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.
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?