Why I Won’t Be Paying My Student Loans In 2019

I carry a small student loan, that I took out in the last year and a half when I went through university. I didn’t need the money to pay for tuition (it was 2,000 EUR per year), nor did I need it to pay for bills – I lived with my parents at that time.

Then why did I take out student loans? They are evil right?

My Student Loans

Well, not always. Here in The Netherlands student loans are 99% of the time borrowed from the government, at some very favourable terms. When I took them, they had to be paid in 15 years, with a 5 year fixed interest term. Nowadays, student loans can be paid back over as long as 35 years.



I have the money invested right now, earning more money for me. The amount I borrowed is not significant.

My loan is slightly under 7,000 euros. I can pay it back tomorrow if I wanted to. That’s not the problem. The reason I’m not paying is that my interest rate is super low. As in pathetically low.

Our super friendly government decided to loan us money at interest rates directly linked to the government’s cost of capital. Since they pay almost nothing for their government bonds, I pay almost nothing for my student loans.

My interest rate is 0.01%!

This interest rate is fixed until 31st of Dec, 2020. That means I have two more years to go at this super low rate. Afterwards, the government adjusts the rate to the rate they pay at that moment, and fixes it for another 5 years.

So, I have a small outstanding loan at a rate that is, in all reality, free. I pay less than 70 cents per year in interest, and then I don’t even consider inflation.

As you probably know, I’m not really against having debt. I think debt, in the right form, can help me reach FI sooner by leveraging investments.

With interest rates of practically zero, that means I’m not paying off any of it, as I’d rather invest than pay down my student loans!

But it gets even better.

I Don’t Even Have To Pay

The government allows everybody with student loans to pause the payments on them for a maximum of 60 months, for any reason. Literally, “I don’t want to pay this year” is a good enough reason. You can just logon to their website, and stop the payments for any period you like, as long as you don’t overshoot on your 60 months.

In 2018, I didn’t pay, and in 2019 I’m sure as hell won’t be paying either!

Okay, maybe if my crypto portfolio will return 10X or 20X next year, I might use some of that money to just pay the student loans and have them gone. It’s never the best investment if you only pay 0.01% but it’s nice to not have them and not worry about them. The same goes for my mortgage I guess. I like how super low it is, but if I suddenly come into a metric shit ton of money I might just pay it off.

Ethics

I posted a similar article to Ontsladebaas a year ago. If I remember correctly that article is the most commented on in the history of my blogs. The reason is this subject of not paying student loans is a bit controversial.

I have enough money to pay them back. But I don’t have to, and I have a better use for my money right now. Some people would say that I’d have to pay it back as soon as possible, because the money is not meant to be invested.

Well that might be true, the money is also not meant to be used for holidays, beer, or cigarettes. And those things are all being bought by students that are taking on these cheap student loans.

In the end, I don’t think it really matters morally. I’m not trying to weasel out of my obligation to pay. There is this opportunity to pause the payments for five years, and I take it. Simple as that. In the end, I will pay.

What do you think? 


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B at Fire The Boss

B at Fire The Boss is a young (mid-20s) business consultant from The Netherlands, looking to become financially independent so he can fire his boss. B started his blog in Dutch, at Ontsladebaas.nl but wants to expand internationally and share and exchange useful, cool ideas with fellow Europeans looking for financial independence.

2 thoughts on “Why I Won’t Be Paying My Student Loans In 2019

  • 2018-12-07 at 08:52
    Permalink

    Totally agree with you and I have been doing exactly the same thing for the past 4 years: Requested a 60 month payment pause on a €12.000 student loan at 0.12% interest.

    As long as the interest rate stays below inflation, I will repay the loan as slow as I can. With inflation being 2.0% higher than the interest rate, the value of the loan ‘reduces’ by €20 per month; free money!

    I just see it as a very cheap way to add a few percent leverage to my investment portfolio. Interest rates will increase slightly though, as they recently changed it to be linked to 10-year government bonds (currently 0.42%).

    Reply
    • 2018-12-10 at 20:51
      Permalink

      Thanks Bart for your thoughts. I think that, even with interest rates rising to half a percent, I will probably not pay anything. Anyway, my interest is fixed until December 2020. Might just pay off the entire thing by then, especially when interest rates are on the rise.

      Reply

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