By T. Eric Reich
One of the most common questions I hear from younger clients, and from parents asking on their kids’ behalf, is some version of this. Should I throw every extra dollar at my student loans, or should I be saving for the future? It feels like an either/or decision, and the debt side usually shouts the loudest. This week, let’s walk through the case for each, and why I believe continuing to save, even while you’re carrying student loan debt, is one of the most important financial decisions a young person can make.
The case for paying off the loans
Let’s start with the argument for attacking the debt. There’s a real, guaranteed “return” to paying off a loan, and it’s equal to the interest rate you’re being charged. Pay off a loan at 8%, and you’ve effectively earned 8%, guaranteed and tax-free. There’s no risk and no guessing. On top of that, there’s the emotional side, and it matters more than people admit. Being debt-free brings a peace of mind that’s hard to put a price on, and freeing up that monthly payment gives you real breathing room. For high-interest private loans especially, paying them down aggressively is almost always the right move.
The case for saving
Now let’s discuss the other side, and this is the one people underestimate. When you save early, you’re not really buying an investment; you’re buying time. The miracle of compound interest only works if you give it years to run, and the years you spend in your twenties and early thirties are the most valuable ones you’ll ever have. A dollar invested at 25 can grow into something remarkable by the time you retire. That same dollar invested at 40 simply doesn’t have enough runway to do the same work. You can always go earn more money later. You can never earn back lost time.
Why waiting is the real mistake
Here’s where people get into trouble. The plan sounds so reasonable. “I’ll knock out my loans first, and then I’ll start saving.” The problem is that student loans can take ten, fifteen, even twenty years to pay off. If you wait until they’re gone to start saving, you’ve just handed away your most powerful saving years, and you can’t get them back. Meanwhile, if you’d been putting away even a small amount that whole time, compounding would have been quietly working in the background. The danger isn’t paying off your loans. The danger is telling yourself that saving can wait.
Don’t leave free money on the table. There’s one more piece I can’t stress enough. If your employer offers a match on your retirement plan, coantribute at least enough to get the full match before you do anything else with extra dollars. That match is an instant 100% return on your money. No loan interest rate comes close to that. Skipping the match to pay down a 6% loan a little faster is like turning down a raise to save on gas. It simply doesn’t add up.
So what should you actually do? For most people, the answer isn’t all-or-nothing; it’s both. Grab the full employer match first, because nothing beats it. Then attack any high-interest debt aggressively, because a 12% private loan is its own kind of emergency. And through all of it, keep a steady, automatic baseline going into savings, even if it’s a small amount, so compounding never stops working for you. That way you get the peace of mind of paying down debt and the long-term power of time on your side.
And because the right balance depends on your specific interest rates, your income, and your goals, this is a great conversation to have with your advisor. The math looks a lot different for a 3% loan than it does for a 12% one, and a good plan accounts for that.
Paying off student loans is a worthy goal, but it shouldn’t come at the cost of the one thing you can never buy back, which is time. Do both. Chip away at the debt, but never stop saving, because the years you invest in your twenties and thirties are doing work that no amount of catching up later can ever replace.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
