Borrowers

The current student loanĀ interest rate varies from 4.45% for Federal Student Loans up to 7% for a Direct PLUS loan. Assuming a $40,000 student loan at 5.5% interest rate, that would be a payment of $434 per month for 10 years. During the life of the loan, the borrower will pay close to $12,100 in interest and $52,100 overall.

Assume that the borrower earns $50 in commissions per month. When applied to the loan, s/he would save more than $1,700 in interest and pay $7,200 less over the life of the loan. The loan would also be paid off 16 months earlier.

However, the difference can actually be much larger if you invested the $434 monthly payment into the stock market for those 16 months (since you paid off your student loan early). Using a financial calculator, investing $434 per month with an average return of 7% for 16 months will grow your savings to $7,300. Over 10 years, the $7,300 almost doubles to $14,300.

So an extra $50/ month for (almost) 10 years, plus an extra 10 years in the stock market could end up being a difference of $14,300 for the borrower.