I’ve been aggressively paying down law school loans without a second thought because that’s what everyone around me is doing.
My income is fairly high but savings are middling and I’ve only just now started to wonder — why are people so frenzied about paying off student loans ASAP when many have no qualms about paying off a mortgage with an equal interest rate (~6%) according to the 30-year schedule? Especially when personal bankruptcy would not be a concern?
Am I missing something?
**EDIT: I don’t know why I’m getting downvoted so heavily lol. It’s a sincere question.
And the question is not about if the types of debt are equal (they are obviously not) but about tackling the accruing interest assuming similar rates. I know colleagues putting like $8k towards their student loans every month and I question if that’s the smartest move when you rarely hear of anyone doing that for a mortgage
People attack student loans first because they’re unsecured, have fewer protections, and mess with your financial flexibility way more than a mortgage does. A mortgage is backed by a house, has fixed long terms, lower relative risk, and you can always sell/refi. Student loans follow you no matter what — you can’t discharge them, you can’t sell them, and their repayment options can change.
So even at the same interest rate, the risk profile isn’t the same.
The financial flexibility bit is so underrated. Student loans are seen as good debt, so you can have an 800 credit score and be a moderately high income earner but not actually be able to afford a lot of things you qualify for. The gap between my own mortgage qualification and the reality of what my finances would look like if I purchased a home at this very moment is pretty wild, for example.
On the flip side, you get some flexibility back in the sense that although we tend to talk about student loans as if they're one loan per servicer the reality is they're usually grouped based on the program they were disbursed from, so you can do things like attack the higher interest rate loan groups first for a guaranteed "return". For example, surgically paying down a 7.5% student loan group first makes a lot more sense than prioritizing a 3% loan.
I’ve never heard of student loans being good debt but otherwise I agree
in the way that some programs give access to high earnings it’s not bad debt to take on. still not good to have after the fact so paying them down should be higher priority
If it helps to clarify, I've primarily been told this in credit contexts. Despite it being very real debt with comparable interest rates to cars or mortgages, it's not a depreciating asset in any way (provided you made the most of it, in theory). It's also not dischargable by bankruptcy, and if they're federal, it's afforded a lot of flexibility (can be put into forebearance in times of personal or societal hardship). Therefore, creditors look at this on someone's profile as either someone trying to better themselves in the best case or reasonably guaranteed in the worst case. They basically will only penalize you for missed payments, largely ignoring revolving balance. As a result, I had "excellent" credit by my mid-twenties, not long after graduating college, even though I had only fledging credit experience.
Student loans are indeed "good debt" if they enable a person to increase earning capacity and make a big salary. If they don't then they are terrible debt that will cripple wealth. People run into trouble when they pick unprofitable and low paying degrees, with big student loans. On the flip side, a brain surgeon with $350k in student loans will probably make ends meet and eventually get ahead financially.
To me that doesn't fully explain why you would pay them down early. If the interest rate of the loan is less than the interest rate of a low risk investment like a HYSA, then it might make sense to build up that investment rather than pay down the loan. I suppose it could be a matter of psychology where most people don't have the discipline to grow and maintain a rainy day fund, but if you truly do, then I would at least consider not paying down that loan early.
The reality is that student loan interest is rarely less than the HYSA interest rate, but it's not as rare with mortgages. I think it really does come down to interest rate most of the time.
I think the one thing everyone in this thread is missing an understanding of is employment in legal industry. OP says that he has colleagues/friends putting $8k/month towards their student loans. They are paying down their loans as fast as possible because their income stream isn't guaranteed. The private sector is very much "up or out" and most law firms have an 8-year partnership track. And many more people will be told they need to leave/don't have a future at the firm before year 4 or 5. And keep in mind the salary for the legal industry is bi-model. So if you can't find another private sector job you are likely going into the public sector and taking a 50-70% pay cut to do so. So if you can only bank on making that kind of money for 4-5 years, it makes sense you're paying off a 200-300k student loan debt faster than you would pay off a mortgage.
Not to mention your average junior lawyer job is a couple of years at most from being completely obliterated by AI. Can you do some reading, relate it to a reading of a relatively small closed set of readings that are all public, and then write a very standardized set of documents with particular formats and very specific formally laid out rules is the ideal use case for an LLM. Maybe only writing basic computer code is better
Housing loans may be written for 30 years, but they are routinely closed out much sooner by selling the house. You have a negotiable asset that is generally worth more than the loan. Positive net worth.
Hopefully, the education made you worth more for wages, but the school loan is not so easily gotten rid of, and there is no negotiable asset offsetting it.
And that would need to be "after taxes". Which is even more rare. Your loan rates would need to be like 3% or less.
My student loans are 3% fixed interest, I am in literally zero hurry to pay them off lmao
Federal student loans have more protections and more flexible payment options than pretty much any loan in existence actually
Discharge in bankruptcy is possible but not easy in any way
Key word, “Federal”.
I think with the amount of debt needed for a law degree, you’d likely be dipping into private loan territory there after exhausting the public loan limits. There a close to zero protections for private student loans.
Mortgages have equity. Student loans do not.
This is it right here. Your house can appreciate and you can sell it if things go sideways. Can't exactly repo your law degree and get $200k back lol
Student loans are just pure debt with no upside, while your mortgage is basically forced savings with a roof over your head as a bonus
I mean the one upside is if you need to mortgage your house because you are screwed income wise you can probably put the student loans on a minimum type payment, while with other debt you can not. Before this was great because the government would actually cover the interest, now not so much. But who the hell knows what's happening with loans anymore at this point.
But that thought is against what OP is asking. If you can't repo law degree, you would want to pay down your home over student loans because you get to keep your asset.
Did not study in US, so no student loans so I did not have to make that choice. From what I read, student loans are not discharged in a bankruptcy, and will continue to accrue interest while you are not able to pay, so the debt keeps piling up. While a mortgage, you can short-sell, discharge in a bankruptcy (in most states without having to pay the difference) and be done with it. So it makes sense to prioritize student loans.
Did we just invent the Secondary Degree Markets?
