How I Plan to Pay Off My Student Loans… Maybe?

There’s a student loan bubble! Maybe? There’s also a group of people trying to get student loan debtors to go on a debt strike against the evil lenders, except that movement isn’t really gaining steam. I don’t really know how much of a problem there is overall, but I can at least share my part of the story and why I’m skeptical about paying them off, but why I still might do it anyway.

Also, I’d like to note how much minimalism and finances seem to be intertwined, at least for me. The fewer things I spend my money on, the more secure I am and the less mental clutter I have. I worry about fewer things. To me, paying off loans is akin to cleaning out a closet.

So! I graduated with about $40k of student loan debt. I went to a public university but didn’t get enough scholarships to pay for it all. (I went to high school in North Carolina which has a miserable education system with basically no money for college students, unlike South Carolina or Georgia. But that’s a whole other can of worms.) So I’m not in the worst situation ever, but not the most ideal either. Compounding the problem was the fact that 18-year-old me viewed community college as something disdainful so I didn’t get my easy credits and transfer in to a univeristy to save money. I was a very traditional four-year type, and turned to loans as a very feasible way to fund my engineering degree.

I also graduated as somewhat of an outspoken Libertarian who viewed debt as something evil that must be exterminated at all costs. (My political activism has greatly waned since then.) I paid off all of my federal student loans with a signing bonus from my first job, then made higher-than minimum payments on my state-funded loans. I also flipped a house and put my profits to paying down another chunk of my loan, and after everything I’ve done I have slightly under $18k left to go.

WHY I HAVEN’T DONE MORE

On to the excuses! I was a pretty typical 20-something that spent a lot of unnecessary money on fast cars. And lots of eating out. So I probably could have them all paid off if I was still driving my car from high school (except that didn’t have AC and I live in south Florida). But I’m a little torn on this, because I don’t want to be someone pinching pennies eating ramen but I also don’t want to be someone who’s racked up all kinds of debt chasing a lifestyle. I think there’s a good middle ground, and getting my mistakes out of the way early helped me discover what that is. I’m a big fan of budgetsaresexy; the way he tackled his debt is very inspirational, but I don’t know if I want or need to do this.

The other part of the problem is that my three student loans outstanding have interest rates of 3%, 3%, and 0.08%. That last one isn’t a typo. With rates this low I could make a better return putting my money to work elsewhere. I started doing this recently, actually. I figure that if I open an index fund and hold it for five years, I could have enough money to cash it out and pay off my loan. I’d have made maybe 5% in the market this way (hopefully!) and therefore I’d be out on top.

But with the rates that low, why would I cash out the index fund at all? Why not make minimum payments on a loan that basically amouts to free money? I know a lot of people with mortgage rates higher than this and they’re doing virtually nothing to pay them off early. The answer is 100% psycological. I still have that libertarian-leaning attitude that debt is generally bad, even if it’s paid for something good like a house or an education. When I’m free of my loans I’ll simply feel better. Even though they’re low interest loans, it’ll still be nice to keep more of my paychecks every month.

But I still have the battle, because the rational part of me knows I could do better things with the money, and the emotional part of me wants to be free of debt at any expense. Like before, I think a middle ground is warranted. I’ll probably end up paying them off early, but not as early as to sacrifice some of my lifestyle. So I might pay off my student loans early. Maybe. Depending on which part of me wins out.

SPEAKING OF WHICH…

I recently started kiteboarding (video below for those who live inland!) which isn’t a particularly cheap hobby, and I don’t want to sacrifice my entry into the sport to pay down loans marginally faster. It’s all about tradeoffs and maximizing happiness! I’ll be writing a little about this sport in the future, though, because it’s crazy amounts of fun. The reason I live by the beach is so I can do things like surf, paddleboard, and kite. It’s not an expensive lifestyle, but it’s not the cheapest, either. At least I’m not into jet skis and swamp buggies.

I’m also going on vacation to my semi-hometown of Charleston, South Carolina this week. Pictures of this will follow as well!

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