Why I am glad I hustled to pay off my interest free student loan.

Most financial advice out there says that you should keep your student loan for as long as possible since it is currently interest free in NZ (unless you move overseas).

Even though I know that if you look purely at the numbers that it technically makes more sense to drag this out as long as possible so that you are getting ‘interest free money’, I actually hustled to pay off my student loan as quickly as possible.

I am not going to take the credit here - at the time I was clueless around money and my then boyfriend (now husband) said that I should pay it off as soon as possible (there is still debate around whether we paid it off together or if I did this on my own so I will give him the benefit of the doubt and say we did it together).

I hadn’t thought of doing this because everyone around me said that I should keep it for as long as possible. However he told me that it just wasn’t good to have debt and it would feel good to just get it paid off and move on. After thinking about it although paying it off made less ‘logical sense’ my gut told me it would be the right think to do.

So we ended up paying it off before we bought our first house together. Reflecting back now I am really glad that we did because:

Your income is your biggest wealth building tool

Having no student loans means having more disposable income in my pocket since a part of it is not going to repayments. If I was to go back in time, I would have diverted the amount that was coming out of my paycheck for student loans into my Kiwisaver. Alas I didn’t really know much about investing or compound interest back then so I didn’t do this. However, we did start investing once we learnt about it around 2016. If I still had my student loan hanging around this would have meant less money to invest.

You have more choice when your fixed costs/ debt are low

What we have found is that the lower our fixed costs (hence why we paid off our mortgage early - find out more here), the more choice and flexibility we have and the more we can pivot to changes to the economy / things that we have no control over. This means the choice to work part-time, eventually retire early, leave a job that I hate (haven’t had to enact this one yet but it makes all the difference knowing that I have the choice to do so!), or do work that I love (such as helping others with their finances) without having to consider whether it will make enough income to pay all our bills. Even though student loans are interest free, repayments still mean that it is income that is effectively ‘spent’ for me, where as once paid off, we can decide where exactly we want to divert the additional money.

I love simplicity

For those who have been following me for awhile know that I love minimalism and keeping things simple. Not having a student loan (or any other debt) means one less thing that I have to keep track of or have in the back of my mind.

Theory and real life are two different things

I spoke with a friend about this who argued that they can make more money by using that interest free student loan money borrowed to invest and make greater returns in the stock market. It sounds okay in theory but how many people actually do this? Most of the people I know who had student loans used the loan to pay for their lifestyle (rent, food, going out and obviously school fees), not to make it ‘big’ in the stock market. Also, quite a few other people I have spoken with said they ended up borrowing more than they needed because they had the mindset that the money was ‘free’ and in hindsight borrowed more than they needed.

Would you or have you paid off interest free student loans early?

Photo by Victoria Alexandrova