Should You Pay Off Student Loans Before Investing?

Millennials who have been out of college for a few years are starting to wonder if they should start investing before they’ve paid off their student loans. There is no one-size-fits-all answer to this question, but each person should be able find the best path forward.

Investment and debt-repayment are two sides of the same coin. Most people with student loan debt pay interest and annual fees totalling 4-6% of the balance of their loans. This is in addition to the premium payments made every month. This percentage is a loan’s APR, and it is an immovable object. Unless you look into student loan refinancing, this APR represents the annual cost of the money you borrowed for your graduation. This rate will stay the same for the entire term of your loan.

Investment portfolios bring in returns that vary year by year. If the economy is active and healthy, you could see returns of 7-9% or even more. Some years see investors receiving enormous returns that far exceed 10%. The thing is, these returns are unpredictable. Unlike your student loan APR which never changes, investment returns go all over the place. Some years, your portfolio may even lose money.

In years where your investment return percentage exceeds your loan APR, you will make more money than you lose, making investment a worthy pursuit, even if you haven’t paid off your student loans yet. But on years where your portfolio brings in less money than you lose in student loan interest payments, your investments won’t be “worth it” in a way that is easy to appreciate.

However, investing has one advantage that makes this decision a little more complicated than subtracting interest payments from investment returns. When people start investing at an early age, compound interest kicks in earlier, greatly amplifying the overall growth potential of your investments over your lifetime.

Most readers will already be familiar with this concept, but it’s worth a review. If you make regular payments into an investment account for your whole life without withdrawing funds, the dividends that your portfolio earns will also be added to the pot. In this way, a successful investment pays into itself. This creates a snowball effect. As time goes on, you’ve got more money, so it grows faster, so it gives off higher returns, which makes your money, which can then grow faster, etc.

With compound interest, the sooner you begin the better. Therefore, a lot of advisors consider it prudent to start investing as soon as possible, even if the return you expect from your investment is nearly equal to your student loan APR.

However, you shouldn’t begin investing if you don’t have certain financial details worked out. If you have no savings to cover you if you lost your job or experienced a personal emergency, you shouldn’t put aside money to invest. Instead, create an emergency fund. You may also have personal preferences that motivate you to pay off your student loans as soon as possible. Some people find a lot of personal comfort in being debt free, and may invest with more fervor once the debt is cancelled. Finally, explore investment acceleration options, like employer matched 401(k)s.

Hopefully this has given you a clear way of figuring out how to prioritize your investments and student loan repayment. Simply giving these concepts clever consideration indicates that you are careful about your money, a trait which will serve you well for life, long after your student loans are paid off.

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source: modestmoney.com

Tuition Isn't the Only College Expense on the Rise

WASHINGTON -- Despite all the grumbling about tuition increases and student loan costs, other college expenses also are going up.

The price of housing and food trumps tuition costs for students who attend two- and four-year public universities in their home states, according to a College Board survey. Even with the lower interest rates on student loans that President Barack Obama signed into law, students are eyeing bills that are growing on just about every line.

A look at typical college students' budgets last year and how they're changing:

Community Colleges

The public two-year schools charged in-state students an average $3,131 last year, up almost 6 percent from the previous year. While the tuition hike was larger than at other types of schools, students at community colleges saw the smallest increase in room and board costs -- a 1 percent increase to $7,419. Total charges for students to attend an in-state public two-year school: $10,550.

Tuition and fees at community colleges are up 24 percent beyond overall inflation over the past five years, according to the College Board.

Public Four-Year Colleges

Tuition for students attending public four-year schools in their state was an average $8,655 last year, a 5 percent jump from the previous year. They paid more than that -- $9,205 -- for housing and food. These schools, like other four-year schools, posted a 4 percent jump in housing costs. Add in books and supplies, transportation and other costs and the total reaches $17,860 to attend an in-state public school, such as a student from Tallahassee attending Florida State University. When grants and scholarships are included, the average student pays $12,110 at such schools.

For students who choose to attend state schools outside their home state, the costs increase to $30,911. They pay the same $9,205 price tag for room and board, but the tuition rates are more expensive. The typical student who crossed state lines to attend a public college in 2012 paid $21,706 in tuition and fees after grants and scholarships -- a 4 percent jump from the previous year.

Over the past five years, the tuition sticker price at public four-year colleges is up 27 percent beyond overall inflation.

Private Schools

On the surface, private four-year schools are the most costly colleges, with the average student's sticker price coming in at $39,518 for all expenses. Tuition and fees were $29,056 last year -- another 4 percent jump -- while room and board ran to $10,462. After grants and scholarships, the average student paid $23,840 to attend schools such as Yale or Stanford.

The tuition at private schools was up 13 percent beyond overall inflation over the past five years adjusted for inflation.

 source: dailyfinance.com

HEIs, GFIs, Central Bank support loan facility for college students

MANILA, Philippines -The country’s private higher education institutions, government financial institutions and even the Bangko Sentral ng Pilipinas have expressed their support to a proposed bill that would establish a loan facility for college and university students.

During a hearing on the proposed Senate Bill 3285 authored by Senator Edgardo Angara Tuesday, it was made clear that the country is way behind many countries including its Asian neighbors, in terms of providing financial support for higher education students.

Dr. Vincent Fabella, president of the Jose Rizal University, representing the Coordinating Council of Private Educational Associations (COCOPEA), noted that the cost of higher education continues to rise in the country and across the globe.

“We’re part of that trend. But around the world, government and banks help finance it. So the idea is the students study first, when they get the jobs and the money, then they repay their loans. That’s what we’re trying to push with the proposed bill,” Fabella said.

According to Fabella, the estimated cost for all higher education students in the country, including the tuition and miscellaneous fees, would amount to P145 billion.

Based on the models of Hong Kong, which provides student loans of up to 50 percent of the total cost, and South Korea at 30 percent, Fabella said that the government would have to shell out between P36 billion and P72 billion for the loan facility.

At present, Angara noted that the only loan facility available to higher education students in the country involves the Social Security System (SSS) and Government Service Insurance System (GSIS).

The total amount made available by the national government and the two pension systems for its members and dependents for education loans was pegged at P12.5 billion a year.





For the SSS, loans program management head Miriam Milan said that a member could get a maximum of P15,000 per semester for degree courses while vocational courses would get only P7,500 per semester.

The GSIS, on the other hand, provides a maximum of P25,000 per semester.

Fabella pointed out that the average tuition for private schools is somewhere between P40,000 to P50,000 per semester, so what the two pension system provide for student loans is still far from what is needed.

Angara explained that the approval of the bill would allow the students and parents to tap the new loan facility through the private banks to cover the balance after SSS or GSIS loans.

He said that the interest rates on the loans under the new facility would be lower than market rates.

What makes the proposed loan facility different from the existing products is that the loans do not have to be paid right away.

“Education is the only activity that parents pay in advance. At the beginning of the semester you have to pay for the (cost of) full semester,” Angara said.

“Most of the student loans now, the difference is, when you take (out) the loan you have to start paying right away, which is unfair because students don’t have the money now, they have money when they graduate. That’s how it’s done in other countries,” he said.

source: philstar.com