I mean, practicing law as a service for money is the market. I know what you mean, but a law degree purchase would cost so much money as to be prohibitive. You can make millions of dollars with one.
The problem is that student loans "upside" is societal, or should be. The value of adding a doctor or engineer to society is not very tangible, but obviously a society with tons of very high skilled people would be advantageous to the population and development. This is where the problem comes in that the money is treated same as any other; there is no special community/government pool to fund this betterment of society. We try to explain the benefit of the loans on a personal or tangible level, but the reality is that its a societal benefit -- its just not a societal cost.
I mean the upside is your lifetime earnings are higher on average
If you get a degree that puts you in a field where there is good pay and high demand.
If you borrow 200k to get a 55k job then you’ll be in debt for the rest of your life.
A doctor that makes 500k can somewhat easily pay off 200k in debt.
May be worth pointing out that 200k is way higher than the average student loan debt.
500k is also way higher than the average physician salary
Some people's lot in life is to be an example to others of what not to do. If they went to college after about 2000, then they could easily research the average income from their degree.
This here. While I agree that student loan debt for degrees with only minimal income increases over a lifetime are probably a bad decision for most, those fields with careers with significant higher income percentiles are well worth the investment in self.
Too many one sided black or white arguments here. Personal situation, motivation and sense of purpose are the things that need to be considered first. You want to get into engineering cuz you like to solve puzzles and can spend hours focusing on making the most minute details work.. 👍. You want to bet into engineering cuz it sounds cool? Wrong attitude and going into debt for it is on you, no one else.
I think your overall point is good but using a STEM major for your example clouds the point. Most engineering majors will make above average incomes and be able to justify the expense of the degree, whether they are passionate about engineering or not. I think it’s non-STEM majors where the ROI vs passion debate comes into play.
Maybe. The future is very unclear on this point. It was definitely true 30 or 40 years ago. Today, some folks are looking at the college degree / student loan ROI calculation critically and judging it to be a bad gamble. Enrollment costs have risen and so has uncertainty about what high-paying careers will be open to graduates.
On the other hand, there are no guarantees that house prices will continue to climb the way they have over the last 30 or so years, either. They could fall if enough governments get their crap together and encourage building enough housing to meet demand, or change the rules to stop big companies from buying up single-family homes to rent out.
There’s no guarantee house prices will continue to climb, but that’s also not a bet I’d be willing to take either. At best they will stabilize, but realistically houses are going to just become a form of generational wealth for the middle class, passed down from one generation to the next.
You are right, there are no guarantees that home prices will increase but if there is ever a period of time where that doesn’t happen, is having a college degree really going to make a difference as the economy will have suffered heavily.
They're also not making more land, at least not in any meaningful way. Knowledge (i.e. a college degree) is an infinite resource, while property is finite.
True, but even if that was to happen it would take many years so you will enjoy appreciation until then. It's unlikely to fall in price, and there's location to consider as well.
Of course, if people are out of jobs due to AI, more people might live in their car on those lots with shared spaces and demand decreases for homes.
I don’t understand why this matters. Maybe it would matter before taking out a student loan to decide if it’s worth it. In this case it actually seems like it was worth it as OP has a good income = great investment.
If things go south, you can sell your house, probably at a profit. That's not true for your degree. They are not saying education is not a good investment, they are saying student loan debt is worse than mortgage debt.
Right, but I think OP’s question is that once you have both debts, what would be the reason for paying off student loans more quickly?
The real answer is that the assumed appreciation of the property makes the effective interest rate lower, meaning that the student loan has a higher effective rate, and you should always pay the higher interest rate debt first. I'd tell people they should just put it in Excel and run the scenarios, but it's actually a little bit tricky because there are assumptions people easily forget about. Say...
$100k student loan with 6% interest, 10 year repayment period, you'll pay $33k in interest over that period. $1110/mo payment.
$500k mortgage loan with 6% interest, 30 year repayment. You'll pay a total of $579k in interest. $3000/mo payment.
Now let's say you have an extra $500 per month to throw at one of the loans, but only for a year. If you throw it at the mortgage, the student loan is unaffected and the mortgage will have you paying $551k in interest.
If you throw it at the student loan, you'll only pay $29k in interest and pay it off 9 or 10 months early. So only $4k interest saved instead of $28k - you get more bang for the buck by paying extra on the mortgage.
However... what do you do with your would-be $1110/mo during the 9-10 months where you paid off the student loan early? If you pretend you still have the student loan payment and use that money towards the mortgage, that loan catches up quite a bit and now you're only paying $55k in interest on the mortgage. So $24k saved on the mortgage, added to the $4k saved on the student loan - it ends up being $28k in interest saved over 30 years no matter how you use it. As long as your lump sum of "debt service payments" is the same every month between the two scenarios, it doesn't matter which 6% loan you throw it at.
So essentially, there is no reason to service the student loans first, other than the fact that you are likely to pay it off sooner and have a little more flexibility?
It's not that there's no reason to do the student loan first, it's that there's no difference in paying extra towards loans with the same interest rate, regardless of the principal or the term, provided that when you pay something off early you roll those payment into the next loan payment.
If cash flow is a concern, then paying the lowest balance first does make sense. Also worth considering if a person really needs to see early benefit to keep motivation and will lose focus if they're told it takes years or decades before you come out ahead.
If you itemized deductions, mortgage interest is tax deductible and student loans are not. That’s another reason.
That’s a good point. You actually can deduct interest payments from student loans, but there’s an income cap to claim that deduction, and it maxes out at $2500.
It might have been a good investment but it’s now a liability.
No upside?
For some people their student loans supported a 30 year career/income/promotions they otherwise would not have had.
Knowledge is an asset far more valuable than a house. A house you can sell once and get your money back. Knowledge you can sell repeatedly to get multiple times your money back.
Well the upside is that it translates to higher earnings potential. $200k for a prestigious law program is a good value proposition. $200k for an undergrad is usually a terrible value proposition unless it's one of a handful of chase programs.
