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Question:


I’m a grad student with $20K in savings. I’ll finish school in 2 years, owing $30K in student loans. Is it more profitable to keep my money in the savings account for the next 2 years, or should I invest it to maximize my returns?
-JonathanJ


Answer:


With more on the minus side of the ledger than the plus side, it may be premature to talk about investing or maximizing returns. The best return that you can get with negligible risk at this point is likely to be from avoiding interest payments as you work down the balance on the student loans. Remember, not paying 8 percent interest, say, produces the same effect as earning 8 percent on an investment.
 
You don’t want to overdo it, however, by devoting all or even most of your savings to debt repayment. Even though it’s not earning much interest these days, the $20,000 will serve you well as an emergency fund. Whatever you decide to do, take comfort in knowing that you’re in way better shape than a lot of graduates, especially those who have earned (and borrowed to pay for) more than one degree.
-Conrad de Aenlle



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