Should You Pay off Student Loan Debt or Invest Instead?

Should You Pay off Student Loan Debt or Invest Instead?

Out of all the questions I get about credit card debt, student loans, emergency savings, etc. – this one may be the most common. The funny thing is that usually people already have a strong opinion about it and just want me to try and prove them wrong for some reason.

The internet is weird (and people are weirder honestly).

Before we jump in, I want to make it clear that there is no real “right” answer for this one in most cases. I have some thoughts based on my own experiences with debt. However, for every person like me there is someone else who has had an equally positive experience with a different strategy.


If I’ve learned anything so far…it’s definitely that. I make a lot of statements about $$$ on this site that get some people uncomfortable when they hit too close to home. I get it. But I also know who my audience is and what type of content they need, so it works. ­čÖé

Check out the only company I recommend for finding lower student loan interest rates.

“Should I pay off student loan debt or invest?”

As a general rule, I like the idea of using extra funds to pay off debt (especially student loans) instead of investing. Before anyone calls me crazy – hear me out! My reasoning came from a really good friend of mine that convinced me to pay off MY┬ádebt.

A lot of you already know my student loan payoff story, but for those that don’t I paid off $40,000 of student loan debt on a teacher’s salary. It was awesome and obviously was the key to my killer blogging career that I currently enjoy.

My friend’s┬áreasoning was simple. My return on the investment of paying off my student loans would be guaranteed. Boom.

You could absolutely argue that I should have put my money into the markets instead after college. There’s a good chance that I would have ended up better over the long term and would have outpaced my student loan interest with my percentage of return.

But just like most┬áseasoned investors will tell you – you can’t predict the future and shouldn’t try to.┬áHowever…I can predict that I would put future interest money back in my pocket (or really keep it there) by paying down my student loans at 6.8% interest.

I could actually guarantee that return, which is powerful.

You can’t guarantee that kind of return anywhere else.

I’m sorry, but if you honestly have a way to guarantee substantial investment returns or even the average stock market investment return over any period of time…you should be doing that full time and DEFINITELY shouldn’t give a crap about my site.

The reality is that the markets rise and fall, and we don’t have any way of accurately predicting what they will do. Now, if you’ve invested and had killer returns, cool! I’m proud of you. Seriously. But I’m not going to tell a 22 year old with $60,000 of student loan debt making $35,000 per year to follow in your footsteps.

It would be irresponsible in my opinion, because I KNOW paying off their debt will help get their head above water. I don’t know if investing in the markets or real estate will. See what I mean?

There are other benefits to paying off debt that go beyond the numbers.

Anyone that has ever made that last payment on anything┬áknows what that feeling is like. I truly believe┬áTHAT feeling is worth something. It’s tangible. It’s real. It has value. It’s worth sacrificing like crazy to achieve.

I can’t tell you how many Facebook comments and emails I’ve had where people talk about how proud they were to pay off their car or finish their student loans. Talk to anyone who has paid off their mortgage, and I guarantee there is a strong sense of pride associated with that accomplishment.

We live in a world where debt is normal only because advertising would have us believe it. It’s not freaking normal.

Can it make you money (i.e. real estate investing)? For sure. I’m a huge fan of real estate investments and plan on allocating a lot of capital there in the coming years. But the average person trying to figure out their debt needs the most direct solution, not the one that might work out better if things go their way.

I think the guaranteed return of paying off student loan debt is the way to go.

Question for you:

Pay it off or invest instead?


Live differently. Your bank accounts will thank me later. ~M$M

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24 comments… add one
  • Lindsay @ The Notorious D.E.B.T. Nov 4, 2016, 7:07 am

    I agree! I have two loans totaling ~$55k, and I make $38k/year with my day job. One loan has an interest rate of 3.25%, and the other is at 5.25%.
    I could theoretically make a lot more money by investing any extra cash instead of paying off the debt.
    But, I would be able to sleep better at night having paid off the debt – especially because my student loans are private. My financial situation isn’t exactly stable, and if anything happens I’ll never be able to discharge them in a bankruptcy, should that happen. I’m also not eligible for all of those sweet perks the federal loans come with. If anything happens, my loan company’s response would likely be to just bend over and take it.
    Better to get rid of the loans.

