Student Loan vs Invest Calculator

What this calculator does

An investor with a fixed amount of monthly cash flow available — say a recent raise, a side income, or freed-up rent — can deploy it toward an existing student loan or into an investment account. This calculator runs both paths against the same monthly figure over the same horizon, both end debt-free, and shows the projected gap between their terminal portfolios. The output expresses how much more (or less) wealth investing the extra steadily produces versus clearing the loan early and then investing the freed-up payment.

How the comparison is set up

Both paths spend the same total each month: the standard loan payment plus the extra. The invest-first path pays the loan on its normal schedule and invests the extra every month for the whole horizon. The repay-first path puts the extra toward the loan until it clears early, then redirects the freed payment, the standard amount plus the extra, into investments for the months that remain. Each side's terminal portfolio is the future value of those monthly contributions at the investment return. Because both paths spend the same cash and finish debt-free, the gap between the two portfolios is a like-for-like comparison.

Worked example

Take a 50,000 loan at 6% over 20 years remaining, with 300 extra per month and an expected 7% return. The standard payment is about 358.22 a month. Investing 300 every month for the full 240 months grows to about 156,278. The repay-first path instead adds the 300 to the loan, clearing it in about 96 months (roughly 12 years early, saving about 22,924 in interest), then invests the freed 658.22 a month for the remaining 144 months, which grows to about 147,898. The gap is about 8,380 in favour of investing first on these inputs, far smaller than the interest-saved figure alone would suggest, because the repay-first path also gets to invest.

What moves the result

The spread between the loan rate and the investment return drives the verdict. When the investment return exceeds the loan rate, investing the extra steadily tends to come out ahead; when the loan rate is higher, clearing the debt early and then investing the larger freed payment tends to win. The years remaining amplifies compounding on both sides. When the two rates are close, the comparison flattens; when they diverge by 2 percentage points or more, the gap widens quickly.

What this calculation does not capture

The simulation assumes both rates stay fixed for the entire horizon. Real student loan rates can be variable, and real investment returns are stochastic — the calculator's expected return is a long-run assumption, not a guarantee. The model also does not capture: tax treatment of investment returns (which can reduce the net investment outcome by 0.5 to 2 percentage points annually for taxable accounts), sequence-of-returns risk on the investment side, prepayment penalties on some loans, employer matching on retirement accounts, and the value of debt-free flexibility (no minimum payment obligation) versus the value of a larger investment balance.

How to read the verdict

The headline label says which path produces the higher projected portfolio at the end of the horizon. It does not say which path is right for the borrower. The invest-first portfolio carries market risk for the full horizon; the repay-first path removes the debt sooner, a certain saving, before investing the freed payment. Both end debt-free and spend the same cash, so the gap is a like-for-like comparison, but the actual choice depends on risk tolerance and factors the calculator does not model.