Why I Decided to Invest $90K Instead of Pay Off My Student Loans

TLDR: Financial decisions, like many decisions in life, are wrapped up in both logic and emotion. Learn to recognize both sides and make the decision that makes sense for YOU, because only you have to live with it.

I made the decision to sell my house a couple of years ago. Strangely enough, that decision wasn’t super difficult to make once I had done some of the “pre-work” if you will of really thinking about what I wanted my life to look like, and then comparing that to my current state. What surprised me the most out of that experience was what happened after I sold the house. I was very fortunate to be able to ride the everyone-wants-a-bigger-house-during-COVID wave so I ended up doubling what I had put down on the house just two years before. I was (and still am) so grateful for that. But now I was faced with the question of what to do with all that cash.

To paint the picture a little better on why this was a difficult decision for me, let me take you back in time. My parents always encouraged me to follow whatever path I felt was right for me in life. So, in 2008, I graduated high school and headed off to art school in Boston thinking I was going to be a photographer. After one semester, I realized that was not the right path for me because actually I wasn’t that good at it and it cost a shiz ton of money per year.

I did a hard pivot into studying business, because, when you don’t know what to study, you go for the generic, sensible major (no offense, fellow business majors). The point here is that I self funded all of that tuition, apartment in Boston, apartment in New Hampshire after switching, books, etc by taking out student loans. By the time I graduated, I was strapped with over $80K of student loan debt. I’m sure this story is familiar for many of you.

Now, fast forward to the post house sale. I had a big decision to make: Do I pay off the student loan debt I’ve been slugging around for 7 years barely making a dent in or do I invest the money in something else? I had just done my first passive investment in a real estate syndication and was starting to realize the power of this investment class.

Being the logical person that I am, I decided to crunch the numbers. If I paid off the student loans outright, then I would save $15K in interest over the life of the loan. I would also be able to put that $8K a year in payments I was making towards my savings. At my current savings rate, it would take me about two years to fully replenish that $90K of savings. In that two years, what I would invest in would be making an average 18% return annually, netting about $32K in those two years. Plus all of the time value of money calculations, inflation that eats away at savings, etc. that I won’t go into. Even though I wouldn't see that money in my pocket right away because it would be a long term investment of 5 years or so, I could still get a two year jumpstart.

I thought to myself, clearly from the math, it made more financial sense to invest the money, right? So, why was I still struggling with the decision?

I called up my mentor and asked for advice: which one should I do? Her answer, being an avid investor, was if it was her money she would invest it, because this loan was “cheap debt” at a very low interest rate. She said something after that surprised me…if the student loans are a mental and emotional burden for you, then consider paying those off instead. It’s your money and your decision.

At that point in time I hadn’t realized that what I was struggling with was the fact that this wasn’t just a cut and dry logical decision. There was emotion wrapped up in it. I had always thought, once I have those pesky student loans paid off, I will be free and I will have done what all of the blogs and money gurus I had read tell you to do: Be debt free before you invest. I had this idea in my mind that was what I was supposed to do and that I would have some revolution when I was finally debt free.

I sat with the decision for a while, and realized there wasn’t really a right answer (which, as a person who likes facts and numbers, drove me nuts). The answer really depended on what I could live with and what would make me feel happier. For me personally, I felt that knowing my money was working hard for me and not being sucked into this narrative that I was doing something wrong by investing while still having a pile of student loan debt was the choice that made me feel most at ease. I was able to work through that emotional piece, recognize it was a part of what I was feeling, and decide that actually that emotional burden was removed once I really took the time to explore it further.

I haven’t regretted my decision to invest vs pay off the debt for one minute. And today, I have enough passive income coming in monthly to cover that whole student loan payment, so I hardly ever even think about it. My financial goals have shifted, and so has my mindset. I don’t really care about being student loan debt free…I care about being financially independent in 10 years. So I’m following the path that I believe will help me get there.

Ultimately there was no right or wrong decision here. I want you to know that. But there was a decision that felt right for me personally. I went into all of this detail to help illuminate the fact that there is always logic and emotion wrapped up in decisions, and especially when it comes to money. Don’t let anyone tell you what is right for you. Only you can decide that, because only you have to live with the decision. Do what makes sense for you, and provides you with peace of mind. Because that right there is priceless.