I think when it comes to finances, DH and I are pretty conservative people. However, we were discussing today about student loans. DH has some and I mentioned thinking about not paying it off quickly. We did agree to try and pay of DH’s school loans before interest start accruing.
But recently I’ve been contemplating not paying it off quickly. What? The more I think about it, the more I am concluding it’s a bad idea to pay off student loans quickly. That being said, there is a reason behind it.
The reason is that student loans are written off upon death of the person. So if you die, your student loans die with you. This is very important if you are married. Your spouse will not be responsible to pay for your student loans.
Now if you are a doctor, lawyer, business person with $100k+ debt, it makes sense to not pay off the loan. Why? Because when you die, the investment (your brain) and potential earning power goes away with the loan. This is IMPERATIVE for say stay at home spouses who might not have the earning power to pay off $100k in student loans.
Instead the money you were using to pay off your student loans quicker should be applied either to retirement funds or a mortgage. I used to think paying off the student loans a good idea, but I’m reconsidering it more and more. Especially if you are a doctor and say you die in a car accident. You have life insurance but your $250k student loans are now gone. If you had paid off $100k of them, you have nothing to show. However if you paid off $100k of your mortgage or saved $100k in your retirement account, your spouse can benefit of not having to pay the student loans off and the saved money.
Right now we’re not in a huge amount of student loan debt. So it might be more practical to pay off the student loans. However, definitely in the cases where student loans are over $100k, I think it’s wise to pay of a mortgage or retirement funds instead of the student loans. This gives the surviving spouse a more secure future without the higher earning potential.
Often times these large student loans come hand in hand with higher earning potential. And sometimes the spouse of the person does not have as high an earning potential. Hence by lowering their living costs by paying down the mortgage or saving more for retirement, you given them a better shot of surviving.
But I could be wrong. Perhaps it is always better to pay off the student loans before the mortgage, retirement savings, etc. But there are so many nuances to every situation it’s impossible to make sweeping generalizations. What do you think? Should people pay off their student loans quickly, or should they be the last debt standing? And instead focus on saving for retirement, mortgage, etc?
13 responses so far ↓
1 No Debt Plan // Apr 2, 2008 at 12:57 am
Well for starters, I don’t think planning on dying is a great excuse for not paying off the loans.
But it comes down to the interest rate. It may be wiser, death aside, to still do something else like save for a down payment on a house or invest in your IRA. But counting on dying seems a bit of a stretch to me.
2 Seb // Apr 2, 2008 at 1:31 am
We decided to not pay down our student loans. We consolidated them about 4 years ago when interest rates were around 2%. With inflation the way it is, it makes more financial sense for us to pay the minimums every month and invest our money in wiser decisions.
3 Anonymous // Apr 2, 2008 at 8:10 am
April Fool’s?
I think the argument is reprehensible, if it’s not a joke. Imagine living your whole life knowing you deliberately and wilfully did not pay back money you had been lent in good faith!
The mind boggles. And not in a good way.
4 Anonymous // Apr 2, 2008 at 1:03 pm
The point was not to ever pay them off and defraud the lender, it was not to pay them off early.
And I think paying them off on schedule, as intended, is a fine way to go about it. We currently putting extra dollars to our car loan and then will pay extra on the small amount left of our student loans.
It really depends upon the situation.
5 Fabulously Broke // Apr 2, 2008 at 1:38 pm
Love the new layout btw..
As for not paying off loans…. I dunno. I feel weird having debt hanging over my head and I still do.. plus the interest that piles up for .. 10 years…. no, I can’t plan on dying in 10 years to clear everything…
wait was this a joke? LOL
7 Livingalmostlarge // Apr 2, 2008 at 6:17 pm
Thanks, Nope the point is to not pay back the loan quickly. The point of the post, it is not a joke, is to pay off the mortgage, credit card debt, retirement, savings, and cars, etc first.
Student loans, especially large student loans should be last. Even after a mortgage. That way you’ve paid down more of the mortgage rather than an education which is of no use if you die.
Fabulous, I know you are single without a house. In that case perhaps it’s a better idea to pay off the student loan. However, how would you feel marrying an MD/JD with $200k in student loans? Would that be a goal to paydown before the mortgage, retirement, etc?
I’ll edit the post to say pay it off last.
8 dogatemyfinances // Apr 3, 2008 at 1:19 pm
I think it depends. I graduated with 80K in student loans. It was paralyzing to me. I thought about it all the time. I checked the website every day. It was more money than I could contemplate.
For me, I had to pay off that 80K for my own sanity. Oh, and many (but not all) private student loans do NOT go away when you die. I couldn’t get a straight answer out of dear old Sallie about mine.
9 Lucy // Apr 8, 2008 at 3:28 pm
I know it’s been a few days, but I thought I’d add this thought into the mix: Not all student loans are written off when you die. A good friend of mine took out both federal and private loans to go to her top choice school; unfortunately, she died last year in a car accident right as she was finishing up. Her federal loans were forgiven, but her private loans were not. Her mother has to make that payment every single month until they can pay it off. It devastates her over and over again.
13 Anne // Apr 21, 2008 at 6:26 pm
Seems like this post is assuming that the debt in question is a joint debt. If you are solely liable for a debt (that is, no joint obligor, no guarantor or co-signer), once you die, the creditor has recourse ONLY against your estate. No one else has to pay your debt. This is true whether it’s student loans, a car loan, credit cards, etc.
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