• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Start Here
  • Work with David
  • Our Services
  • Contact
Young Adult Money

Make more. Save more. Live better.

  • Blog
  • Credit Cards
    • Rewards
    • Cash Back
    • Travel
    • Airlines
    • Hotels
    • Balance Transfer
    • Student
    • Business
  • FREE Budget Spreadsheet
  • FREE Student Loan Spreadsheet
This Just In... Check out the latest travel rewards credit card offers

I Can Afford to Pay Off My Student Loans, But I Won’t: Here’s Why

By David Carlson / Last updated: August 12, 2020 / College, Debt, Personal Finance, Save Money, Student Loans

We may receive compensation from companies mentioned within this post via affiliate links. Read our full advertiser disclosure. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
Pin399
Share23
Tweet
Email
Buffer9
Share
431 Shares

 
Over the years my wife and I have saved, invested, and built enough equity in our home to pay off all our student loans. But we won't. Instead, we try to pay as little as possible towards our student loans. Read why we do this, and why paying off student loans doesn't always make sense.Using a combination of investments, savings, and equity in our home, my wife and I could pay off all of our student loans.

But we won’t.

This may sound odd. After all, who wouldn’t want to be done with student loan debt forever?

It’s a fair question, but pulling tens of thousands of dollars out of the stock market, raiding our savings, or even selling our home to pay off the debt would be a mistake.

In fact, it could be a six figure mistake.

To help you understand why we won’t pay off our student loan debt, let me first give you some background on our student loan situation.

 

Our Student Loans

 
We currently have six figures of student loan debt.

When my wife and I finished undergrad we had approximately $100k in student loan debt between the two of us. We both went to private schools in the Minneapolis-St. Paul metro area, and to be quite frank we were lucky we didn’t leave with more.

Both of us value our experiences at our respective colleges. We both are lucky enough to work full-time in what we went to school for. But $100k, or about $50k each, felt like a lot.

My wife and I met and dated throughout college. We both knew for years that she had to at minimum get a masters degree, if not a phd, to do the work she wanted to do in psychology.

My wife got her masters in counseling, which isn’t cheap considering the relatively low wages that therapists in the United States get paid. Lots of lip service about mental health from people, especially politicians, but as the saying goes “show me the money!” They haven’t yet. But I digress…

Over the years we have been making regular payments towards the student loans on my undergrad, but never more than the minimum required payment. I got a variety of rate quotes from Credible, but ultimately refinanced with SoFi. I waited a bit too long, though, and should have refinanced as soon as I was able to after undergrad.

We also made payments towards my wife’s student loan debt, but again only the minimum required payment under the standard ten-year repayment plan. Her loans went into deferment when she started grad school, and we also took out loans when she was in grad school.

Long story short, we started with $100k of undergrad debt and now have six figures of undergrad + graduate debt.

 

Why We Aren’t Getting Rid of our Student Loan Debt

 
While everyone wants to be debt free, I recommend people prioritize building an emergency fund and paying off credit card debt before they put anything extra towards their student loans.

We never had credit card debt, but instead of putting extra money towards student loans we built a healthy emergency fund. And we invested.

Which brings us to where we are today: we have enough assets to pay off our student loan debt. But we won’t.

Why not???

Because we are strategically repaying our student loans to maximize Public Service Loan Forgiveness.

You may have heard of Public Service Loan Forgiveness, or PSLF. If you aren’t familiar, though, it’s a program for tax-free federal loan forgiveness of Direct student loans after 120 qualified monthly payments.

A qualified monthly payment is…

  • …made while working full-time for a 501(c)(3) nonprofit or the government (local, federal, state, etc.)
  • …while on a qualified repayment plan (income-driven repayment plan or standard ten-year repayment plan)
  • …on a qualified loan

This program is the most advantageous loan forgiveness because of the relatively short time-frame of ten years and the fact that forgiven debt is tax-free. What I mean by tax-free is that you don’t have to pay income taxes on the forgiven amount. In some other forms of loan forgiveness, notably income-driven loan forgiveness, you need to pay taxes on the forgiven amount. Not so with PSLF. With PSLF you could have $50k, $100k, or a million dollars forgiven. No tax implications.

My wife is a therapist who reasonably expects to be employed by a nonprofit or the government for at least the next ten years, if not her entire career. NOT looking into whether PSLF would benefit us would be a mistake.

My wife’s loans are currently on the REPAYE income-driven repayment plan. This plan takes into consideration my income regardless of how we file taxes.

Income-driven repayment plans take your Adjusted Gross Income (AGI) less the national poverty rate for your family size to calculate your discretionary income. If you plug your student loan information into our free student loan spreadsheet and use the income-driven repayment calculator (also within the spreadsheet) you will quickly see that many people could benefit from income-driven repayment. It’s even a more attractive proposition when you have an opportunity for PSLF.

There are opportunities to lower your AGI. For example, every dollar you put into a 401k or 403b will lower your AGI. Or an HSA. Or Standard IRA. Basically any dollar you put into a tax-deferred account will lower your AGI, which will in turn lower your required monthly student loan payment, which in turn will maximize the amount forgiven under PSLF.

I go into more detail on how to maximize PSLF in this post.

So why don’t we just off our loans? Because it would be a dumb financial decision. Instead we can shove money into tax-deferred accounts while letting our investments continue to compound interest year-after-year.

The worst case scenario would be our incomes increasing so much that our required monthly payments towards our debt would start to quickly knock out our student loan debt, even after maximizing every tax advantage.

If that happened, you won’t find me complaining!

