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Worried About Student Debt? Start Investing While in College to Escape the Trap

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Photo by Jeswin Thomas on Unsplash

For years now, there’s been heated debate over the looming student debt crisis in the United States. And there’s a good reason for that. By the end of 2020, the total student debt load in the country had reached a staggering $1.7 trillion. And even with a series of debt forgiveness initiatives chipping away at the total, it’s clear that’s an unsustainable sum.

But that doesn’t mean today’s students are powerless to avoid ending up crushed by the weight of their student debt. They can start by choosing a college that offers good value for their tuition. And then, they’ll have enough time while still in school to create an investment plan that will help them pay off their student loans without much trouble. Here are three of the best ways they can do it.

Open a Robo Advisor Account

The simplest way for new college students to begin investing is to open a robo advisor account. These algorithm-driven investment platforms are great options for new investors because they have a shallow learning curve. For the most part, all you have to do is make a deposit to get started, set your investment goals, and you’re all set.

But even though they’re easy to use, robo advisors can deliver significant investment returns. Even with the calamity of the COVID-19 pandemic roiling markets in 2020, many popular robo advisors still delivered annualized returns between 5% and 8%. And even better, most do it while utilizing tax minimizing strategies that allow you to keep the majority of those returns.

Get Started With Real Estate Investing

If there was ever such a thing as a safe long-term investment, it’s real estate. That’s because it’s based on real, tangible assets that hold value quite well and appreciate over time. Unlike stocks, real estate isn’t dependent on fluctuating financial performance, so they also tend to remain more stable as investments. And that makes real estate an excellent wealth-builder for new college students.

And it doesn’t take much capital to get started. It’s possible to invest in a broad range of real estate assets through exchange-listed real estate investment trusts (REITs). REIT shares are both affordable and provide instant diversification. Plus, it’s easy to find REITs that feature dividends of 5% or higher. Or, consider investing with a real estate investment platform like Fundrise. They’ve posted average returns closer to 8% for years, which will help grow your capital faster.

Consider Closed-End Funds

Another great option for student investors is to build a portfolio of high-quality closed-end funds (CEFs). They’re a popular dividend-producing investment that even many experienced investors aren’t aware of. But they’re an excellent way to kick off an investment portfolio for one simple reason – unbeatable dividends.

CEFs are actively managed by investment firms to deliver high, reliable dividends to investors. And for that reason, it’s easy to find CEFs that pay 8% dividend rates with monthly payouts. That means investors get a bit of their shares’ dividend each month, which they can then reinvest immediately. They offer a unique way to grow an investment account in a hurry. To see how fast a CEF investment can build on itself, check out this calculator – and you’ll wonder how CEFs can keep such a low profile.

A Plan to Deal With Student Loans

By turning to one or a mixture of the above investment strategies, college students can take advantage of their time in school to build up an investment portfolio that will help them pay off their student loans when the time comes. And it’s easier than you might think.

According to Authority.org, the average student loan carries an interest rate of just under 5%. And with any or all of the above investments, it’s possible to out-earn that interest rate by a significant sum. Multiply those returns and compound them over a whole four years (with monthly contributions), and you’ll emerge from college with a substantial amount of capital saved up.

And even then, it’s not necessary to sell off those investments right away. If they’re generating a decent monthly flow of dividends, you might do well to just apply that money to your loan payments and protect your principal. That way, it’ll keep helping you pay down the loan for as long as you need it. And before you know it, you’ll be debt-free and already well on your way to financial freedom.

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