One of the biggest financial questions physicians face is whether to prioritize student loan repayment or investing. With high debt loads, delayed career starts, and the need to build long-term wealth, the answer is rarely simple. In most cases, the best approach is a combination of both.
This decision depends on factors like loan balance, repayment strategy, tax implications, and investment opportunities. Here’s how to determine the best path for your situation.
Step 1: Understand Your Student Loan Situation
Before deciding between paying off loans or investing, consider:
1. Are You Pursuing PSLF?
If you qualify for Public Service Loan Forgiveness (PSLF) and with income payments plans there will be a remaining balance to have forgiven, the decision is clear: make only the minimum payments and invest any extra funds. Additional payments reduce the amount forgiven after 10 years, making them unnecessary. Read our Physicians Guide to PSLF.
2. How Much Do You Owe?
Your total loan balance affects your repayment strategy. A physician with $100,000 in loans should likely take a different approach than one with $500,000.
3. What Are Your Interest Rates?
Your loan’s interest rate plays a major role in your decision:
- Below 5% → Investing is likely the better choice since long-term market returns (historically 7-10%) are higher.
- Above 6% → Paying off loans aggressively is often the best move, as it guarantees an after-tax return equal to your loan rate.
Step 2: When to Focus on Paying Off Student Loans
If you’re not pursuing PSLF, paying off debt may be the better option if:
1. You Strongly Dislike Debt
To some, carrying debt is far more stressful than it is for others, even if investing could yield higher returns. If that’s the case for you, prioritizing repayment may be worth it for the peace of mind.
2. Your Loan Interest Rates Are High (6%+)
Paying off a 7% loan is equivalent to earning a risk-free, after-tax 7% return—something investments can’t guarantee. If refinancing isn’t an option, aggressive repayment makes sense.
3. You’re Already Investing 15-20% of Your Income
If you’re consistently contributing to tax-advantaged retirement accounts and have extra cash flow, paying down debt can be a great way to accelerate financial progress.
Step 3: When to Prioritize Investing
In some cases, investing should take priority over debt repayment.
1. Your Loan Interest Rates Are Below 5-6%
If your loan rates are low, the expected long-term return from investments (7-10%) is likely higher—especially when factoring in tax-advantaged growth.
2. You Have an Employer Match
Always contribute enough to your 401(k)/403(b) to get the full employer match—it’s free money and an instant return.
3. You Want to Maximize Tax-Advantaged Accounts
High-income physicians benefit from maximizing tax-favored accounts, including:
- 401(k) & 403(b)
- HSA (Health Savings Account)
- Backdoor Roth IRA
These accounts offer long-term tax benefits that can’t be retroactively funded, so it’s essential to take advantage each year. See our full list of tax-favored strategies.
Step 4: The Hybrid Approach—Balancing Both
For most physicians, a mix of investing and loan repayment is the best strategy. Here’s a simple order of operations:
- Capture the Employer Match – Always contribute enough to get the full employer match in your retirement plan. This is free money.
- Save 15-20% of Income in Tax-Advantaged Accounts – Max out available options like a 401(k), 403(b), HSA, and Backdoor Roth IRA. If income limits prevent you from reaching 15-20%, revisit investing after paying off high-interest debt.
- Eliminate High-Interest Loans (>6%) – Use extra income to pay off high-interest loans, as this provides a guaranteed return.
- Bridge the Retirement Savings Gap with Taxable Investing – If tax-advantaged accounts aren’t enough to reach your savings goal, invest in a taxable brokerage account.
- Pay Off Remaining Low-Interest Debt (<5%) – Once you’ve hit your household retirement savings rate target, focus on eliminating any remaining low-interest debt.
Final Thoughts
The decision between paying off student loans or investing isn’t an all-or-nothing choice. As we’ve seen, the best strategy depends on a mix of factors, both financial and personal. By following a balanced approach, physicians can manage student loans effectively while also building long-term wealth.