The biggest difference between student loans and a mortgage is that the latter has an underwriter who'll refuse to finance a bad deal. The student loan lenders will essentially write a blank check because the debt is non-dischargeable.
Back to the OP's question, I own a house with a mortgage, and I have a modest amount of student debt left. I don't have cash flow issues in my budget, so the A/B of which to pay off first comes down to APR.
It doesn't make sense for me to prioritize $35k of student loan balance at 3% over my mortgage at 4.75%. It does however make sense to prioritize the other $30k of my student loans at an average of 5.5%.
And appreciation of my house is irrelevant to the above consideration.
I disagree here. They can't take back the degree, but they can go after the house. Wouldnt it make more sense to pay the mortgage first since you will always have the degree?
But you can probably keep the house with bankruptcy, but you cannot discharge the student debt with bankruptcy. There may also be more special laws around how they can go after you with student loan i.e. they may not be able to go after your house. However, they can probably garnish your wages.
With all that said, any reasonable person with sufficient wages should maintain both in good standing.
I am indeed a depreciating asset
We appreciate you, Fukface_Von_Clownstik
It’s not even that.
It’s the way they are paid back. The standard 10yr plan is amortized like a mortgage. But instead most do income driven repayment. Because of this some people take on more debt than they end up making and they cannot afford a 10yr payment, thus they pay 10% and the interest grows.
Imagine if your mortgage lender let you pay just 10% of whatever you owed. We’d have the same ballooning of interest problem with student loans
Why does this matter in the context of which to pay off first? Money is fungible. The only difference is the mortgage interest deduction, which under new rules doesn’t apply to most. The interest rate should be the only relevant data point. Maybe mortgages are easier to refinance and that should be factored in, but you’d still pay down the higher interest until the debt had been refinanced.
Student loan interest is also deductible up to certain incomes (and doesn’t require itemizing)
If you pay down mortgage then you have increased equity that you can use if, for example, you relocate to another city and buy a new house.
If you have paid down your student loans you have reduced your debt but cannot get much benefit from that reduced debt, unlike in the house where you can more easily access the equity, either via another loan or by selling the house.
That's an argument to pay down the mortgage, not the student loan. OPs claim is that most people prefer paying the student loan.
Also you have to make your full interest + principle for your mortgage loans. Student loan encourages people to make some absolutely regarded payments like interest only.
And depending on the loan some (like the one I discovered my son signed up for) compound interest daily vs mortgage that not only requires monthly payment but only compounds interest monthly (which since you're making payments doesn't really compound).
My son not only signed up for this loan, but then agreed to defer even the interest payments resulting in a shockingly high amount of interest build up in just a few months. Glad I caught it before it built up for years. Have currently paid it off and "refinanced" through "bank of parents" at a much lower rate ;)
Can you explain how that matters other than in the event of default?
(Also homes have equity, not mortgages)
That's exactly why it matters. The house could also be sold if you just need cash, want to move, etc. Or you could keep the house and take out a HELOC if you want to finance renovations or something. Or you could rent it out for income. You can't sell your degree.
But that doesn’t influence whether or not you should aggressively pay down (or not pay down) the mortgage.
That just says having assets is better than not having assets.
You can default on a mortgage. In which case the bank will sell your house, use the money to pay off the loan and give you whatever's left over. Then you effectively have a blank slate. And that's the worst case scenario.
You cannot default on student loans because there's nothing to repo. So the worst case scenario is the interest grows forever and you are trapped in debt.
It should influence on which one you pay extra to first.
Yeah
Why?
There are so many other factors at play, why would the mortgage being secured by an asset be the main reason?
To reduce risk. If I had the choice to owe money on something I can sell, or something that is stuck with no underlying asset to sell. I'll choose the physical asset.
Easier to get rid of a mortgage too.
Basically impossible to get rid of a student loan aside from paying it off.
That's not the question though. Equity is only relevant to the question of whether it's a good idea to take on debt for a house in the first place.
Paying down law school aggressively could come at the opportunity cost of buying a house later, but assuming you bought the house before paying off law school and are faced with the A/B question of which to prioritize, it really comes down to APR.
That would be a better argument to not pay down the students loans though?
If they are equal interest rate, I would rather own my house than a piece of paper that says “congrats, you paid for your diploma.”
To add, the hope is that you can refi your mortgage at a lower rate if rates drop. While refi-ing federal student loans to private is usually considered a bad idea due to losing federal protections.
Also, when it comes to federal loans a lot of people don't pay them down and get on an IDR plan and go for IDR or PSLF forgiveness.
And last, a lot of people have interest rates that are higher than 6% on their student loans. I think grad plus loans can have over 8%
Because student loans can literally follow you to the grave. They are one of the few debts that can be garnished out of your Social Security retirement benefits.
While you can "walk away" from a mortgage obligation (foreclosure), there is no such option for most student loans.
It's worth pointing out that until 1976, student loans could be discharged in bankruptcy just like any other debt, and it wasn't causing any problems.
The restrictions on discharging student loans in bankruptcy also contributed to the massively-increased cost of college, since it made it safer to charge huge amounts.
Before 1976 student loans were very rare, as banks had little incentive to give out favorable loans for an asset that they could not reclaim. The law that allowed student loans to survive through bankruptcy was intended to encourage banks to offer more favorable student loans, in order to make a college education more affordable. And it did, for a time. Then as more students could afford higher education, demand increased and so universities began to increase tuition, which pretty much erased the advantage of having more accessible loans.
I wish this never changed. I filed for bankruptcy two years ago and got to keep my college loans. Still sitting at the same amount I got them for thanks to interest and my IDR 🙃 I’ve come to terms with the fact I will just have a school loan payment the rest of my life. If it stays under $200 it should be manageable that long
Because of the inherent value in a home.
Only a few states have made it so the mortgage company can't come after you in the event the foreclosed house sells for less than the amount owed. Surprisingly, those states have had fewer issues with underwater mortgages caused by bubbles.
Well yeah, then the bank has to actually consider the risk of the housing market crashing when packaging up the loans and selling them
Is that correct? If I look at a few studies such as this one or this brief from the Fed in Richmond, it sounds like in general, non-recourse laws were associated with higher variations in home values and a higher risk of default. I did also see this paper saw no significant impact.
