Not All Debt Is Created Equal - Why Student Loans Are Okay, But You Should Still Pay Them Off Quickly


Debt is a weight.

This shouldn’t be anything new to people.  We’ve known and understood it, but we still accumulate it.

Unfortunately, it seems that people categorize all debt in the same category which isn’t fair.

If debt is a weight, then there are heavy weights and lighter weights.  There are bad debts and good debts.

But despite if it is heavy or light, they are weights that hold us back from moving faster or doing other things.

Life is full of obligations.  Whether it is work, family, friends or just life in general our plates are pretty full.  This world is becoming a fast-paced society where we need to do things quickly.

We can’t have weights holding us back.

Different debts have different weights.  Credit card debt, for instance, is a huge weight.  Having credit card debt is equivalent to trying to run in this game of life and having a 50 lb. weight hanging from your waist… it’s heavy.

On the other hand, mortgage debt is necessary to buy a home.  Likely we aren’t going to pay cash for a house or wait till we save enough cash to buy a home.  Mortgage debt is manageable.  It’s like a 5 lb. weight hanging from our waist.  We can still run pretty fast.

Student loan debt, to me, is like a 30 lb. weight.  It should be manageable, and might be necessary for you to get a college education.  It still holds us back from running really fast, and it wears the heck out of us trying to get rid of it… but it’s manageable.

If we were to run with weights on our back or tied to our waist for an extended period of time we would get tired.  We would get worn out, and if pushed long enough, we may become unmotivated and stop.

This is what debt does to our psyche, and that’s why we must eliminate the weights. Let’s look at eliminating student debt.


Judging a book by its cover

Student loan debt is the bad news flavor of the week.  It’s deemed, by some, as the biggest issue facing our generation.

It is tough to argue that sentiment.

Last year’s graduating class saw 70% of graduates leaving college with student loans.  As of the most recent numbers from 2012, the average student debt for someone under 30 is $21,400.

The growth rate of student loan debt is on the rise while earnings are on a decline.  This, as you can tell, is a bad combination.

With this combination, it’s no wonder people aren’t paying off these debts.  The default rate for Federal student loans currently stands at 13.7%, and this is 1% lower than last year.

The facts don’t paint a pretty picture.  Many people are worried about a student loan crisis… similar to that of a housing crisis.

This weight is pulling not only the individual down, but has the potential to pull the economy down.

We need to cut this weight and cut it ASAP!


But “weight” just a minute…

We have gotten ahead of ourselves.  I feel a little like the media.

Highlighting all the bad is much easier to do because it gets people engaged.  In reality though, society caused this student loan crisis… not the debt holders.

College has become a must for our generation.

As it has become a must, it has led to people having to take out debt to pay for it.

College graduates are making 1.8x more than those without a college degree.  This has been on the rise for some time.

Having a college degree has become, basically, a pre-requisite to get more jobs.  A college degree tends to mean you are unemployed for a shorter time (although that wasn’t the case for many of us).

Society has created the social norm of going to college, graduating and then getting a job. That’s the world today.  People were forced down that path because they too wanted to be successful, thus they took on debt.

Some may argue that many dropouts have made very successful careers, and that is true for a few.  However, I’m sure the majority of us have had to go to college to get to where we are today.

To sum this up, society caused student loan debt to become the norm, but it remains our personal problem.  Why would we ever want to take on such a burden?


Despite the burden, student loans pay off

Let’s take a look at two hypothetical people.  We have Sarah, who is happy to have no student loan debt, but didn’t go to college.  And we have Rachel, who provides a throwback pic to those days when she had no worries, but now has to deal with some student loans from her college days.



*Salary was based off a 52 week year and 40 hour work weeks.  Along with the hourly wage for non-college graduates mentioned in a recent NYT article.


*Salary figure and amount of student loan debt figures came from recent WSJ article.


Was it worth it?

Well, the answer to this question is going to be dependent on whether or not Rachel is diligent and motivated to pay off the debt quickly after college.

If Rachel answers this question yes, then the answer to my question is yes as well.

Here is why.

By putting 20% of her gross salary towards the student loans right out of college, she can get them paid off within three years (assuming the interest rate is 7% and loan term is 30 years).

As Rachel’s salary increases, so does the amount that she puts towards the debt.

But while Rachel is putting money towards paying off her debt, Sarah is saving 20% of her salary.  Sarah thinks she has it made!

By the end of year 3, Sarah is well ahead with regards to the savings game.  Actually based on the above assumptions, Sarah would have a little over $22,000 already saved.

Year 4 is when things start changing.  Rachel went to college in order to allow herself a higher paying job and also the possibility of better raises in the future.  But we are assuming she gets the same wage growth as Sarah.  With the difference being that she starts with a higher salary.

By year 13, Rachel will have caught up and eclipsed Sarah’s savings, despite Sarah having a three year head start.  By the time they both retire (assuming year 1 was at the age of 22), Rachel will have more than $330,000 saved compared to Sarah.

College is worth it.  And accumulating debt isn’t a bad thing, if you are diligent and motivated to get it paid off right away.  Rachel put 20% of her gross salary towards the debt… she sacrificed early to benefit more in the future.

Yeah, maybe it means delaying buying a house a couple of years or buying that new car, but the added benefit of a higher wage, more job stability and greater future savings should be worth it.


Set it but don’t forget it

Setting debt payments up to be automatically withdrawn from your bank accounts is a huge positive.

Too often, we let the money come into our checking accounts and want to spend it, rather than put it towards debt.  Making things automatic solves this problem.

Don’t forget about the debt and the payments you are making.  Every year, contact the lender, and see if they are willing to negotiate with you.  As you pay on time, they may be more willing to negotiate on the rate or the term.

Also, we hope to be able to get raises over time and, as we do, we need to remember to go back and increase the amount that we put towards our debt.

It should always be 20% of our salary towards our debt… so as we move up that corporate ladder, the 20% will become a bigger number!

If you find some extra cash lying around, look to put that towards the principle of debt, as opposed to putting it towards a round of shots for your buddies.

Finally, a great program that we have talked about before is Sofi.  They can help consolidate all of our debts.  If we have gone to many lenders to get debt, Sofi can be a good option.  They can bring all the debts under one umbrella at one rate.

That could make it easier to tackle the weight of student loans.


It is easier to add weight, than to cut it

This sounds like an argument that I have with my dad all the time!  I want him to lose weight, but it’s hard when you don’t work at it.  It’s much easier to eat delicious dinners which then lead to a bigger belly!

The same is true with debt.  It’s much easier to go back to the well for loans as opposed to sacrificing in the present or even in the future.

If we have student loan debt today, that means we have already been to the well.  It’s time for us to get to work at cutting those debts from our belts.

We want to get to a point where we are running through life like Usain Bolt running the 100 meter dash.

The only way to become Usain Bolt in life is to work extremely hard and make some sacrifices today.

It’s much easier said than done, I understand that.

So tell someone your goal.  Tell all your friends, announce it on Facebook.  “I want to pay off my student loans in three years!”

By announcing your goal, you begin to feel more obligated to accomplish it.  You now have others watching you and you don’t want to disappoint.  You are now accountable for paying off the debt.

Then you will be able to announce to the world that you have accomplished this goal.  You will free yourself from the weight of student loan debt.

By unleashing the chains of debt means unleashing the possibilities for your future.  Just do it!