Student loan payoff strategy comparison

About this calculator

Student loan strategy — interest saved vs opportunity cost

Three numbers settle the math:

Loan rate — the cost of carrying the debt
Expected investment return — the cost of NOT investing extra payment money
Time horizon — compounding favors longer

The breakeven rate

For a long-horizon investor expecting 7% real returns from index funds:

Loan rate < 4%: invest extra money, pay loan minimum. Almost always wins.
Loan rate 4-6%: split — pay slightly above minimum, invest the rest. Math is close.
Loan rate 6-8%: lean toward payoff. Risk-adjusted, paying down a 7% guaranteed return often beats expected stock returns.
Loan rate > 8%: pay aggressively. Few investments offer guaranteed returns matching this.

What the calc shows

Aggressive payoff: months to clear at higher payment
Minimum payoff: months to clear at minimum payment
Interest saved: total interest avoided by paying aggressively
Opportunity cost: investment gains forgone by routing the extra dollars to debt instead of an index fund

If interest saved > opportunity cost: pay aggressively. If interest saved < opportunity cost: invest the extra.

What this calc skips on purpose

Tax deduction for student loan interest (capped at $2,500/year, phased out at higher incomes — usually small impact)
PSLF / IDR forgiveness considerations (federal loans only — radically changes the math if you qualify)
Refinancing — should be evaluated separately. Refinance to the lowest rate possible THEN run this calc

The behavioral consideration

Math doesn't capture: the psychological weight of debt, divorce/inheritance/job-change risk, the discipline required to actually invest the "extra" money instead of spending it. For many people, the certainty of debt-free is worth a few thousand dollars in foregone math optimization.

FAQ

Should I refinance before paying off?

Refinance first, payoff second — if and only if you have only private loans or are confident you don't need federal protections (IDR, deferment, forgiveness). Refinancing federal loans converts them to private and forfeits all federal benefits. Once private, refinance every 1-2 years if rates drop.

What about the avalanche vs snowball method?

Avalanche (highest rate first) is mathematically optimal — saves the most interest. Snowball (smallest balance first) has psychological wins that improve adherence. For a single weighted-average rate situation, the difference is small. Pick what you'll stick with.

Should I prioritize loans or 401(k) match?

Always 401(k) match first. A 100% match is a guaranteed 100% return, beating any reasonable loan rate. Then emergency fund (3 months expenses), then aggressive loan payoff, then maxing tax-advantaged accounts, then investing in taxable.

Federal loan forgiveness — should I count on it?

PSLF (10 years public service): real, ~640k people received it as of 2024. Plan if you qualify. IDR forgiveness (20-25 years on income-driven): real but exists at the discretion of future Congresses. Don't make 25-year financial plans assuming legislative continuity.

Total balance	$65,000
Weighted average rate %	6.5%
Current minimum payment ($/mo)	$700
Aggressive payment ($/mo)	$1,500
If not paid: invest at this %	7%

Minimum payment payoff (months)	129
Aggressive total paid	$74,282
Minimum total paid	$90,592
Interest saved (aggressive vs minimum)	$16,310
Opportunity cost (forgone investment)	$6,162