That fact is the only reason some people get to attend college at all.
Plus the other method of walking away from a mortgage obligation (selling the home). You can’t really sell your diploma / education to anyone.
If you are in your 20s when you take out federal student loans they'll get forgiven by your mid 40s if you are on an IDR plan.
Also, federal student loans (and some private student loans) die when you die, they don't settle up against the estate
True but if you are on an IDR plan your payment will be lower if your income in retirement is lower.
Most people actually don't pay their federal student loans off aggressively, lawyers are really the exception to this (and some of them go for PSLF)
No guarantees IDR stays in place so make sure whatever career you opt into would allow you to pay the loans off without relying on IDR.
I think most people have a much better interest rate on their mortgage than they do their student loans. Mine is 3.5x better.
My mortgage is 2.49% and private student loan from my masters and doctorate program is around 3.2%. Took advantage back in 2020/2021 when the rates dropped. Many of my colleagues didn’t and have 7%+ interest on their student loans 🤯.
Yeah, my law schools loans are 7.5%. My mortgage is 2.25%.
My student loans are 3.1% and 4.5% while my mortgage is 6.1%.
This. I know everyone with 10% or higher with college loans.
I mean most people have multiple student loans at different interest rates. Some much higher than 6% or not fixed. If yours are fixed and the rest of your financial situation is not good, like you have no emergency savings fund and you're not even getting the employer match for your 401k, feel free to put less towards your loans while you get those other things started.
Historically a lot of people have like 3% mortgage rates and 11% student loans, so obviously the math looks different for them.
If the interest rate is the same it’s the same. The only difference is that you can’t get rid of student loans if you go bankrupt. So maybe there is a very slight edge to paying off the student loans.
Thank you. Pay off the debt with the higher interest rate, especially if the rate is higher than you can get in low risk investments. Mortgages often have lower interest rates and many, many folks can make more in a HYSA right now due to the prior low rage environment.
There’s a couple carve outs for student loan discharge but they’re rare
One - if you become disabled and likely won’t be able to return to work (the reason for your bankruptcy in the first place )
Another difference is you can refinance a house if interest rates go down. Making it less advantageous to pay down a mortgage early. There may also be tax differences.
You can refinance student loans. Most people, something like 90% of people, take the standard deduction so there would be no tax difference.
Note for student loan interest, it doesn't matter if you take the standard deduction or not, as it's an adjustment (i. e, it happens before you take the standard deduction/itemize on the 1040).
And you're right about the 90%, but for whatever it's worth, the number of people who take the standard deduction has been pretty high the last several years because of the low SALT cap. That increases to $40,000 this year, so we'll see more people itemizing.
You can refi student loans if rates go down
It is usually not advised to refi federal student loans to private since you lose all federal protections
You're missing the fact that they are two fundamentally different kinds of assets. One has intrinsic value (degree) while the other has current value (equity) that can be liquidated at-will.
Many reasons - but that doesn’t mean the rapid student loan payoff isn’t a good strategy for many.
Income based repayment and deferment - federal student loans could qualify for this if you are low-ish income and/or if you lose a job. This means the risk of having to make a payment is lower.
Equity and ability to sell - student loans can’t be sold. So again, if shit hits the fan you can’t just sell your degree, downsize, and keep going.
Employer benefits - some employers offer an extra benefit of paying off a certain amount of a student loan every year. It makes sense to keep them around if this “free money” is less than what you pay in interest each year.
Public service forgiveness - after 10 years of qualifying income based repayments people in public service jobs (including like nonprofit healthcare, education, etc) get forgiveness. There’s little point to paying extra each month if you are anticipating forgiveness and you can do the math to see if you’re likely to get it.
Regular income based repayment forgiveness - after 20 years on income based repayment the same is true for others - so if you have an astronomical student loan debt and a lower income job you still may get forgiveness (masters degrees like architecture that cost a lot with jobs relatively lower paid but not public service).
Then, because of these things the advice isn’t the same for everyone and because it’s not as simple (pay extra if interest is X% or higher), the particular advice kind of gets lost in the noise.
Tl;dr - student loans have nuanced options and simple advice is gets spread.
Personal bankruptcy might not be a concern but it's always a possibility. Also the tax deductions for mortgage interest are a lot better than for student loan payments, especially early in the mortgage when interest payments are the bulk of your monthly payment.
Psychologically, paying a mortgage is like paying rent but also building equity so it's like "whatever.... I need a place to live anyway and this gives me a way to put away some money doing it." Student loans feel more like a late bill for services rendered and you just wanna get rid of it and move on with your life
All of this.
Student loans not dischargeable in bankruptcy.
Tax deductions way more favorable for mortgage.
Interest rates typically higher on student loans
Home is an asset that can be sold at any time to stop the payments. Can’t escape student loans in same manner.
As such, many prioritize getting rid of “bad” student loan debt ASAP. Even when it’s not the most efficient from an interest rate perspective.
There are major tax advantages to mortgages. Some for student loans too, but generally their advantages are smaller.
When you decide to move, you sell the house and pay off the mortgage (and then probably get an all-new one on the next house, if you’re buying another). It's rare to simply buy a house with a 30 year mortgage and stay there long enough to pay it off. So the accumulated equity from selling house one often results in house two having a smaller mortgage with better terms. By contrast, you can't sell your student loans if you decide to exit your career.
Question — Does student loan debt affect your ability to get a mortgag? or the interest rate on your mortgage?
It could… Debt to income ratios are absolutely qualifying factors on mortgages.
It can! Generally, student loan payments are smaller than other loans of similar sizes, so they aren’t as impactful as other debts.
But they are a drag on your Debt To Income ratio, even when they are in deferment and have a zero payment.
The income based repayment programs were a good way to carry $50k+ in student debt and still get a mortgaged because you could end up with a $100-$200/month payment on that debt.
Those programs are in the weird space of “no one knows what’s going on with student loans at any given time due to politics” so it hasn’t been as available to people this year.
