Not many people have been able to replicate Smerek’s feat. The New York Fed found that just 17% of the direct federal borrowers made voluntary payments on their student loans since the start of the forbearance period in March 2020, though some paid off other debt, like credit cards.
Andrew D’Anna, Charles Schwab’s managing director of retail client experience, said that when his teams talk to young investors, “debt management and debt repayment is an enormous priority.”
No wonder. A SurveyMonkey poll for CNBC found that 81% of U.S. adults with student loans said they’ve had to delay key life milestones, like buying a home or saving for retirement.
The pauses on federal student loan payments coincided with the rise of do-it-yourself investors during the Covid lockdowns. According to Jackson Gutenplan and Larry Tabb of Bloomberg Intelligence, individual investors accounted for 24% of all U.S. equity volume in the first quarter of 2021. While their share has dropped since then, it remains historically high at 17%.
Not every debtor has heeded the market’s siren call. Travis Rogers, a 23-year-old corporate actions associate for State Street in Boston, said the rising costs of gas, food and rent make investing a risk that he “cannot afford to take right now.”
“I’m seriously considering moving back in with my parents to save some extra money, which isn’t something I would’ve thought about six months ago,” he said.
Nick Meyer, a certified financial planner and TikTok influencer, said he’s fielded more questions about ways to pay down student debt using cryptocurrencies or stocks. Since some of his followers did well in markets last year, Meyer said that he’s advising that they should consider the opportunity costs.
“Would you rather pay down a loan early that has a 3% interest rate, for example, or leave your money invested in something like an S&P 500 index fund that averages a 10% annual return?” he asked.
This type of thinking makes Dana D’Auria, co-chief investment officer at Envestnet, optimistic that even people burdened with student debt will see the long-term benefits of investing and eventually “gravitate to a more diversified, professionally managed approach.”
Smerek hasn’t allowed pros to handle his money yet, but he is much more careful with his investments now that his loans have been paid off.
It’s all about “much lower-risk stocks now, rather than trying to keep up with the latest and greatest meme stock,” he said.
--With assistance from Emily Graffeo, Vildana Hajric and Isabelle Lee.
This article was provided by Bloomberg News.