Should I pay off student loans or invest?

If your student loan rate is above 7%, prioritize payoff — the guaranteed return beats expected market returns on a risk-adjusted basis. Below 5%, invest instead (market returns historically exceed 5% over long periods). Between 5–7%, split: make extra payments on the highest-rate loans while contributing enough to get any employer 401k match.

What is PSLF and who qualifies?

Public Service Loan Forgiveness (PSLF) forgives your remaining federal loan balance after 10 years (120 qualifying payments) while working full-time for a qualifying employer: government organizations, 501(c)(3) nonprofits, and certain other nonprofit roles. You must be on an IDR plan. If you qualify, do not make extra loan payments — let forgiveness eliminate the balance.

Can I refinance federal student loans?

Yes, but it permanently converts them to private loans — eliminating IDR options, PSLF eligibility, and federal forbearance. Only refinance if: you don't need forgiveness, have stable income, and can get at least 1.5–2% rate reduction. Never refinance federal loans just to get a slightly lower rate if there's any chance you'll need federal protections.

What's the avalanche order for student loans?

Sort loans from highest interest rate to lowest. Pay minimums on all. Direct every extra dollar to the highest-rate loan. When it's gone, roll its payment to the next highest. For most borrowers, private loans (8–12% APR) come before federal loans (5–7%). Within federal loans, unsubsidized loans (6.54% for undergrads in 2024) come before subsidized.

How to Pay Off Student Loans: Federal and Private Strategies

Student loan payoff strategy depends on one question above all others: do you have federal loans, and does forgiveness apply to you? The answer changes everything.

Federal vs private: the fundamental split

Federal student loans come with income-driven repayment (IDR) options, Public Service Loan Forgiveness (PSLF), federal forbearance, and other protections. Private loans have none of these — they're closer to a personal loan than a federal benefit.

This means the right strategy for federal and private loans is often different, even if you have both.

If forgiveness applies to you: pay as little as possible

PSLF forgives your remaining federal balance after 120 qualifying payments on an IDR plan while working for a qualifying employer. If you're on track for PSLF, extra payments directly reduce the balance that will be forgiven — you're giving free money to the loan servicer instead of getting it forgiven.

The PSLF strategy: enroll in the lowest-payment IDR plan (SAVE or IBR), certify employment annually, make your 120 payments, and let forgiveness do its job. Use the freed-up payment to invest or build an emergency fund.

Other IDR forgiveness (20–25 year forgiveness on SAVE/IBR) also applies — though the forgiven amount is currently taxable as income, unlike PSLF.

If forgiveness doesn't apply: avalanche order

For borrowers not pursuing forgiveness (stable income, private sector job, no PSLF path), treat student loans like other debt:

List all loans with balance, rate, and minimum payment
Sort by rate, highest first
Automate minimums on all loans
Direct every extra dollar to the highest-rate loan
Roll each payoff into the next loan

For most mixed portfolios: private loans (often 8–12%) come before federal loans (5.5–7%). Within federal loans, unsubsidized loans (slightly higher rate) before subsidized.

Should you refinance?

Refinancing federal loans converts them to private — permanently. The calculation:

Current rate: 6.5% on $35,000 federal loan
Refinanced rate: 4.5% (requires ~720+ credit score, stable income)
Savings over 10 years: ~$4,000
What you lose: IDR options, any remaining forgiveness eligibility, federal forbearance

Only refinance if you're confident you won't need federal protections and the rate reduction is substantial (1.5%+). Never refinance "just in case" — the federal protections have real value.

The invest-vs-pay-off question

A useful rule of thumb for student loans: above 7%, prioritize payoff. Below 5%, prioritize investing (especially in employer 401k with match). Between 5–7%, split: extra loan payments on the highest-rate loans, plus enough investing to capture the full employer 401k match.

The employer match is always first — it's a guaranteed 50–100% return on invested dollars, which beats paying off any loan.