Some of it is pure psychology—mortgages feel like rent, something that you’re voluntarily trading for a place to live, but student loans feel like a chain around your neck punishing you for getting a degree.
But some of it is rational. Student loans are inflexible compared to a mortgage. If you have equity in your home, that mortgage can vanish the instant that you sell, meaning that it doesn’t absolutely prevent you from changing careers, changing cities, etc. And depending on the market, there can be opportunities to refinance in the future.
Student loans are less flexible. They’re essentially non-dischargable debt that you can’t shake even if your circumstances radically change. So if you decide you want to change careers or live somewhere with a lower cost of living, you still need to have the raw cash flow to keep paying the loans.
People definitely pay them off faster than is strictly rational, but it isn’t totally crazy to view them as more of a liability than a mortgage, because in a real sense they are.
My mortgage rate is like 1% higher than my student loans.
However, the balance is like 10+ times as much for my mortgage. I'm trying to pay off my student loans quickly so I can have fewer monthly obligations and paying them off is a lot easier of a way to do it than paying down my mortgage.
Also maybe because people are used to having a monthly payment for housing if they rented before buying a house. Therefore it doesn't feel like that much of a big deal to pay a mortgage monthly as it does to have an extra payment for student loans on top of that.
i can't roll my bachelor's debt into my master's debt and render early payments moot, in the same way that a house can be traded up in a few years if needed. so ill pay off the debt and be done with it
What you’re missing is just the fact that most folks are just not financially literate.
So they do what "feels" best to them. Breaking free from the shackles of school related stuff feels good.
Do some folks knowingly choose to be financially inefficient? Sure, there are some.
But generally, it’s because folks don’t understand interest rates, math, and how to invest.
Exactly! Some of the most upvoted comments in this thread are nonsense about one having equity and the other not.
People have just been socialized to think that paying off debt faster in general is “more fiscally responsible”.
Every debt is different based on the terms. If you’ll make more money investing, it would be to your detriment to use that money to pay off debt instead.
Because the math isn’t the only factor. Is the math better to invest with 7% post-inflation return than to pay down a 5.5% debt. Sure.
But to a lot of people the freedom of not having the debt is worth the 1.5% difference. That’s the price of that “good feeling” you’re talking about to them, and it’s a price they don’t mind paying.
The point of money isn’t just “number go up”. The point of money is to be able buy the time and freedom to do what you actually want. Which for some people is to live debt-free or have a house they own outright.
Exactly. If student loans and mortgage are both 6%, then even people who argue that having debt isn't a big deal would agree that it falls into that gray area where the math just doesn't really matter so prioritizing one of the other doesn't really make sense.
What nobody is mentioning is that I can make an extra payment to my mortgage every month that goes 100% to PRINCIPAL, which greatly decreases how much interest I will pay in the end. I cannot make any payments to my student loan principal until ALL accrued interest is already paid off. My student loans are less than my mortgage (by about 200k) but I will pretty much never touch the principal on my student loans, I will perpetually pay interest, and they will never go away. This is why student loan interest and loan format is considered predatory.
how is that any different then if you were behind on your mortgage?
i certainly paid some extra toward my student loan principal, since i wasn’t behind in payments
I’ve never been behind on a mortgage, so I don’t know how that works, but I can pay extra on my student loans, but it doesn’t go to principal. I cannot bring my student loan principal down until all interest is paid off, which includes any interest that was accrued on the loans I took out when I was in school and they accrued while I was still in school. I probably have about 50k in interest that builds by ~$18 a day, so until I can get through that, my actual principal loan amount will never decrease, even if I were to make an extra payment. Extra payments would certainly cut down on the interest and get me to where I could touch the principal sooner, but I will forever and ever accrue $18 a day in interest until that happens.
My mortgage however, every time I pay I am decreasing the principal, and with every payment I am decreasing the amount of interest I pay, and over time the % of the payment that goes towards interest decreases, making even a regular payment more valuable each month. That’s in addition to the extra that I can chunk at the principal whenever I want to make that process go quicker.
That's still effectively the same thing as being behind on the loan. You were allowed to let the amortization schedule lapse and interest built up because the principal wasn't being paid off on time. If you'd made monthly amortized payments on the student loan the way you would a mortgage, the interest would be paid in full every month.
Now you're in a pickle, but that's not because the math of student loans is different that a mortgage, it's because there are far, far harsher consequences to getting behind on a mortgage so vastly fewer people do that.
So I guess to your point, student loans aren't different mathematically, but the nature of how they are issued and structured causes the borrower to be much more likely to be in a much more disadvantageous position.
But they are different mathematically. Most student loans use simple interest—the accrued interest doesn’t compound—so when faced with mortgage vs accrued student loan interest, you will pay less money over time by paying down the mortgage.
If you follow conventional wisdom, you get conventional returns. Don't do things, because others do it. For instance, if you listen to this sub, they're debt averse and will want to pay down debt as fast as possible.
Instead, I say weight it against your situation and consider the returns of putting funds in use elsewhere. Student loans for instance, the interest is deductible so take that into account. Your mortgage interest may or may not, so that's one reason to pay down student loan faster. That said, 6% interest these days are not high.
some people have such good mortgage rates that its better to invest in the stock market than pay down the mortgage. if you can earn 8-10% yearly vs 2-3% rates on mortgage it makes a easy choice. but student loan rates are higher
This is a valid question.
Why does it take a decade or more to pay off 80k in student loans but my 80k car is half that?
Why do we have 100,000 car loans paid in 60 notes but pay on a mortgage for 30 years. I’m in a $200,000 home, lost cost area.
Depends on the interest. You want to pay of higher-interest loans first. If the interest is similar then it won't matter (numerically).
Probably it is mostly psychological, all you got for that student loan was a piece of paper with your name and a university logo on it, so maybe the sooner it is gone the better. Also student loan payments generally happen earlier in life when putting money into long-term savings would a lot more effective so getting that loan over with ASAP makes sense. On a mortgage you get to choose the time so it will have less impact on retirement savings.
