Dear Dave,
My daughter is a student and has $13,000 in student loan debt. Recently, her grandparents dissolved an LLC, and they want to give her a gift of $12,500. Should she use this money to pay off the loans, or invest it in a Roth IRA and keep working to pay off the student loans herself?
Meg
Dear Meg,
Let’s look at it this way. Pretend she didn’t have any student loan debt. Would it be wise for her to borrow money on a student loan in order to invest in a Roth IRA? Of course not. If you don’t pay off the loans, and invest it instead, it’s just like you borrowed money to invest. That’s not a good plan.
Your daughter needs to get her student loan mess cleaned up, and this is the perfect opportunity to do just that. And I think it’s pretty cool that God gave her what she needs to fix things. Besides, she can’t do a Roth IRA, except to the point that she has an earned income, anyway.
The last thing this girl needs is a pile of debt waiting on her when she gets out of school. She’s not in a position to be an investor right now. The minute she pays off her student loans, she should get to work on saving a pile of money for an emergency fund so she can complete her studies without racking up more debt!
—Dave
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