I’m must admit, I’m in a pretty fortunate position. I was the first person in my family to go to college, and first to graduate. Within a year of graduation, I had been promoted into a steady full-time job and I bought my house at age 23 with the help of a first-time homebuyer mortgage program with a local Credit Union. As I neared my 37th birthday last year, I hit a cool quarter million across my retirement and investment accounts.

And I can’t help but think I could be much farther along, if not for my student loans.

Photo by Tim Gouw on Pexels.com

There’s a lot of talk about Millennials and the $1.6 Trillion in student loan debt we are carrying which is causing us to delay a lot of the traditional steps of adulthood that other generations before us have taken. We’re getting married later if at all, we’re renting longer and don’t want to buy shoddily-constructed McMansions that Boomers have craved for the past 30 years, and delaying having kids. All those things will cause major harm to the economy in the long-term, beyond the short-term pain we’re suffering through as a generation today.

My own story began with a Bachelor’s degree in Urban Planning and Development, along with an accompanying $15,000 in Direct Student Loans from the Department of Education. Roughly half of those loans were subsidized, meaning they did not begin to accrue interest while I was in college, and the other half accrued interest from the day I took out the loan to pay my tuition and room & board.

I further had the benefit of locking in a low interest rate (around 2.875%, if I recall correctly) by consolidating my 3 years worth of loans into 1 loan, and I got another ¼ percent rate cut by paying my monthly bill via auto-pay.

Even though I had a 10-year payback term, I had people in my ears telling me how bad DEBT was, and I should pay off the loans quickly. This was actually terrible advice, given interest rates at online banks were paying 4-5% at the time, and here I was, rushing to pay off a 2.625% loan.

And then I had ANOTHER leg up. My grandmother, in an effort to help each of her 4 grandchildren get started as adults, loaned us money INTEREST-FREE to buy our first cars after college. If that wasn’t generous enough, she eventually forgave $15,000 of the amount loaned AND stipulated that she didn’t want a dime of the money paid back until my student loans were gone.

My first car purchase, thanks to 0% interest financing from Grandma.

I got really serious about paying off my student loans in 2012, making extra payments of $100-200 each month. Then I bought my car in June 2012, but the favorable terms kept me paying everything towards the student loans until they were gone in April 2014. It was November 2014 when I paid grandma back the remaining $5,000 I’d owed her for financing my car purchase.

So it wasn’t until January 2015 when I made my first Roth IRA contribution. I had just started a new job, working for the State of Florida. I’d also been paid-out my 9 accumulated weeks of vacation from when I left working for the Town of Fort Myers Beach, giving me a sudden influx of cash. Unfortunately, I was in a rush to get started on my 2015 Roth IRA contributions (and I don’t even know why) or I probably could have come close to maxing out the 2014 contributions by the Tax Day date in April 2015.

All this to say I graduated from college in May 2005 and I didn’t even get serious about making retirement contributions or investing until just shy of 10 years later, in January 2015. I made a minimal contribution to my 457(b) from 2006-2009, and into a Roth 401(k) for about a year during 2010-2011. But even with this considerable delay caused by student loans and a car loan, I still reached $250,000 in investable assets, sitting here only 5 years later.

If I had been able to comfortably make contributions into my Roth IRA, workplace retirement plans, and build up cash savings starting right out of college, I have no doubt I would be near my Financial Independence number by now. It’s not that the $15,000 amount is so large that it set me back substantially, but the mere fact of having the debt and paying interest every month kept me from even getting started in my investing journey. I was just slogging along, digging out of debt, rather than building for my future.

Looking back, I wish I had saved more, started investing, and only paid the minimum on my student loans for the full 10-year duration of my repayment terms.

To anyone reading this with student loans, I recommend taking a serious look at the investment accounts available to you. Those may include a 401(k) at work with an employer match (aka FREE MONEY), a Traditional IRA (for the tax break on your contributions), and a Health Savings Account (when you have a high-deductible health insurance plan, especially when you are young and healthy). The extra years of contributions and investment growth will put you far ahead on your personal financial journey.

  1. Great advice – especially if you’ve got an employer match to the retirement plans! That’s a 100% return on every dollar you contribute, compared to 2.625% on student loans. It’s hard to put a price on the feeling of freedom when you pay off the last dollar of debt, although I’d be curious to see numbers on if you had invested that money instead of prepaying your loans, how would that have affected your net worth? And would it have perhaps kept you at a job you didn’t like for longer than you wanted (b/c of the debt hanging over your head), or lost sleep at nights, etc.?

  2. Such a good post, Josh. I couldn’t agree with you more. I understand wanting to get rid of debt ASAP (ohhhh yes, I definitely understand), but my current outlook on the subject is that if you can’t do so within a year or two, it’s better to slow your roll on paying off debt and throw more money into investments. Especially if you have a low interest rate on your loans.

    You made such a great point here: “We’re getting married later if at all, we’re renting longer and don’t want to buy shoddily-constructed McMansions that Boomers have craved for the past 30 years, and delaying having kids. All those things will cause major harm to the economy in the long-term, beyond the short-term pain we’re suffering through as a generation today.” SAY IT LOUDER FOR THE PEOPLE IN THE BACK. I feel like this is a hard reality that a lot of people want to ignore.

    1. That was my moment of true clarity when writing this. The rest took a while to write down. Thanks for stopping by, 76!!

  3. You know, I paid off my student loan early too. I had a 2.5% interest rate that was reduced to 2.25% with autopay. In retrospect, I could’ve made so much more putting that money into the market, but I’m single and hate debt. Not having that additional bill every month was such a relief! It freed up money to travel, to put towards projects on my house, and to invest. What if you still had that debt and something awful happened and you couldn’t make the payments? You’d just accrue more interest. None of us can predict anything, so you didn’t make a mistake in paying it off. Now you have peace of mind. 🙂

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