Pay off high balance student loan or aggressively invest?

I have a 37 yo friend who has $200k in student loans that have a 6% interest rate. She’s in her third year of employment and makes just over $60k per year, which bumps up to $75k within the next two years an then maxes out around $90k at year eight. She wants to aggressively pay off her student loans over the next eight years, but I’m trying to convince her that she should just keep paying the minimum on the loans and start maxing out a Roth IRA and the 457b plan from her employer, because she’s NEVER going to get the time value of investing early back. She has $2k per month she can put towards either one, which will increase along with her income. What should she do?

Oops, I forgot to put something in my OP. Her student loan payments are based on her income, and since her 457b contributions are tax deferred, that would lower her income and serve to keep her loan payments low while she was investing. Thanks in advance for any answers :+1:

Hi Don,
Lots of smart people have differing opinions on this. But here at PFC we believe in prioritizing money in this order:

Mathematically it may be better to invest instead, but a 6% interest rate seems pretty high to me. There is also something to be said about the psychological benefit of being debt-free.

There is no right or wrong way to go about this, so it’s a matter of personal preference :slight_smile:


Thank you for the reply, vivitron, I appreciate it :+1::+1:

One other question, does your friend have an option for loan forgiveness after a period? Just wondering if she only repays the minimum on an income-sensitive plan rather than more aggressively, would her balance end up growing?

I finally finished paying back my student loans last year (in my early 40s). While I’m “behind” on investing, focusing on aggressively ditching debt for a few years allowed us to become debt-free (except our mortgage), fully fund our emergency fund, and turn our focus to investing.

No she is not eligible for any current loan forgiveness offers out there. Right now, as is the case for all federal student loans, payments have been deferred until October 2021, and there has been no interest charged on these loans because of covid.

Shelley, congrats on getting that debt paid down :+1: :+1: