Should I pay off student loans or invest?

The decision depends on your interest rate, whether loans are federal or private, and whether you're eligible for forgiveness. Federal loans under 5% usually favor investing; private loans above 7% usually favor aggressive payoff.

The decision tree

• Rate under 5% (old federal loans): pay minimum, invest extra in index funds (~7% real return).
• Rate 5-7% (current federal undergrad): split — some extra payments, some investing.
• Rate 7%+ (grad school, private loans): aggressive payoff usually wins.
• Always capture employer 401(k) match first — guaranteed 100% return.

Federal loans have protections private loans don't

• Income-driven repayment (IDR) plans cap monthly payments at 5-20% of discretionary income
• PSLF: Public Service Loan Forgiveness after 120 payments in qualifying jobs
• IDR forgiveness: balance forgiven after 20-25 years
• Death/disability discharge
• Deferment and forbearance options during hardship

Don't refinance federal loans without careful thought

Refinancing federal loans to private permanently eliminates all of the above protections. Only refinance if: you have stable high income, significant savings, no plans to pursue forgiveness, and the new rate is 2%+ lower than your current federal rate.

When forgiveness math changes everything

If you're heading toward PSLF or IDR forgiveness, paying extra is actively counterproductive — you'd just be forgiven less. In this case, pay the minimum under IDR and invest aggressively. The forgiveness math often beats aggressive payoff for high-balance/lower-income borrowers.

Private loans: different calculus

• Refinance regularly as your credit improves — every 6-12 months check rates
• No forgiveness protections, so aggressive payoff math is cleaner
• Rate over 7%: mathematically better than most investments
• Consider a debt avalanche approach if you have multiple private loans

The hybrid approach

For most borrowers with a mix: (1) capture 401(k) match, (2) max Roth IRA if possible, (3) use extra cash to aggressively pay down highest-rate debt first, (4) reassess as each loan is paid off. Don't let loan payoff crowd out retirement contributions during your highest-compounding years.