Because people have to put their life on pause a lot of the time due to student loans. It’s a debt, not an asset you’re accumulating equity on.
If they’re not earning a lot and the student loan payment is high, they can’t even consider getting a mortgage, or a bigger rental, or a new car, or start a family…..
They're not the same kind of debt. Mortgages have a fixed term (30 years) on an appreciating asset (house) that you can get out of by selling or bankruptcy.
Student loans are often paid using income-based repayment, which can mean that they're never paid off, ever. There is no asset, and you cannot get out of the loan; it will follow you to the grave and anything still owed will be taken from your estate.
Ergo, mortgages are seen as good debt because they got you and your inheritors an asset, student loans are bad because they are only debt for you and your inheritors.
Mathematically, pay it all off while saving for retirement. The order could be the avalanche or snowball methods, whichever feels right (personal finance is personal). Just don't forget to have an emergency fund and save for retirement when you're young!
Equity and you can bankruptcy out of a house. You can’t student loans
I am seeing lots of comments implying having a mortgage is “better” than having a student loan, justifying by using the words “home equity.” OP is not asking about which loan is a “better” investment. Truthfully, student loans taken out for the law degree may turn out to be a much better investment by many magnitudes if they have many years of high income as a result. A home really is not an investment. It is a place to live. Appreciation can be very quickly be eaten away by upkeep, renovations, rising taxes and insurance…
OP is speaking facts about 6% vs 6%. Equal, that’s it. If you think paying off the student loans faster is better, it’s just because you feel “icky” about student loans in general.
It makes no sense why people see a difference. Debt is debt, and they can't force you to alter a payment schedule you've agreed to when the value of the collateral (if any) changes. Paying down debt doesn't inherently increase your net worth any more than if you kept the cash in a savings account; it all depends on the interest you save by paying down the debt vs the return you could earn with that cash invested elsewhere.
For example, if your debt has a 3% interest rate and savings accounts are paying 4%, there is no scenario where it makes sense to pay down the debt. It doesn't matter if it's a mortgage or a student loan. People are just scared of student loans because they usually have a higher interest rate than a mortgage.
Doesn't student loan interest compound daily and mortgage interest monthly? In that case, paying student loan down faster will save money. Most of the people I know with both have higher interest rates on the student loans than the mortgage; rare they are equal or mortgage is higher
They both are simple interest. Compounding is mostly only relevant for assets, because compounding is interest on interest while with an amortized loan you're paying off the accrued interest every month.
You’re not missing some hidden rule. It’s mostly outdated advice.
Mathematically, equal rates deserve equal scrutiny.
EDIT: Comment below pointed out that it's smart to pay off the debt not tied to an asset first, since an asset can be sold to pay off a loan if needed.
This isn’t necessarily true. You build equity in a home (which typically appreciates in value) which can be used to offset a debt if it can’t be repaid. You can’t sell your degree, you’re saddled with that debt until they bury you
The problem with thinking of selling off homes first is that you still need a place to live, and you might not find a cheaper place to live.
Therefore, I would argue that paying off secured debt first is the smarter thing to do than unsecured debt because in the event of job loss, you would still own the asset. In other words, you would be broke but still have a roof over your head versus broke and homeless if you couldn't pay your mortgage.
When you have a large student loan and a house. You basically have 2 mortgages. The house you can sell and recoup or profit from the sale or it can be repossessed, you claim bankruptcy and move on. The student loans you’re stuck with until they’re paid off (or forgiven). There’s no other way out. So wouldn’t that be the one you want to get rid of
Hey fellow lawyer! I work in finance-related law, so I hope I can provide some helpful insights. The main issue is that mortgages are secured loans, while student loans are not. Mortgages are backed by an underlying asset that the lender can seize if you default on the loan. In contrast, student loans are unsecured and not backed by anything. If you default, the only recourse for the lender is to obtain a judgment against you.
All that said, the need to aggressively pay down student loans may differ based on your personal situation. For example, are you in BigLaw? Are you in-house? Let’s say you’re in BigLaw, doing well, and anticipate staying to make partner. You can reasonably anticipate making a high salary for many years to come. In that scenario, if your DTI is healthy and the rates on your loans are low, you can arguably just make the standard payments for 10 years and invest your other money into other assets in the hopes of making a higher return. However, that calculus would completely change if you had a poor DTI or high rates on your loans.
Banks are allowed to deny mortgages. Everybody gets a chance to go to college.
I'd pay my house down ASAP if I had a 6%
I was at like 4% or whatever I had
But I have 2.5% part of me still wants to pay down but investing is a bit better nowadays.
Usually student loans do have a higher interest. In the event that your student loans & mortgage did have the same interest rate, it'd still make sense to pay off the student loans quicker. They are unsecured debt & cannot be discharged in bankruptcy.
Student loans are not typically not dischargeable in a bankruptcy. It’s best to get that type of debt off your books ASAP.
Student loans are bad debt as it is not driving appreciation of an asset that the loan was used for. Also, student loan debt is nearly impossible to discharge in a bankruptcy where a primary residence could be protected.
Interest on student loans has zero impact on taxable income where mortgage interest could be deductible, but the changes in tax law makes that less and less of a difference in most cases but the new SALT cap increase could swing that back.
Speaking for myself: I poured money into paying off student loans because the balance was significantly less than my mortgage. I could zero out the student loan balance over several years and then free up the monthly cost for other things.
Since everyone has already answered your question, I am going to go a different route. If you are struggling to save, then reduce the amount of money you are paying towards your student loans and build up your emergency fund. Your student loans aren't going to disappear tomorrow because you paid an extra $4k this month towards them, but you could have an emergency tomorrow that you wouldn't be able to pay. Then, once your savings is efficient, then you can decide which debt you want to pay off quicker.
Apart from all the good points people have raised, the understanding is straight forward in my head. Student loans are a 'burden' that holds you back while a home mortgage is literally the biggest goal people will have in their lives. I'm okay to have a long term loan on my home and pay it off at the given pace because that was the biggest goal in my life. Meanwhile a student loan literally is an impediment against all of my goals in life and literally will go on till I'm in my grave as it can't be taken out even in bankruptcy.
