The cost of a college education continues to increase, challenging health care costs as the leading “irritant” when it comes to affording something that is nearly a necessity in our society. For a top-rated university, you can expect tuition and fees to exceed $40,000 per year, and that figure may not include books, living expenses, and a modicum of travel and entertainment expenses. Nearly two-thirds of undergraduate students seek financial aid, and those that graduate can expect average loan balances of $25,000, or much higher if from an above-average college or graduate school is included.
Some students have found that by living frugally and/or working part-time jobs on occasion that they can manage to have excess funds left over from their student loan programs. Should a student invest these funds, and what are the best tactics to employ when considering an investment strategy?
To begin with, you need to check the fine print in your various loan contracts, if you have more than one agreement. There may be restrictive language that precludes your use of the funds that have been forwarded to you. Do not assume that you have the freedom to invest immediately, but if the contract does not pose a problem, then there are a few basic principles to follow.
One mantra of life is that it is never too early or too late to start saving for retirement, an emergency, or any other large purchase that you might soon contemplate, a car or marriage for example. Since you are still a student and the time until you enter the work force is not that far away, any strategy must be deemed short term at best. Do you want to risk losing your additional funds for the possibility of slight gains? As a rule, markets tend to be volatile when viewed from a short-term time perspective. Ignore the popularity of high risk trading venues, such as commodities, options, or the forex market. These arenas require specialized training, experience, and time that you do not have.
For the time being, it may be best to accumulate the funds in a conservative bank savings account until you decide on a plan going forward. It is doubtful whether the interest rate on the savings account will exceed the effective interest rate on your student loan, another point for consideration. Generally, investing follows your paying down unsecured debt and setting aside an emergency fund for major unexpected expenses.
Paying down existing loans may be your best use of excess funds. If interest rates are favorable, you might also want to consider consolidating your various loans into one package. There are firms that focus on this activity and will guide you in your effort. You may be able to reduce your interest rate and monthly payment amount, while improving the terms of your overall obligation.
Student loans are helpful, but your goal should be to pay them down quickly.
Guest contribution provided by Forex Traders
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