 

But I thought Public Service Loan Forgiveness Didn’t Work?

 
A few months ago I saw one of the most well-known personal finance experts give absolutely terrible advice about Public Service Loan Forgiveness. He told someone they shouldn’t trust the program and that it doesn’t work.

This is misleading advice that could cost some individuals hundreds of thousands of dollars, if not their life. I don’t want to be dramatic, but we do have people today committing suicide over student loan debt. PSLF and, more broadly, strategically repaying student loan debt, can be a lifeline for student loan borrowers.

If you are in a position to benefit from student loan forgiveness, you absolutely should look into and take full advantage of the program. I explain in this post why fears about PSLF are completely overblown.

The reality is that there are popular personal finance “experts” that think you should suffer if you have student loan debt.

Think sharing a one-bedroom apartment with a roommate (or living in your parent’s basement to save money) while eating raamen for every meal and never doing anything fun (and god forbid you ever spent money on travel!).

This is a completely unrealistic approach at best and a bad financial move at worst.

Think of a social worker with $100k+ in debt who makes $40k a year. One option is making close to $1k a month in payments for a decade while working two or three jobs for years with a lifestyle that likely will negatively impact their health.

The alternative is paying $100-$200 a month on an income-driven repayment plan for ten years and receive Public Service Loan Forgiveness at the end of the decade. Option two also gives them the cash flow to only work one job while building up their savings and investments.

Please don’t listen to an expert – or anyone, for that matter – who wants you to suffer unnecessarily.

 
If you have student loans and you like what I’m saying, or you know someone who could benefit from strategically repaying their student loans, please check out my book Student Loan Solution: 5 Steps to Take Control of Your Student Loans and Financial Life.
 

Check out some of our favorite personal finance resources:

Are you getting the best credit card rewards? Check out the top cash back credit card offers (updated daily)

Make extra money: 15 ways to make money from your computer

  • Get our FREE Automated Budget Spreadsheet and our Student Loan Spreadsheet

Get the First Chapter Free!

Student Loan Solution Cover - 3D

Join our online community and get the first chapter of the book Student Loan Solution absolutely FREE!

Pin399
Share23
Tweet
Email
Buffer9
Share
431 Shares

David Carlson

David Carlson is the founder of Young Adult Money. He is a nationally recognized speaker and the author of Student Loan Solution (2019) and Hustle Away Debt (2016). His opinions have been featured on such media outlets as The New York Times, The Washington Post, Cheddar, NBC's KARE11, and more.
Connect:

Comments Policy

Comments, responses, and other user-generated content is not provided or commissioned by this site or our advertisers. Responses have not been reviewed, approved, or otherwise endorsed by this website or its advertisers. It is not the responsibility of advertisers or this website to ensure that all comments and/or questions are answered. With all that being said, please comment away!

Primary Sidebar

Credit Cards

  • Best Travel Rewards Cards
  • Best Balance Transfer Cards
  • Best Cash Back Credit Cards
  • Best Business And Side Hustle Credit Cards
  • Best Student Credit Cards

Start a Blog:

How to Start a Blog that Makes Money
 

Top Posts

  • 15 Ways You Can Make Money From Your Computer Right Now
  • When You Should and Shouldn’t Refinance Student Loans
  • How Much Money You Will Need to Make $1,000 in Dividends

Free Spreadsheets & Downloads

  • Free Automated Budget Spreadsheet
  • Student Loan Repayment Spreadsheet
  • The Ultimate Personal Finance Checklist
  • 401k Spreadsheet to Analyze your Options
  • Wedding Budget Spreadsheet
  • 52 Week Money Challenge Spreadsheet and Printable

First Chapter Free!

Join our online community and receive the first chapter of Student Loan Solution absolutely FREE.

If you don't see the email in your inbox, please check your spam folder.

Connect:

Categories:

Search:

Get the New Book!

Student Loan Solution: 5 Steps to Take Control of Your Student Loans and Financial Life is available on Amazon by clicking here, or by clicking on the graphic below.

Make more. Save more. Live better.

Site Directory:

  • About
  • Contact
  • Advertise
  • Recommendations
  • Finance Tools
  • Credit Cards
  • Insurance
  • Banking
  • Investing

Disclaimer | Privacy Policy

Feedback? Questions?
Contact us and let us know what you think.

Connect:

Search This Site:

Copyright © 2012–2024 Young Adult Money, LLC / All Rights Reserved
Designed by LizTheresa.com / Developed by Nuts and Bolts Media

Manage your privacy

To provide the best experiences, we and our partners use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us and our partners to process personal data such as browsing behavior or unique IDs on this site and show (non-) personalized ads. Not consenting or withdrawing consent, may adversely affect certain features and functions.

Click below to consent to the above or make granular choices. Your choices will be applied to this site only. You can change your settings at any time, including withdrawing your consent, by using the toggles on the Cookie Policy, or by clicking on the manage consent button at the bottom of the screen.

Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Statistics

Marketing

Features
Always active

Always active
Manage options Manage services Manage vendors Read more about these purposes
Manage options
{title} {title} {title}
Manage your privacy

To provide the best experiences, we and our partners use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us and our partners to process personal data such as browsing behavior or unique IDs on this site and show (non-) personalized ads. Not consenting or withdrawing consent, may adversely affect certain features and functions.

Click below to consent to the above or make granular choices. Your choices will be applied to this site only. You can change your settings at any time, including withdrawing your consent, by using the toggles on the Cookie Policy, or by clicking on the manage consent button at the bottom of the screen.

Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage vendors Read more about these purposes
Manage options
{title} {title} {title}