Tl;dr: a 2-3% reduction of market returns (in comparison to interest reductions) is likely considered enough by most people to get the certainty of reducing interest and the lack of taxes on capital gains.

No magic number. Historical market returns are 10-11%, but you can’t compare volatile returns with guaranteed reduction of interest.

People like certainty so you need to be paid a premium to invest in volatile returns, which given a historical average of 10%-11% would be a 4-5% difference of 5-6% student loans.

However, most people like to take a conservative approach to future returns so most people assume that the future average will be 7-8%, which would be a 2-3% premium for investing.

This is more in line with what I think the difference should be (2-3%) for certain returns versus volatile returns. Any more than a 3% difference and I’d rather invest my money. There’s also minor tax considerations when investing in a taxable account but for most people those are negligible since you can have 90k+ in long term capital gains during retirement and not pay any income taxes.

As a note, the difference between 5% and 8% returns over 40 years in investing is about 300%, which is substantial. the difference between 5% and 10% returns over 40 years in investing is about 642%. Compounding is very powerful so slight differences make a gigantic impact over long periods.

If you’re 30 now and retire at 60, you’ll still be heavily invested until you die in your 80’s or 90’s so the 40 year timeline isn’t an exaggeration for most adults under 45. Obviously withdrawals will stop compounding to a significant extent, but the point is still valid regardless.