If you read enough financial advice, you might feel yourself being pulled in two directions. 

On one hand, just about every expert agrees that it's important to start investing as early as possible. Those same experts will tell you to pay off your student loans before focusing on other financial goals.

So which is it?

That answer depends on your specific circumstances, priorities and personality. We'll help you figure out the best option and give you some tips on how to get the most out of whatever strategy you choose.

Should I Pay Off My Student Loans or Invest?

Having extra money in your budget can feel like a fork in the road. Should you apply it toward your student loans or use it to invest? Here’s what to consider before you make a decision.

Get the Employer Match 

Many companies offer matching contributions on employer-sponsored retirement plans such as 401(k)s. The employer may match the full amount that you contribute or just a percentage, most often 50%. 

Here’s how it works. Let’s say your employer matches 50% of your contributions, up to 6% of your total salary. If you contribute 6% of your salary, your employer will kick in another 3%. If you contribute 5% of your salary, your employer will contribute 2.5%. 

Most experts recommend always contributing enough to receive the maximum employer contribution, as it’s essentially free money. 

Some companies require that you work there for a certain number of years before becoming eligible for 100% of the employer contributions. This is known as a vesting schedule. Ask your human resources department about the company’s vesting schedule so you know how long you’re required to work there to qualify for all of the employer contributions. 

Some companies have a graded vesting schedule, which means it will take a certain amount of time to earn 100% of the employer match, but you’ll earn a portion of those contributions every year. For instance, with a five-year graded vesting schedule, you would earn 20% of the employer contributions after one year. Even if you’re not sure you’ll stay at the company for the full five five years, it’s still worth contributing enough to get the maximum possible match. 

Take Advantage of Compound Interest

When you invest money in the stock market, the securities you own will appreciate over time. A mutual fund that sells for $20 a share may cost $30 a share in a couple of years. Through the power of compound interest, your investment portfolio can grow into a substantial nest egg.

Many consumers think that how much they save is the key factor for compound interest to work, but time is actually the most crucial ingredient.

“I’ve done the math, and every $1 you invest in your 20s is worth $7 in retirement,” said investing expert Bridget Casey of Money After Graduation. “Even if you can only afford to invest a small amount, time will do all the heavy lifting for you.”

Start the Habit of Investing

Investing early on also makes sense from a psychological point of view. The sooner you start investing, the sooner you make it a habit. And sometimes, getting started is the hardest part.

“Paying off debt is an obligation,” Casey said. “If you don’t do it, there are lots of consequences, like calls from creditors and damage to your credit score. But there are no near-term consequences if you don’t invest.”

Split the Difference

Personal finance isn’t just about deciding what makes more sense from a mathematical point of view, it’s also about what feels better for you. For some borrowers, eliminating debt quickly can relieve financial anxiety, which can be just as important as amassing the largest possible portfolio. 

But you shouldn’t neglect investing. Instead, divide the extra money between debt payments and retirement contributions. This way, you’ll be working toward both goals at the same time.

“A balanced approach to both debt repayment and investing will make you richer than paying debt alone,” Casey said.

Pay Off High-Interest Debt First

As of 2021, the average annual return for the S&P 500, the benchmark for the U.S. stock market, is 7% after inflation. If the interest rate on your student loans is greater than 7%, you may want to consider adding extra funds to your loans instead of investing. 

Once those high-interest loans are paid off, you can reallocate the minimum payment and extra funds to your investment account. 

If you have high-interest student loans, consider refinancing them to a lower rate. That way, you won’t feel conflicted about using your extra funds to invest. Juno currently has interest rates as low as 2.25% APR for fixed-rate loans and 1.63% APR for variable-rate loans. 

Since the average market return is 7% each year after inflation, investing the extra money makes more sense than paying off your student loans early after you refinance.

When you refinance student loans with Juno, you might wind up saving more than if you go through the lenders directly. For example, borrowers who refinance with Earnest or Laurel Road through Juno will qualify for an interest rate that is 0.25% lower than if they used Earnest or Laurel Road directly. Borrowers who refinance with Splash through Juno may qualify for an extra $1,000 cash back.