Pay Off Student Loans or Invest in the Market? George Kamel’s Advice

A 23-year-old with $25,000 in federal student loans has grown his brokerage account to $25,000. Should we pay off his debt at a 4.5% rate? Or should he continue with his stock market investments?

The math, he argued, favored keeping the loan and letting the market compound — presumably at a rate higher than 4.5%. But when he called into the Ramsey Show, he got surprising advice.

“Cancel the debt today,” said George Kamel. “Live debt-free for 2 pay periods, 2 months. If you hate not owing anybody any money, go down to the local credit union, take a $25,000 loan and put it back in the market.” Kamel emphasized the power of financial freedom. “You have never been 100% in the driver’s seat of your own life. You got a bank telling you, ‘I don’t care if you’re sick, I don’t care if COVID’s here, you owe me that money.'”

Here is the financial concept: risk-adjusted return vs. guaranteed cash flow. The 10-year Treasury yields about 4.3%, and the Fed funds upper bound sits near 3.8%. A guaranteed 4.5% beats both. To outperform the payoff with stocks, the caller needs equities to deliver a premium over that hurdle in every year for the full payoff period.

Yes, the long-run market has done that. The S&P 500 is up about 30% over the past year and roughly 242% over the past decade. But of course there’s no guarantee of future performance.

Co-host Jade Warshaw pointed at the psychological impact of the student loan. “It’s a soul tax that you pay,” she said. “It’s a sleep tax that you pay. It’s a relational tax that you pay.” She admitted the caller might make more money by going the investing route, especially if the stock market keeps breaking records. “What do you wanna exchange for your freedom?” she asked. “It’s a short sacrifice. And winning isn’t just in dollars and cents. It’s in peace.”

“If you unshackle yourself from people telling you what to do at 23, how fast you can run will astonish you,” Kamel added. “You’ll get so far, so much further ahead of your peers, your neighbors, the people around you.”

Advice for Making This Decision

1. Confirm the emergency fund first. Before writing the payoff check, verify three to six months of expenses sit in a high-yield savings account. Without that buffer, a job loss could turn a paid-off loan into new credit card debt.
2. Compare your loan rate to the after-tax yield on Treasuries and the inflation-adjusted return you actually expect from equities over your payoff horizon.
3. Redirect the payment, automatically. The day the loan payoff is complete, set up a brokerage auto-deposit in the amount of your former monthly loan payment.