Pay off my student loans or invest?

By Jimmy Turner, MD
The Physician Philosopher

TPP Takeaways:

  1. Wealth = Assets – Debts.  Therefore, if you are building your assets by investing or destroying your debt by paying it off more quickly, then you are accumulating wealth.
  2. The question isn’t which to do.  You should be doing both. Aggressively invest AND destroy debt.
  3. Sometimes the head and the heart don’t agree. Paying off debt versus investing additional money is a very personal decision, and one that isn’t always figured out by doing the math.
  4. Generally, if you are debt adverse (like me) = pay off the debt; if you don’t mind the debt = put additional money into investment vehicles.
  5. Regardless, I recommend looking into PSLF or refinancing your loans as soon as possible!  You have to make an intentional plan towards debt, ignoring it doesn’t work.

What is Wealth?

I remember the first time I received a quarterly bonus check (yes, this happens for those of you still in training, and it is wonderful).  Immediately, I thought, “What should I do with this extra money?”

Debt Carousel

I could take my three kids to the fair with that extra money. That’s one thing I could do.

Well, I could go and spend it on nice things I was neglected during medical school, residency, and fellowship.  However, that would go against the tried and true method of living like a resident after residency for a few years.  Since I’ve already maxed out my employer 403(B) and my wife’s governmental 457, I could put that money into a backdoor roth.  Or I could pay off school loan debt.

Wealth = Assets – Debts

In my situation, paying off debt simply made more sense.

As you may have seen in my previous post on disability insurance, I have been denied personal disability insurance and am having to rely on my group policy.

So, despite the fact that I have earned ~15% on my investments during the bull market we are experiencing and my debt is at a 10 year variable rate of 3.6% after refinancing my loans, I made the decision to put my extra money into destroying debt.

The reason is simple.  Sometimes the head and the heart just can’t agree.  Paying off my debt provides more peace of mind than making more in the market investing.  The math doesn’t make sense, but what is the point of wealth if you aren’t content?  Additionally, if I became disabled, it likely wouldn’t matter how much I’d saved at this point.  I owe that debt regardless of my condition as long as I am alive.

And once I’ve finished paying off my debt, investing is exactly where that money will go!  Either way I am accumulating wealth (Assets – Debts) by adding to my investments or destroying my debt.

What if you aren’t in my boat?

Obviously, I hope most of you learned from my mistake with disability insurance and will not be forced into the same difficult situation.  That said, I don’t know if I would feel differently about where to put extra money.  There is just something about the peace of mind that comes with being free of debt.

However, if you are a stone cold logician who only looks at the math, it may make more sense to put your additional windfall money into investments earning 6-8% interest than to pay off refinanced loans at 3-4%.

Regardless, upon finishing residency you should make up your mind on whether you are going to pursue PSLF or refinance your loans.  This is another way to destroy debt, or at least to make sure that the debt doesn’t destroy you!

What do you think?  With extra money, should we be destroying debt or building our investments?  What have you done?



  1. Gasem

    I would invest and let the loan take care of itself once I had reduced the loan interest as much as possible. By the time you reach retirement the loan will be long forgotten. The dollar you put in today yields $6-$8 at age 30 with a 30 year retirement horizon. It only yields $3 if started 15 years out and only yields $1.7 10 years out. It’s the compounding that makes you wealthy. You’ll just have to forgo the McMansion until you get the debt handled. Hopefully by then you’ll have the McMansion out of your system.

    As an anesthesiologist you will never be unemployed unless you want to be. I still get 5 locum solicitations a day. The loan obviously provided you a step up in earning power so you can look at it as leverage for your investments. If it hits the fan and you become disabled you will be negotiating deals to not pay full price anyway. As a lender I’d rather get 50 cents on the dollar than no cents.

    One thing I did was to correlate the ending of my mortgage with the commencement of my daughters freshman year. This freed up some” just in case money” since I was already used to paying the mortgage I felt no change in lifestyle.

    • ThePhysicianPhilosopher

      Yeah, I am personally in a tough spot with the disability issue, but what you are saying is what I would recommend to the vast majority who are able to refinance at lower rates (<4%).

      I hate I'll be missing out on compounding interest. While I have a lot of risk tolerance in the stock market (100% stocks via index funds, no bonds) my risk tolerance for disability without having my debt paid off is next to zero.

  2. LifeofaMedStudent

    I’m paying off mine with a 4:3 ratio of debt vs taxable account investment, that’s after 401 max and his/her backdoor Roths. I’m on a 5yr refi plan, fixed at 3.25. I want them gone as soon as possible but also didn’t want to ignore the math in favor of investing. I don’t think there is a wrong answer depending on’s debt adversion, but I’d prolly do backdoor Roths first since those truely become “use it or lose it” yearly.

    • ThePhysicianPhilosopher

      That’s actually what I ended up doing (maxing out 403B for me and governmental 457 for my wife). I ended up doing a backdoor Roth for 2017 earlier this month for my wife and me. After that, it’s all debt until it’s paid off before I put money into a taxable account.

      I will say that at five years it probably would have benefited you to do a variable rate given that the variable rate is substantially lower and unlikely to go up high enough and fast enough to cost you more than the fixed refinance rate.

      Either way, sounds like a solid plan at 4:3! And the most important part is sticking to the plan!

      Thanks for the comment!

      • LifeofaMedStudent

        Definitely would have been better to do a variable and almost did. But Kind of like the debt, whittled it down to peace of mind. The difference between the variable rate and fixed was $4200 at 5yrs, IF the variable rate didn’t go up at all. And It’ll almost certainly go up a little. So I knew my neurotic self would be obsessed with rates for 5 years, or pay a couple thousand to not have to think about it again. I am happy with my decision! 🙂

        • ThePhysicianPhilosopher

          As long as you made an intentional choice to make the head and the heart happy, that’s all that matters!

          • LifeofaMedStudent

            Amen! That’s the biggest key; as long as it’s an intentional and to a plan! Great post, enjoy seeing how other people ration through these decisions.

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