I Have $90k Of Debt And No Intention To Pay It Off Anytime Soon
I went to some of the most expensive undergrad and grad schools in the county and, in doing so, accumulated about $91K in student debt. I don’t regret it, but I am in no rush whatsoever to pay it off, and, in fact, expect to get a mortgage before I’ve put much of a dent in it. And in my opinion, that’s a perfectly responsible choice. Here are four concrete reasons why I’m in no rush to pay off my debt:
1. I think student loan debt is good debt.
When I talk about student debt, I am only talking about very specific debts, namely those related to federal student aid programs. There are other kinds of student debt that can range from credit card debt (because you used a credit card to fund your education, bad idea), debts from private financial institutions, or debts from family/friends. These may or may not be good debts, depending on the terms. But, I believe, federal student loan debt is good debt.
I’m not going to get into the whole question about whether education (or going into debt for education) is a wise investment. For me, it was. For others, it might not be. But I am personally glad I took on federal student loan debt. There are down sides to it: it can’t get discharged in bankruptcy, but it can get deferred if you become unemployed, underemployed, or are unable to work. It can also be forgiven and repaid based on the amount of money you actually have (taking into account not only your income, but the number of your dependents). Very few other debts — whether a mortgage or credit card — have such favorable terms.
Another great thing about federal student loans is that if you choose to defer, forbear, or pay based on income, it doesn’t hurt your credit score. And, if you have no other debts and pay it off on time, it can actually be a positive thing for your credit score. My credit score is 758 because I have paid my debts (which include one credit card that I’ve had since the age of 15, and my student loans) on time pretty much 100% of the time. This doesn’t mean that I have made all my student loan payments. Over the last eight years, I have been without a job, on unemployment, and employed at an income level that did not allow me to repay my student loans and cover my monthly expenses. So there was definitely a period of about five years (during my undergrad and grad grace periods, and when I was unemployed or underemployed), that I didn’t make payments on my student loans.
2. Debt is partially a mindset.
Although my federal educational debt has not had much of an effect on my actual finances, it has affected how I feel about financial stability. But I’ve been able to overcome those feelings by researching, finding good information, and making a plan, all of which built my confidence.
One day, my school had Jeffrey Hansen, an economist who specializes in student debt, come to campus so we could discuss our student loans and financial plans with him. I told him I wanted to find a way to pay my loans back immediately, and he discouraged me. I had always assumed that my student loans were like any other debts, something I need to be rid of ASAP, but he changed the way I saw it. It doesn’t have the high interest rates of credit card debt, and it doesn’t have the harsh terms of mortgages. There are smart, successful people, who did not repay their undergraduate or graduate student debts until after they had children, several mortgages, and a few great jobs. I now consider my student debt part of a larger financial picture, as opposed to something I need to get rid of immediately in order to feel secure.
3. I decided to always pay the lowest possible repayment amounts.
After that meeting, I started thinking about my student loans as part of my financial bigger picture and made a conscious choice to stick to the lowest possible repayment amounts. Because I want a public interest career (which would make me PSLF eligible), I figure I’m better off paying the lowest monthly payments, and seeing how my career path pans out in the next few years.
However, the biggest reason that I am in no rush to repay my loans, and am paying the minimum amount, is that other investments are more important to me. Instead, I’m focused on building a strong retirement, emergency fund, and saving money for a healthy downpayment on a house. During my un/under employment and grad school I put nothing into retirement. To make up for that, I am maxing out my employer’s 401(k) match and my Roth IRA. To me, investing in my retirement — given my age, my career goals, and my loan types — is a wiser investment.
4. I revisited the amount I pay when my circumstances changed.
A few months ago, I got a raise and a bonus (which I used to pay off of my smallest student loan, woohoo!), so I followed up with Mr. Hansen to ask him if I should change my strategy. He told me, “the most strategic repayment option is to be using the payment plan that gives you the lowest required monthly payment, so that you can maximize your financial flexibility. It also allows you to maximize the amount of money you target at your most expensive loans (ones with highest interest rate) through prepayment, if you choose to do so rather than investing the funds in other ways.” So I’m going to stick with the initial plan of paying the minimum amount owed. Because I’m on an income-driven repayment plan, I am forced to revisit my financial picture every year to set up an automatic monthly loan payment. The payment will increase automatically after I enter my (increased) income and tax information.
I’m not writing this to advocate my approach. I have my own goals and my situation might be entirely different from someone else’s. But so often I see people decrying student loan debt like it’s some monster or personal failing when that isn’t necessarily true. I think the most important thing my student debt has taught me is that a knee-jerk negative reaction to student loan debt is not always the best way to go. For example, if I sank half my salary into repaying a substantial portion of my student loans, while doing nothing to grow my retirement accounts, that wouldn’t be a good decision for me. Yes, debt is a part of my life, but it does not define my financial picture. I don’t want the debt, nor do I enjoy planning around it, but it’s a reality I have to face, and the deliberate choice to slowly pay it off allows me to achieve my larger financial goals.
Emma is an attorney who moved from NYC to Nashville for law school and decided to stay. She will never again live North of the Mason Dixon line or pay more than 1/3 of her salary in rent. Follow her blog or her Instagram.
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