Mortgages are secured by the property rights, so lien holders have a recourse to liquidate the property.
It really depends on the interest rate. Mine are 2.75% fixed. With inflation taken into account, that’s a sub zero interest rate. I’ve managed to drag out repayment for over 30 years thanks to a screw up by the DOE. Now that’s a sweet deal! However, if your loans are 6-7% or higher, yeah, you want to pay them off ASAP unless you have higher interest debt like credit cards. Then pay those off first and start whacking down your student loan balance.
Student loans are unsecured and function more like a tax.
I'm not frenzied about paying either off so long as the interest rates are rationalizable. To determine that you first have to categorize the interest as deductible or non-deductible and adjust them accordingly. Then you need to determine whether the money is better spent making accelerated payments or investing the extra money for higher returns. Mortgage debt and student debt do work kind of inversely so far as deductibility. People with more expensive homes tend to exceed the standard deduction making the interest more deductible, but people with very high incomes phase out of being able to deduct student loan interest. SALT limits can reverse that by limiting mortgage interest deductibility, but that's generally at the highest levels.
I’m glad for the question, OP. I attacked my student loans (max of 7% across the portfolio), and when I consider the market gains I missed out on because I paid off my student loans instead of investing in a 401k/Roth IRA, instead of funding savings to make a down payment on a home in a safe and well kept neighborhood, I think I made the wrong prioritization decision.
It's all about the underlying asset of the loan. A house is an appreciating asset it in the normal course increases each year historically specking slightly higher than inflation so debt attached to it is fine. Your debt should be settled if nesscary by selling the asset. (this is not always the case especially if you do not put down 20%).
Student loans on the other hand underlying asset education can not be sold. You are stuck with the debt until you pay it off. Therefore the risk attached to it is much higher than a house which can be sold. Paying off the debt actually significantly reduces not just interest but risk becasue the underlying asset holds it value or in most cases inflates why the debt deflates. So even doing nothing house becomes more valuable the debt because less because of inflation. While education has no value to the market place in terms of you can't sell it.
I did that for my mortgage. Paid it off in just over 9 years.
A mortgage payment is designed to repay the debt after a specific period but with student loan your payments don't necessarily keep up with the intrest. You defer payments while in school and then do income based payments while starting out in your career so you're not even covering the intrest with payments so the debt is growing.
You can have the same principle and intrest rate but pay more total for the student loan because it's over a longer period.
Things to consider:
Depending on your income, you may be able to deduct interest payments on taxes. Paying off early could leave some tax benefits on the table.
If your interest rates are reasonable, it may be worth putting the money you were using to make extra payments into an investment. If your interest rates are 6% but you can earn 9% on investments, you are 3% ahead. If you can deduced interest tax on 6% but can earn only 6% in the market, you still may be ahead of the game with almost 2% of tax savings.
Having cash and liquid assets puts you in a better position to withstand hard times. If you make extra payments on your house then lose your job and fail to make payments, a bank will still foreclose. Any extra you paid does not count towards future payments so under this scenario your extra payments become free money for the lender. Some people may argue to pay down your principle to build equity for a quick sale, but you will only have a chance of accessing the equity with a quick sale as opposed to having the cash on hand. There could be a similar issue with student loans. If you fall onto a hardship you may be able to suspend payments, but you cannot access your previous extra payments.
Note, I am not a tax professional so I may be full of it, but it could be worth checking into these.
Part of the difference is the typical loan balance - most people's student loans are a lot smaller than their mortgage (because most people don't go to law school) so the standard advice is tailored to that situation. Most people don't have the income to pay double or triple the required payment on their mortgage, but they might be able to do so with smaller student loans.
For professional school graduates with huge student loans, the calculation changes a bit. When I was in veterinary school, our school's financial advisor recommended that most of us get on IBR plans and save for the tax bill from the forgiveness in 30 years. Even with paying the taxes at the end, most of us would still end up paying less overall than if we did the standard repayment schedule over 10 years (even more so with a few low income years during internship/residency).
Cant exploit young people with no money if you require a down payment.
I’m with you, pay down all Debts. Made to much to write off the Interests anyway, and it was only a percentage of the interest when I was able to.
If you pay extra towards your mortgage it’s just money locked up in an asset. I’m not paying anything extra to my mortgage. I take that extra money and put it into a Roth retirement account. It should grow faster than I could pay down my mortgage
Lawyer doesn’t understand equity and utility 😬
I assume you’re in the US because it’s definitely not the case in Australia.
Besides factors mentioned earlier, interest also accrues differently. A mortgage calculates on a fixed schedule and only on the principal. Student loans calculate daily and compound the interest and principal. It leads to student loans that can keep rising in balance. I wish student loans were on a schedule like a mortgage.
Student loan rates are typically higher, are harder to refinance, and you can’t discharge them in bankruptcy. There’s a lot of reasons to get out from under them quicker.
A lot of people have multiple student loans and they can have different interest rates. My loans ran the gamut from 3.5% to 11%. I paid down the 11% as quickly as I could. At 3.5% I let ride out because if I took the money I’d use to pay those loans ahead and put it into my 401k, I’d earn more that way.
There also have been some different tax deduction rules (these have changed over the years) that can give some advantage to paying interest on one loan or not.
I was very fortunate and did not have many student loans but I paid mine off as fast as possible because I just hate debt. I hate monthly payments. I hate subscriptions. I pay my health and home insurance premiums up front every year(I save money doing this too), I pay my property taxes at the last minute possible- this means I don’t have an “escrow” account with my lender, and I save money by doing that because it can stay invested all year instead. And I borrow my sisters Netflix account for the 2 movies I watch per year. :D. I am a fan of Amazon prime subscription though, that saves me money…
It’s been a while since we paid them off, but I feel like there was a very low limit of student loan interest deduction allowed vs mortgage interest is unlimited.
