401k vs Student Loans: Which Should a Doctor Prioritize?

Disclosure / Disclaimer (Educational Only): This article and the embedded calculator are for educational purposes only and are not individualized financial, investment, tax, or legal advice. Assumptions may not apply to your situation. Markets are volatile. Tax laws change. Student loan terms vary. Consult your CPA and/or financial professional before acting.

The attending physician dilemma

A lot of attendings step into their first “real paycheck” carrying a debt load that can feel heavy even when the math says it’s manageable. According to AAMC data for the Class of 2024, most graduates had education debt, with median and mean debt levels that can easily translate into significant monthly payments once you’re out of training (Source).

At the same time, student loan interest rates for graduate/professional federal loans in recent years have often been in the high-single digits. (Source)

So here’s the question I hear constantly:

If you have extra cash each month, should you (1) pay down student loans faster, or (2) prioritize pretax investing in a 401(k)?

My answer is usually: start with the math, then adjust for risk, flexibility, and psychology.

What the calculator is actually comparing

This calculator compares what happens to $1 of after-tax spending you give up today.

• If you use the $1 to pay extra principal on student loans, you’re effectively “earning” the loan APR as a guaranteed return.

• If you instead contribute to a traditional pretax 401(k), the $1 of take-home you give up can translate into a larger pretax contribution (because you don’t pay taxes on that dollar today). That money grows, and then (generally) gets taxed when you withdraw it in retirement. IRS

Key point: this is not a full amortization schedule or a promise about markets. It’s a simplified “marginal dollar” comparison.

Step 1: Put in your best inputs

Your combined marginal tax rate matters

The higher your marginal tax bracket today (federal + state + other factors), the more “leverage” you get from pretax contributions, because each dollar you put into the 401(k) reduces current taxable income.

Your retirement tax rate matters too

The calculator asks for an effective retirement tax rate because traditional 401(k) dollars are generally taxable when distributed. IRS

If you expect a meaningfully lower tax rate in retirement than today, pretax contributions become more valuable. If you expect higher future taxes, that advantage shrinks.

Returns are uncertain (and history isn’t a guarantee)

It’s normal to use a long-term return assumption for planning, but long-run return data is noisy and comes with wide uncertainty. Stern School of Business

That’s one of the reasons I treat the calculator as a baseline, not a commandment.

Step 2: Reality-check the assumptions

“We don’t get the student loan interest deduction”

Many attending households do not qualify for the student loan interest deduction due to income phaseouts. The IRS rules and phaseout details are laid out in IRS Publication 970. IRS

If you (or your spouse) do qualify, that changes the effective cost of the loan and you should adjust accordingly.

Sequence-of-returns risk is real

Even if long-run average returns look attractive, the order of returns matters — especially as you approach retirement and start spending from investments. Vanguard has published clear research on “sequence of returns” risk. Vanguard

This is part of why “invest everything and ignore the loan” can feel fine in a spreadsheet but feel awful during a bad market stretch.

Step 3: Don’t ignore psychology (it changes behavior and outcomes)

Debt is not just math — it’s stress, mental load, and sometimes shame.

• Research discussed by Kellogg suggests that progress and “small wins” in debt repayment can materially affect follow-through — even when it’s not the strictly optimal interest-minimizing method. Kellogg School of Management

• Academic research has also explored associations between student debt and mental health outcomes. ScienceDirect

  
  

This matters because the “best” plan is the one you’ll stick with for years, not weeks.

Step 4: The third option — taxable savings for flexibility

Pretax retirement investing is powerful. But attendings also face near- and mid-term goals:

• moving,

• buying a home,

• starting a family,

• unexpected career changes,

• or simply wanting the option to reduce hours later.

That’s where taxable savings can help: building a pool of money you can access without retirement account rules.

Liquidity also reduces the odds that a life event forces you into expensive consumer debt. The Federal Reserve’s survey work tracks how many households can cover unexpected expenses with cash or cash equivalents. Federal Reserve

My recommendation: a pretax-leaning blended approach

If you’re an attending (not pursuing PSLF / forgiveness strategies), here’s a structure that works well in real life:

1. Pay required student loan payments on autopilot.

2. Prioritize pretax contributions (because you can’t go back and recapture missed years).

3. Build accessible reserves (cash and/or taxable investing as appropriate for your risk tolerance and timeline).

4. Pay extra principal consistently so the balance is shrinking and the “monkey” is getting lighter.

5. Re-run the calculator annually or after major changes (income, state, rates, kids, practice transition).

This approach respects:

• the math,

• the uncertainty in returns and tax policy,

• and the very real psychological cost of carrying large debt.

Final reminder

This calculator is a starting point. Use it to clarify tradeoffs, then tailor the plan to your real life.

Educational only. Not individualized advice.

For help implementing tax-optimized personal finance strategies: Speak to me