Should I Pay Off My Student Loans or Invest?

First Republic Bank
August 25, 2020

When dealing with a significant student loan balance, you might be tempted to pay off your debt as quickly as possible. You may have considered putting your other financial goals on hold so you can focus on eliminating your debt. However, when it comes to investing for the future and saving for retirement, time is your greatest asset, so it’s essential to find the right balance between paying down your debt and investing for your goals.

Here are six questions to ask yourself when deciding whether you should pay off student loans or invest your money.

Note: Currently, all payments for certain types of federal student loans are suspended until May 1, 2022 per an executive order by the President. Interest will not accrue during this time period. (Note updated on 12/22/2021)

1. Are you making the required payments on your student loans?

To avoid hurting your credit score, increasing the amount you pay overall, or risking your chances of qualifying for a student loan refinance, you should always make on-time payments to your lender for the full amount due each month. Learn more about student loan repayment strategies, especially if you are balancing other forms of debt, so you can make the right choice for you and your financial goals.

2. What is the current interest rate on your student loans?

Some professionals who completed graduate school in the last decade have student loans with interest rates exceeding 6%, with the average student loan interest rate sitting at 5.8% across all student loans, according to nonprofit think tank New America.

As a general rule of thumb, you should focus on paying down these higher interest rate student loans. For loans with interest rates that fall below this threshold, many experts recommend making your required monthly payment and investing what remains. In the current, low-interest rate environment, keep in mind that refinancing could help you get a lower interest rate and reduce your monthly payment.

3. Could you refinance your student loans?

Another way to tackle high interest rates is through student loan refinancing, which could potentially lower your interest rate or monthly payment and decrease your costs over the life of your loans. This enables you to potentially pay off your debt more quickly and have more money to put towards your retirement or other investments.

Consider flexible financial products that can help you pay off your debt, such as a personal line of credit.

A personal line of credit offers convenient access to funds that borrowers can use for a variety of purposes, including refinancing your student loans into one convenient monthly payment. Use this personal line of credit calculator to find out if you can pay off student loan debt faster, or save more over time, by refinancing at a new low fixed interest rate.

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

One of the benefits of the First Republic Personal Line of Credit is the ability to refinance existing student loan debt and have additional access to funds. Similar to a standard refinance, you will provide the payoff information for your existing student debt, and you will start making one monthly payment to First Republic on your new Personal Line of Credit.

Plus, with its flexible use cases, First Republic’s Personal Line of Credit offers the ability to also refinance other types of debt, such as some home expenses, auto loans or medical treatment.

Please note, this is not a student loan and you may be permanently giving up the benefits of a student loan such as certain deferment, forbearance and forgiveness options.

4. Are you taking advantage of “free” 401(k) money?

Many employers offer matching contributions when you contribute to your 401(k). The amount of this match varies by company and is typically capped at a certain percentage of your salary. It’s recommended to contribute enough to your 401(k) account to take full advantage of your employer match; otherwise, you’re leaving “free” money on the table.

5. Are you already maxing out your retirement contributions?

There is a limit to how much you can contribute to retirement accounts each year. If you expect to easily meet the 2020 limits, the most common being $19,500 towards a 401(k) and $6,000 towards an Individual Retirement Account (IRA), you might want to use your additional funds to pay off your debt. But if you’re far from these maximums or haven’t started contributing to a retirement account, bumping up your contributions is worth considering.

6. What are your other financial goals?

Paying off your student loans and saving for retirement probably aren’t the only financial goals you have in mind. You need to balance these objectives with other near-term and long-term goals such as upgrading your car, moving to your dream city, paying for a child’s education or renovating your home to accommodate a growing family. Understanding your overall goals, cash flow, risk tolerance and tax implications can help you craft a complete financial plan. Helping you think through these things is where a private banker might come in handy.

When it comes to paying down student loan debt or investing in your future, you don’t always have to choose one or the other. Balancing these priorities is often in the best interest of your financial future.


First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts)1.

1. Annual Percentage Rate. Rates effective as of 06/15/2020 and are subject to change.

Borrower must open a First Republic ATM Rebate Checking account (“Account”). Terms and conditions apply to the Account. If the Account is closed, the rate will increase by 5.00%. Rates shown include relationship-based pricing adjustments of: 1) 2.00% for maintaining automatic payments and direct deposit with the Account, 2) 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and 3) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account.

Personal Line of Credit consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock), for speculative purposes, for business or commercial uses, or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination.

Personal Line of Credit minimum is $60,000; maximum is the lesser of $350,000 or debt to be repaid at origination plus $100,000. If no debt to be repaid at origination, the maximum loan amount is $100,000. Line of credit cannot be fully drawn at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to re-obtain such benefits if this loan is refinanced with another lender in the future.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit Applicants must meet a First Republic banker to open account. This is not a commitment to lend; all lending is subject to First Republic’s underwriting standards. Applicants should discuss line of credit terms, conditions and account details with their banker.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

This information is governed by our Terms and Conditions of use.