Yeah, you read that headline right. Contrary to what is being said on the news, there are good things about having and paying back student loans.
The average student graduates with around $28,000 these days (as of 2018 and for a bachelor’s degree). I completely agree with conventional thinking that $28k in debt is a ton. Don’t you? And that amount is going to be a burden to those who are just entering the workforce. It definitely was for me.
I had $70,000 in student loans when I first started my career. I paid that amount off in six years….with no handouts from the government (yeah that one’s to you Elizabeth Warren). And I learned a lot by paying those loans off. Things that I wouldn’t have learned if college would have been free.
(Don’t get me wrong. I agree that college is exceedingly expensive and really should be cheaper. But I also simply don’t believe that college is for everyone.)
Here are the top 4 things I learned by paying off student loans.
You’d be surprised how motivating it is when you realize that you owe more than twice your salary solely in student loans. The feeling is soul crushing. Anytime I thought about how much I owed it felt like I had a boulder sitting on my chest. It literally made it hard to breathe.
I didn’t like that feeling. And I wasn’t in a position to have any loans forgiven, nor can you default on student loans (for good reason). So the only answer was to make more money. I put my career on the fast track.
By working on advancing my career, I ended up tripling my starting salary within six years. I threw extra money each month at each loan like it was my job.
When you know that you are in a good amount of debt for something that cannot be repossessed (an education), then you’ll find you have two choices. One is to accept it, pay the minimum you need to pay for many years.
Or, you can focus on growing your career so you have more income. If you have a higher income, then you can make extra payments to your loans. Pay off the loans faster, pay less in interest.
And when you are debt free, you can bask in the awesomeness of the great career you made for yourself… or quit and do something you think you’d enjoy more.
Typically, if you take on debt, you have to pay it back. Dollar for dollar, plus interest.
Federal student loans do have a Public Service Loan Forgiveness Program that you could qualify for. But not before making at least 120 “eligible” on-time payments. That’s 10 years. Just saying.
If you borrow money, you need to pay it back. The idea is as simple as that. You don’t get freebies in life.
So let’s say the government decides to partially forgive student loans…
Guess who’s going on a trip to Europe!?! Even I, in all of my ethical glory (a gross exaggeration), wouldn’t turn that down.
As far as I remember, there is no clause in student loan agreements that say the money needs to be used for school. I know kids that took out a good chunk of money and then traveled with it. Or someone I knew bought a car with their student loans because the interest rate was better than a car loan.
And as far as I know, all of these kids are paying those loans back, dollar for dollar, plus interest. But I’m sure they wouldn’t mind if the government decided to forgive/cancel part of their loans.
I mean, who wouldn’t want a government-paid beach vacation?
Student loans are debt. You took them out, you pay them back just like with any other kind of debt.
There is no forgiveness for credit card debt, or auto loans, or mortgage loans. You either pay the money back or you go to collections and lose you car/home. Just like if you don’t pay your bookie, you get your kneecaps broken.
3. A Wariness of Debt in General
Sure there is “good debt” out there. But if you’ve had the experience of struggling to pay back your student loan debt, it’s pretty safe to say that you learned to dislike most debt in general.
It’s not fun to know that you owe someone money. Even if that someone is the government or a bank. And when you finally get out from under that debt cloud, be it a $5,000 loan or a $70,000 loan, you probably aren’t going to grab the nearest credit card you see and max it out.
You’ve learned first hand how interest works and how to manage the effects of debt on your budget. You’ve learned the value of a dollar by having to give so many of them away.
So the next time you’re looking at your neighbor’s new fancy car, just remember that they probably took a loan out on that $30,000+ vehicle. At least your education isn’t going to cost you quarterly oil changes.
(When did cars get so expensive?)
4. The Importance of Prioritizing Your Spending
I would bet that if you are paying on student loans, you are probably living on some kind of budget. Whether you are super strict with multiple spreadsheets (this was me). Or you just check your bank account and make sure you spend less than your balance.
No matter where you are on the budgeting spectrum, you eventually learn to prioritize what you spend money on. If your monthly payment is a decent sized chunk out of your paycheck, you’re going to pay attention to where the rest of your paycheck goes.
If you only have a small amount of your paycheck to spend on having fun, you will be much more selective of how you have fun. For example, if your friends want to go to an expensive concert, you probably aren’t going to go unless you really like the band.
This applies to large purchases too. I still had a good balance left on my loans when I bought my first condo. I didn’t want a condo. I wanted a house.
But I knew how much money I had to pay toward a mortgage and it opened me up to considering a condo. I ended up finding a great deal on a great condo because I knew I had to prioritize my want for a house below my need to have an affordable mortgage.
Invaluable Lessons at a Young Age
The biggest benefit to paying back student loans is that you learn at a young age to pay attention to your money. You take an active role in your finances, which will benefit you throughout your entire life.
I wouldn’t be in the situation I am in today if I didn’t have to pay back tens of thousands of dollars. I look at money in a very different way than many of my friends who didn’t need loans, or who worked their way through college. I’m much more attached to my money (whether that’s a good thing has yet to be seen).
Of course, if you or your kids don’t have to take out student loans, then by all means don’t. Just because you have a full-ride scholarship, or you’re in a position to pay for college in cash doesn’t mean that you won’t learn these four lessons. I just learned them by paying off two degrees.