For many Grinnellians, managing student loans after graduation can feel like walking a tightrope. You want to get rid of debt as soon as possible, since interest charges add up quickly. At the same time, investing early can set you up for long-term wealth, thanks to compounding returns. While most graduates end up doing a bit of both, the balance between paying loans and investing often comes down to interest rates, risk tolerance and financial goals. My hope is to offer some options worth considering as Grinnellians think about life after graduation.
A few repayment strategies stand out, one being income-driven repayment plans. Federal loans offer income-driven options that adjust your monthly payment based on your salary. For graduates entering lower-paying public service or non-profit roles, these plans can keep monthly payments manageable and may even lead to forgiveness after 20 to 25 years. Another option is deferment or forbearance. These allow you to temporarily pause payments, which can be helpful if you are pursuing graduate school, a fellowship or an unpaid internship. The trade-off is that interest often continues to accrue on unsubsidized loans, making them more expensive over time. Refinancing is a third possibility. If you have high-interest private loans or strong credit, refinancing to a lower rate can reduce the total amount of interest you pay. That said, refinancing federal loans usually means giving up protections like income-driven repayment or forgiveness options, so it is a choice that requires careful thought.
It is also worth noting that more employers are beginning to offer student loan repayment assistance as part of their benefits package. The number of employers providing this benefit has more than tripled in the past five years, from 4 percent in 2019 to 14 percent in 2024, the Society for Human Resource Management reports. It’s worth checking whether your future workplace provides this kind of support.
The choice between investing and paying down loans often comes down to interest rates. Consider this example: you have $100,000 in federal loans at 6.39 percent interest, which is the 2025 average for undergraduate loans according to the Education Data Initiative. Instead of making extra payments, you invest $50 per month in a low-cost index fund averaging 8 percent annual returns. Over 20 years, your investment could grow by roughly $29,451, while your loan balance decreases more slowly. The opportunity cost of aggressively paying off relatively low-interest debt is potentially missing out on this growth. In this case, the math slightly favors investing because of a modest 1.61 percent advantage (take your expected return for a 20 year period and subtract that from your loan rate).
However, the story changes when dealing with higher-interest loans. Graduate students borrowing at an average rate of 7.94 percent will only fare 0.06 percent better by investing assuming an 8 percent return and those using PLUS loans at 8.94 percent would probably be better off paying down their debt faster. In those cases, the guaranteed return from eliminating high-interest debt likely outweighs the uncertain gains that could come from investing.
Deciding between repayment and investing also depends on your comfort level. Paying down debt provides guaranteed progress, while investing always carries market risk. Market risk is the risk that the stock market as a whole goes down, minimizing your returns for a certain period of time. At the same time, investing early helps build long-term security because of the long-term positive bias the stock market has generated.
Beyond the math, knowing yourself matters too. If carrying debt feels overwhelming, it may make sense to focus on repayment even if investing might provide slightly better returns on paper. Flexible repayment options like income-driven plans or deferment can also provide breathing room while you begin saving for the future. And starting small with investing—such as putting away $50 per month in a retirement account—can make a difference over time without forcing you to delay loan repayment entirely.
There is no universal playbook for handling student loans, and that is especially true for Grinnellians, each of whom will graduate with different balances, interest rates, and career plans. Some may benefit from starting investments early, while others will find more peace of mind in paying down their debt quickly. Both approaches are valid. What matters most is aligning your financial strategy with your personal goals and risk tolerance. By thinking through repayment and investing carefully, Grinnell graduates can give themselves a strong foundation for stability in the years ahead.
