Reaching one million net worth with student loan debt

[clarkfan1979]

Listened to the Choose FI podcast today.

http://www.choosefi.com/032-milestones-fi/

Around 10:30 to 11:30 the guest states "it might be possible to have a positive net worth with student loan debt, but your FI clock doesn't really start until all consumer debt is paid off, except for a mortgage." 

To make a long story short, I currently have 14K of student loan debt at 2.4% and I'm making the minimum payments. My current net worth is 500K. Approximately 80-90% of that was made over the last 6 years, when I first left grad school.

I'm probably going to hit 1 million in net worth before the student loans are paid off. I'm thinking another 8 years to hit 1 million, but it's going to take 10-12 years to pay off the student loans. 

[Goldielocks]

I disagree.  Many SL are at low rates, and can be considered equal (or additive) to a mortgage.

[Imma]

The interest % on my student loan is 0,01%. No way I'm going to make more the minimum payment. I like the idea of having no debt, too, but it's just too unwise to pay off a 0,01% student loan, even though my balance is only about €3500. I'm investing the money right now, but I'd rather pay off my mortgage at 2,25% than pay off the student loan entirely.

[dignam]

2.4 is pretty low...financially it might not make a lot of sense to pay it off now.  That said, I just paid the last $10k of my student loans this month; though the rate was ~6%

[dude]

Listened to the Choose FI podcast today.

http://www.choosefi.com/032-milestones-fi/

Around 10:30 to 11:30 the guest states "it might be possible to have a positive net worth with student loan debt, but your FI clock doesn't really start until all consumer debt is paid off, except for a mortgage." 

To make a long story short, I currently have 14K of student loan debt at 2.4% and I'm making the minimum payments. My current net worth is 500K. Approximately 80-90% of that was made over the last 6 years, when I first left grad school.

I'm probably going to hit 1 million in net worth before the student loans are paid off. I'm thinking another 8 years to hit 1 million, but it's going to take 10-12 years to pay off the student loans.

We hit $1mil in net worth a couple years back, and now have over $1mil invested (NW @ $1.4mil). I've still got @$11k in student loans at 2.33%.  I'm paying a little extra on them now to have them gone when I FIRE in 1yr8mos. Could cut a check for the balance today, but the market continues to outperform 2.33%, so will leave the money invested. Will have a mortgage in retirement, but at 3.25%, our payment is far, far lower than rental costs in our area, so 10, 15, 20 years from now that payment will be a pittance (NTM we've got more than enough equity in our house to sell and downsize in a lower COL area with a cash purchase).

[AnEDO]

I focused on maxing out the 401k and roth when I graduated.  I was at least 500k net worth before I paid off the SL (about 3% interest rate).  The only number I cared about was net worth and pushing it up as fast as I could.  But as I now approach FIRE, having no debt is becoming more important than maximizing net worth increase.

[YttriumNitrate]

I thought "consumer debt" does not include mortgage debt, and usually* does not include student loan debt.

*If debt was acquired primarily in preparation for a career:
https://carybankruptcy.com/blog/are-student-loans-consumer-debts-it-depends/

[robartsd]

Around 10:30 to 11:30 the guest states "it might be possible to have a positive net worth with student loan debt, but your FI clock doesn't really start until all consumer debt is paid off, except for a mortgage." 

Nice to know that Choose FI brought in a guest that keeps an FI clock for me. What does my FI clock measure? Time since reaching FI: "Oh, you aren't yet FI because you still have student loans - doesn't matter thant you don't need to work to have the resources to meet your needs." Time it takes to reach FI: "Wow, look how fast you got to FI! You were still buried under student loans a month ago, but now you're FI." Who cares how the Choose FI guest chooses to define the start of your FI clock.

Personally, I think I'll pay off loans at retirement (but I'd have no issue with holding on to low rate loans if I chose to work in spite of FI) to increase my financial flexibility and reduce sequence of returns risk (it also makes the math easier than accounting for a reduction of expenses in the future) even though I know the most likely outcome is a reduction in the surplus I leave behind.

[Imma]

I also don't see why anyone wouldn't be able to have any consumer debt to be FI. I mean, I can see it's not smart, but being FI is about being able to meet your financial needs, indefinitely. If your financial need is $40.000/year and $5.000 of that is spent on paying off credit cards, as long as you can get $40.000/year from your assets, you're FI. You'd be better off if you didn't have to pay off credit card debt, but there's no link between FI and no debts. It's just that having no debts is often (but not always) the fastest way to gain the net worth needed to be FI.

[TVRodriguez]

Who cares how the Choose FI guest chooses to define the start of your FI clock.

THIS.  It's an opinion, not a fact.  Opinions are like belly buttons--everyone's got one and no one's really matters.

[Dicey]

And let's not forget the example of the mighty Arebelspy Family. They achieved FIRE, then traveled around the world (and still are traveling), started their family, and managed their numerous, mostly mortgaged rental properties remotely, all before paying off their student loans. Brilliant.

There is a difference between crippling amounts of high-interest, stupid debt and manageable levels of low-interest, smart debt that is used as a tool for building wealth.

[MM_MG]

Over a million invested and plenty of cash on hand, quite a bit higher NW if you count our home value and other assets.   Yet I am still carrying mid 5 figures in SL debt at 2%.   No rush to pay it off even though we could.   Another factor for us, is that it is all mine.  It simply goes away if something were to happen to me. 

While I understand the point, it rarely pays to listen to so called experts when they are preaching to the masses.   

[Valhalla]

This recent article argues against paying off student loans early:  http://money.cnn.com/2017/09/06/pf/college/paying-off-student-loans/index.html

[EarthSurfer]

Isn't one of the core thoughts of Mustachianism to analyze ones personal finance like a business?

As mentioned in the CNN article linked by another poster, early payoff definitely does not make sense if one is pursuing Public Student Loan Forgiveness as part of their FI strategy. My BFF is using this strategy to pay off his loans for his PsyD, and enjoying the relatively lax work schedule of a university. He estimates this program is adding $9,000 to his effective income, effectively tax free (most notably, not subject to FICA or the state equivalent).