Several graduates were making minimum payments of over $1000 per month based on their repayment plan and their balances went UP each month due to the interest on the several hundred thousand dollar loans…but they could only deduct a small portion of that. Which I ALSO think phased out at certain incomes, AND the interest was twice that of a mortgage at the time.
But even if the rates were the same, being able to deduct the full mortgage interest vs only a couple thousand max of the student loan interest made it a clear life hurdle to get past quickly for us.
Not sure if things have changed in the past 10 yrs or if our rationality was incorrect, but either way student loans are a thing of the past for us.
You’re not missing anything fundamental — the difference is mostly risk, flexibility, and optionality, not just the interest rate. Mortgages are: Secured by an asset that can be sold Long-term, fixed, and predictable Often accompanied by tax benefits and inflation protection Easier to pause or refinance around without destroying cash flow Student loans: Are unsecured and generally non-dischargeable Can follow you regardless of job, housing, or location Create psychological and career risk (people feel “trapped”) Often start when income and savings are lowest From a pure math standpoint, equal rates = equal returns. But from a life-risk perspective, aggressively paying student loans reduces downside risk earlier in life, which is why people prioritize them. That said, dumping $8k/month into ~6% loans while neglecting savings or investing isn’t always optimal — especially for high earners. A balanced approach (investing + steady payoff) often makes more sense than extreme paydown. So the behavior is less about math, more about risk management and human factors.
You are not missing math, you are missing risk. Student loans follow you everywhere. No asset backs them. You cannot sell them, refinance freely, or discharge them easily. Mortgages sit on a house, have stable terms, and give you optionality. Same rate does not mean same downside. That is why people prioritize student loans even when the numbers look similar.
Interest on student loans is calculated more like credit card interest. The interest I pay on my mortgage is the same whether I pay it on the 1st or the 15th of the month (my lender does not allow partial or biweekly payments). If I pay my student loans one day late or one day early, the difference in interest could be hundreds of dollars.
You’re getting downvoted because this place has a lot of elitists who masquerade as financial experts when in reality less than 1% have made it past the subs own prime directive.
To answer your question constructively, you’re out of school now so the worth of your degree is officially a constant. That loan no longer serves you in any way.
For the home loan, every time you make a payment you’re also paid back in equity and therefore if shit does hit the fan for you, you can use your equity to help.
That said, pay aggressively on both if you can afford it And snowball it once the student loans are gone. And by afford it I mean make sure you’re also putting some cash in 401k or IRA/Brokerage.
I paid off my student loans and immediately that cash was split between brokerage, mortgage.
I max my 401k every year, drop at least an extra $2k every month on my mortgage, and put at least $2k into a brokerage. Now, the elitists who only know high level finance would tell me that I need to be using an IRA, what they fail to realize is that I make too much money to use an IRA. You can infer it by looking at the amount of cash going into those accounts. That’s the unfortunate part of this sub. A lot of people who are making good strides all of the sudden think they’re experts and downvote anyone with an earnest question. Additionally, they may not be fortunate enough to be making the money where this whole new rule set goes into place. It’s not well know because it’s not attained often. I’m fortunate, very fortunate. But that doesn’t give the elitists the right to act like they know more than anyone.
The best explanation I've heard is that you can refinance a mortgage. Even a fixed-rate 6% mortgage can become a 3% mortgage if rates fall and you're willing to pay for the refinancing. Your 6% student loan is never getting g cheaper.
That said, I'm prioritizing paying down my mortgage: the interest rate is higher and I don't want to pay the cost of refinancing ever again (and I don't expect to move again).
Funny, it is the opposite in my country as we get interest free student loans, the smartest thing to do here is pay it as slowly as possible.
Mathematically, hey are the same. So the difference is not a math thing, but a personal finance and culture thing.
In bankrupcy your home (and mortgage) may or may not be protected by homestead laws. Either way you can sell the house to pay the mortgage off. Student loans are not bankruptable. So you're stuck with them until you pay them off.
Culturally, the mortgage is a living expense. Either you pay rent or a mortgage. When you move you use the equity to upgrade your house. That's not necessarily the best financial advice, but it is the cultural norm.
Student Loans are (generally) not dischargeable in bankruptcy You have to claim, and prove, an "undue hardship" which is a very high bar and basically means you need to have a terminal disease, severe disability, or massive medical costs that would cause paying your student loans to put you below the poverty line.
In addition the government can garnish your wages, or even social security for unpaid student loans.
The benefits to student loans are the relatively low interest rates, tax deductibility, and possible PSLF, for an unsecured personal loan, to someone who (likely) has no income at the time of lending.
My law school loans were refinanced at 2.1%. My first mortgage was at 6.75%. Thr mortgage is paid off. I pay the minimum on my student loans.
Because YOU can’t be solid at auction.
Is Student loan interest in the states tax free? It is in Canada. I agree with OP in some ways if it isn't affecting your financial freedom then why struggle to pay it off. It isn't costing you that much with the tax savings in Canada. But I only say why struggle to pay it off if your finances aren't hurt by it. If you can't afford to buy groceries because of your loans that is another story.
In addition to the other things I’ve in the other responses, mortgage interest is tax deductible, while student loan interest isn’t (at least in some cases).
Haha because in the end, you have something tangible to show for the money when you buy a house. Not talking about all the interest that gets paid to the bank, but a student loan is just a loan. You can’t sell your degree, but you can sell your house.
I refinanced to 3.7% before rates rose and I’m not paying more than the minimum. Even doubling the monthly payment saves about $20k over the life of the loan. That money going into investments and retirement accounts will beat my interest rate. May even beat 6%, but paying off at that rate could be worth it.
Is this in Australia? You are probably better getting a personal loan with similar interest if can, pay student loan (if you pay half way through a year then you may have one final payment) the reason i say this is no principle payment you make during the year affects the interest you owe fir that year. The gov has it set up that all payments made during the loan term year is stored and not put off loan till after the term loan year. If you owe $90k this year, pay $20k off it during the year, you will get charged interest on the 90k even though you paid money off, once the interest for the $90k fir the year has been added then they take all the payments for the year off where as personal loans take any extra payments straight off the principal and saves you interest.