    • Millennial Money Man Nov 4, 2016, 7:17 am

      Yep that’s my mindset as well – worked well for me! I think people really discount that feeling of paying off debt. That is a tangible feeling that has a lot of value IMO.

  • Apathy Ends Nov 4, 2016, 7:47 am

    At 6.8% interest I 100% agree that you should knock that student loan debt out. That is where my rates where before ReFi and it was brutal.

    Right now I do a mix of extra payments and investing as our interest rates are under 4.4%(Our ratio was 10-1 Investment to SL payoff last time I checked). I have made a few huge SL payments lately with company stock sales – and it feels good. Once those loans are gone it will be like getting a $12,000/year tax free raise.

    I weigh the interest rate vs long term market gains when making decisions like this – we have a car loan at .9% interest and I will definitely choose investing over paying that off early

    • Millennial Money Man Nov 4, 2016, 7:55 am

      I definitely think that once you start to get into the low interest rates that we are seeing now it starts to get more complex. I still lean towards paying off debt in that scenario, but you have a great argument for your strategy!

  • Matt @ Distilled Dollar Nov 4, 2016, 8:53 am

    I’m glad you opened up with, “no financial situation is the same.” I agree – overall, this is a win/win type of situation where either direction leads to a better financial life. So, if we’re struggling to decide between each of these two options, it helps to reflect for a moment and remember this is a GOOD problem to have! ­čÖé

    With that said, we’ve adopted a hybrid approach. We invested as much as we could to take advantage of 401k matches and to max out our pre-tax contributions before accelerating our student loan payments. We now pay more in student loans each month than in rent so I feel we can call ourselves debt de$troyers now!

    The pre-tax amounts are my own version of a guaranteed return, but only because we plan on utilizing an IRA conversion ladder in a pre-65 retirement setting. Definitely not the ideal plan for most people, but I hope that sheds light on why I view it as guaranteed.

    Great post as usual and I’m sure this is a conflict many millennials are dealing with now. Especially after we are progressing in our careers and starting to see additional cash on our paychecks.

    • Millennial Money Man Nov 4, 2016, 10:40 am

      That’s a great way to put it Matt – if people are even thinking about it…I’m happy. 401k matches are the exception. Can’t turn down free money; wish I would have included that in this post! I’ve had to many emails and Facebook messages to think that everything is the same for everyone (except new cars…I won’t budge on that haha)!

  • Financial Panther Nov 4, 2016, 9:15 am

    I went the same route as you and opted to pay off my student loans fast! For me, I wanted that flexibility that came from being debt free. If I had the student loans, it meant I was stuck in a job that I didn’t really like. But by paying them off, it really opened up different opportunities that I might otherwise not have been able to take.

    • Millennial Money Man Nov 4, 2016, 10:38 am

      Yeah that last payment and KNOWING that I had more options changed everything for me. If it hadn’t been for that my site wouldn’t have done as well as it has so far for sure!

  • Mrs. Picky Pincher Nov 4, 2016, 9:18 am

    For our situation, paying off the loans makes more sense, for two reasons.

    1. Some of our loan interest rates are above 4%. That means that, over time, we’ll have more return on our investment if we pay on the student loans instead of investing (which averages a 4% return over the long term).

    2. We want to decrease our debt-to-income ratio. This is super important if you’re young and trying to improve your credit. It’s especially important when purchasing a home–you could even score better financing with a lower debt ratio.

    In fact, we won’t start heavily investing until we pay off our loans in 18 months or so. At that point, we’ll start paying more aggressively on our mortgage while investing a little bit–the priority there is the mortgage. Once the mortgage is paid off, we will throw absolutely everything we can into investments.

  • Roger Nov 4, 2016, 9:36 am

    My student loan balance is $6,500 at 5.2% floating. I haven’t gone all in either way. I’d pay off the debt AND save/invest at the same time to not miss out on any good returns.
    15-20% annual returns from indexed mutual funds (low MER) from 2009-2012 can’t be missed.

