Pay Off $20,000 Student Loan at 6% vs. Invest
Decide whether to aggressively pay down a $20,000 student loan at 6% or redirect $400/month into the market.
How to use this tool
- Enter your debt balance and its APR.
- Enter the monthly cash you could put toward either debt or investing.
- Set your expected annual investment return and the tax rate on gains.
- Choose a time horizon in years.
- Read the verdict, compare the two final net-worth figures, and check the crossover chart and breakeven return.
Analyze whether paying off a low-rate student loan or investing for the long term builds more wealth.
Frequently asked questions
- Why is the breakeven return usually equal to my debt APR?
- Paying down a dollar of debt earns you a guaranteed return equal to the APR. Investing that dollar instead only wins if its after-tax return exceeds the APR. So the tie point — the breakeven — is the APR itself. If your expected after-tax return is below it, pay the debt; if above, invest.
- Should I really ignore the emotional side?
- No. Math says invest whenever your after-tax return beats the APR, but guaranteed debt payoff is risk-free while market returns are not. Many people rationally pay off high-interest debt first for the certainty and peace of mind even when the spread is small — the verdict notes when it’s close to a tie.
- What return should I assume?
- A common long-run assumption for a diversified stock portfolio is 7–10% before inflation and taxes. Be conservative: enter a realistic after-fee number, then let the tax field reduce it further. Guaranteed debt payoff has no such uncertainty.