is your best option. If you're investing in a 529 you may have to deal with market volatility and the amount you invest over the course of three years could be worth less than what you had initially invested when it comes to your child's college education. The main idea of starting a plan like a 529 is the time-frame for your investments to grow. You also have the option of ""pre-paying"" your child's college, but that has restrictions. Most of the state sponsored pre-pay plans limit you to state schools if that wasn't obvious. Also, the current political situation is tricky, and may influence the cost of education in ~3-4 years, but I'm not sure this is the proper place for that discussion. Also, as far as the viability of these, it depends state-by-state. I live in Illinois and don't think I would count on a payout given our current financial situation. You could, however, look into paying tuition now for a state school and it will be risk free in terms of inflation, but again, it's hard to anticipate the political scope of this. They also have private pre-pay plans, but that would limit your child's university options just as the state pre-pay. Check out this investopedia article on 529 plans, it's basic but will give you a high level overview. Bankrate has an overview as well." There's something very important no one else has mentioned... times when the stock market falls dramatically are often the times when you're most likely to lose your job, and when it's hardest to get loans.  So if you ever do need your emergency fund, it will more than likely be related to a dip in the stock market. Only 20, and going through university This is an important question to ask yourself. Your earnings are 0 and will remain so, unless you start working. Are you willing to halve your money, if the markets tank after you put in your money ? Mostly good investors will buy some more, if they know the stocks they have picked are good. Considering that you have no income you will loose out on it. If you are graduating soon, it might make sense to start investing but it should be reliant on the fact on how quickly you will land a job. I would suggest stay put in the ISA for the time being. Check out if you might get a higher rate of interest if possible and transfer there. Check out  Moneysupermarket . Don't blindly put money in a ISA, see if you are getting the best deal in the market. And one thing, interest on ISA is calculated daily.