This post has not been the easiest of posts to write. Privilege is never a simple thing to talk about, but I think it is an important one. The topic of this post has been on my mind for some time. Unlike some financial independence and debt-averse people, we are not aggressively tackling our student loans. The reason is simple, we are both citizens of Norway, and have the privilege of a government controlled student loan institution where everyone gets the same amount at favourable interest.
There is also no tuition in Norway, so unless you study abroad part or the entirety of your degree, your final debt will largely be a sum of how many years of living expenses you received a loan for. Finally, the interest is the lowest in the country, lower even than mortgages (my student loan is currently at 2 %), it will vanish if you die, there are tax benefits to being in debt, and 40 % of it is transformed into a scholarship when you pass your exams.
I think one of the most important privileges this student loan system has granted me is the freedom to make mistakes. Right now, after 5 years in university (3 year B.Sc. and 2 year M.Sc.), I am left with a modest monthly payment of ~$150. If we assume an average income of ~$2000 and living costs of ~$1000, that math easily adds up. In other words, I could’ve decided my degree was absolutely not what I wanted to do and gone off to do my old summer job of landscape gardening, and I would still be fine economically.
This amount would vary a bit depending on whether or not you failed your exams (see above point) and how many years you received student loans for. The point is though, that even with a liberal arts degree and working in the shop for the rest of my life while pursuing passion projects in my spare time, these payments would still not be debilitating. From what I’m reading from other people online, that is an amazing privilege certainly not granted to everyone.
There is a commonly held belief in Norway that the student loan is the absolutely last debt you want to get rid of, and for a good reason. For someone who, more than once, gets the urge to pay lots of money to the one debt I have to my name, this is not always an easy thing to admit.
At measly 2 % interest, my loan accumulates ~$45 in interest each month. My meagre investments are already garnering a quarter of that each month, so I have reason to believe that within the next 6 months, it is not unlikely that I will be earning more in interest from my investments, than I pay in interest to my student loans. I might not be net zero net worth yet, but that is a milestone I am going to celebrate. Also, if there is a crash, I have also calculated that having about $17k in my mortgage savings account will accrue similar interest.
Speaking of mortgage savings accounts (BSU in Norwegian), our BSU accounts are currently receiving 3.2 % interest each year. In other words, if I had been an exceptionally frugal student (or there is someone out there reading this who are), you could potentially earn a decent chunk of interest off your student loan by saving or investing it in index funds. Not something to do if you’ll be tempted to use it, but if you have the self-control, it is worth looking into.
Right now, I am trying to convince myself of what my brain already knows: I will make more money by investing a large chunk of my income in funds. If my funds grow at 7 % interest per year, but my student loan grow at 2 % per year, that is not even a choice at all for the optimising mind. Still, the debt sits there, leering at me. I will admit to throwing an extra $10-20 at it every month, but I keep it at that. No doubling my payment or anything like that.
I realise that having this loan not hang over my head like an anvil is an amazing privilege. I remember how it was while I was unemployed, picking up temp. work wherever I could find it. The single-mindedness you need in order to survive is not a pleasant place to be, and you risk loosing out on other opportunities because you are always on the hunt for a job, or you are always tired from working/applying for jobs/feeling like you should apply for jobs. I imagine being stuck with a student loan you can barely manage feels somewhat similar. Also, through our amazing system and the power of technology, I have the option to log into my account online and apply for an extension if I cannot pay my loan in time (for a total of 12 months extension for the full loan period). My payment history won’t take a nosedive, I won’t be shunned by banks for years, and creditors will not be pounding on our door to repossess our, admittedly worthless, furniture.
And I haven’t even said a single word about class, race or gender privilege. This is nothing more than being born in the ‘right’ country at the right time, and I believe it is important to acknowledge that. I am not more or less deserving than someone who didn’t receive this opportunity, and I hope to help give something back from my position of strength, partly because of this.
I will probably do more posts on privilege as I see them, because I believe it to be an important topic. People like Tanja over at Ournextlife.com is an important voice in the personal finance blogosphere, in my opinion, because she also covers these subjects with more depth and eloquence than I am able to (and psst, they just launched a podcast).