Student Loans vs. Retirement Saving
An unfortunate reality today is the growing number of working Canadians paying off student loans. Student borrowing has consistently risen to the point where today, half of all post secondary graduates have received student loans, on average $28,000. At work, one of the places this hurdle appears is in the company retirement savings plan: the dilemma is whether to begin saving for retirement or retire that debt?
In this scenario, your income exceeds your expenses (including your monthly required student loan payment) - should you invest the difference in your workplace retirement plan? Or, should you make larger loan payments to lose the debt as soon as possible?
To decide the best financial strategy for you, consider these things:
- How much is left over after expenses? Budgeting for expenses and having emergency cash on hand may restrict one or both strategies. If you do not have a student debt repayment plan (like SLRP) at work, think twice about accelerating payments to either plan before looking at your budget.
- Don’t get over-extended. Over extending your financial commitment for investment, or for student debt repayment, may force you to access more expensive kinds of debt, like credit cards.
- Are you comfortable with debt? Physiologically, owing money is stressful and causes anxiety for many people.
- Your goals for the future: Outstanding debt can affect one’s ability to secure a mortgage or secure other types of lending.
- Employer matches. If you participate in a Group Registered Retirement Savings Plan (GRSP) or a Defined Contribution Pension Plan (DCPP) at work, does your employer offer to match your contributions? If yes, think seriously about maximizing the employer match before you accelerate repayment of your student loans.
There is no right or wrong answer to the pay-back vs save question - every circumstance is different with a unique set of wants and needs. Careful consideration of the above will help you determine which strategy suits you and your life.
YrP’s Student Loan Repayment Plan (SLRP) is an employer benefit that helps employees pay back student loans faster and with substantial savings to the cost of the loan. Contact email@example.com for more information.