Student Loan Pay Off vs Invest Calculator

Pay Off Debt or Invest?

Math vs. Psychology. Compare the guaranteed return of debt payoff against potential market returns.

This is your "Guaranteed Return".

Avg S&P 500 is ~10% (nom) or ~7% (real).

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To adjust for capital gains taxes (simplified).

The "Guaranteed Return" Fallacy

The stock market averages 10% returns, while your loan is only 6%. Simple math, right? Invest! Not so fast.

Risk vs. Reward

  • Debt Payoff: Paying a 6% loan is a Risk-Free 6% return. It is guaranteed.
  • Investing: The market return is volatile. You could lose 20% this year. The "Average" requires decades to materialize.
Case Study: The Bull Market Trap

In 2021, many borrowers kept their 3% loans to invest in crypto/stocks "making 20%".

The Crash: In 2022, markets dropped ~20%. Their investments tanked, but the debt remained.
The Lesson: Do not leverage debt to invest unless you have a high risk tolerance and a clear spread (e.g., a 2.5% mortgage vs. 8% index fund).

Decision Framework

Zone 1: The "No-Brainer" (Rate > 6%)

Pay these off aggressively. A guaranteed 7-8% return is unbeatable by most safe investments.

Zone 2: The "Gray Zone" (4% - 6%)

Dealer's choice. Do you hate debt? Pay it off. Do you want to maximize net worth? Invest.

Zone 3: The "Cheap Money" (Rate < 4%)

Invest. Paying perfectly good liquid cash into a 2.5% loan is losing money relative to inflation and high-yield savings accounts.