    • Millennial Money Man Nov 4, 2016, 10:36 am

      The problem is that you can’t guarantee 15-20% returns in the future. It’s always easy to look back and say it was the right choice, but especially for the purposes of this site I like to give young people the sure fire returns! Thanks for sharing!

  • Rick Nov 4, 2016, 10:13 am

    The answer is based on each person’s unique situation. This can be a very complicated answer if you want to look at the true financial aspects. For instance, you need to consider the impact of taxes. The interest you pay is tax deductible (or st least it used to be), and the interest you earn on savings/investments are likely taxable. Second, inflation needs to be considered. You are paying back this loan with future dollars which are worth less each year. Third, cash flow needs to be considered. Cash is king. Paying off the balance impacts your liquidity. In the event you need cash for either an emergency or opportunity, you won’t have it. And you’ll probably need to get another loan or use a credit card, neither of which likely will be deductible in terms of interest and rates will also likely be higher. Finally, you might want to consider putting the extra money into a safe yet guaranteed asset called whole life insurance. At an early age, the premiums are very reasonable, you have a guaranteed cash value that is liquid, you can borrow from it, you have protection for your family and there are tax benefits.

    • Millennial Money Man Nov 4, 2016, 10:34 am

      You had me until whole life ­čÖé Great thoughts though!

      • Michael Nov 6, 2016, 1:29 pm

        I had the same thought. Term insurance is a better deal.

  • Matt Spillar Nov 4, 2016, 3:30 pm

    “There are other benefits to paying off debt that go beyond the numbers.”

    For me, that statement is the biggest key to the whole issue. Mathematically, due to compound interest I think investing is better long-term for net worth. However, personal finance isn’t ONLY about the math, a HUGE part of money is the emotions behind it. Paying off debt is freeing, makes life less stressful, and increases your flexibility with how you get to allocate your money. I’ve been investing 10% in my 401k to get a start on investing and get my company’s match, but the rest of our extra funds all go to student loan payoff and we’re completely content with that decision.

  • Amber from Red Two Green Nov 4, 2016, 9:41 pm

    I totally agree. I was definitely persuaded to start aggressively paying off student loans over investing when I considered the fact that it was a guaranteed return. Plus, it’s just an icky feeling having student loans hanging over your head. Not to say debt can’t be used wisely (like your real estate example) but for me, student loans are just something to get rid of. (And we have about $600k in them ­čśČ)

  • Lisa Nov 12, 2016, 1:45 pm

    I have about ~200k in student debt and was working on paying them all down. My work situation turned crappy and I opted to open my own business. Income took a huge hit and paying them took a big hiatus. We’ve changed our strategy where we’ve also gotten into rentals so our $$ goes into fixer uppers with minimal cash upfront and within a couple years I’ll be paying the student loans off with the rental income.
    As you’ve said, every situation is different. I’ve run the numbers numerous ways and this is what works best for us.

    • Millennial Money Man Nov 13, 2016, 8:51 am

      Congrats on starting your business! I totally understand how stressful that can be haha. Sounds like you’ve got a solid plan, good luck!!!

  • Allesan Jan 1, 2017, 2:11 pm

    Absolutely pay off the debt. Its like a shackle. Weve paid off $73k in the past 18 months and are on track to be debt free in 5 years. Thats with 6 figures of student loan debt!

  • Javier Gutierrez Jan 16, 2017, 6:08 pm

    The best way I have heard it said is; would you borrow (your student loan amount) at (your student loans interest rate) in order to invest it? In my situation I would have never borrowed $15K at 6.5% interest and try to beat the market with my limited knowledge. That being said I think the opportunity cost spent on getting out of debt will reward us in the future when we can focus solely on investing. Loved reading about everyone’s journey. Best wishes!

    • Millennial Money Man Jan 16, 2017, 6:32 pm

      I like that mentality. Paying off debt can be a bit of an opportunity cost, but it can also be well worth it.

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