Why Im NOT Paying Off My Student Loans

I’ve been wanting to make this video for quite some time now and finally sat down and crunched all the numbers to make sure I had everything perfect! In this video, I talk about my thoughts on paying off student loans. If you are in medicine of have student debt from other graduate school programs, I’m sure this thought has crossed your mind. Should you pay off your student loans or just let them be and pay them off slowly? I had the same choice, but ultimately made my decision on what was right for ME. I discuss the options for paying off loans and give you an example of what I decided to do. Hope you all enjoy!

Welcome back to the channel everybody for those of you who are new around here my name is michael aka dr cellini and i am a board certified diagnostic and interventional radiologist in new jersey today we are going to be talking about the age-old question for anybody who graduates with a large student debt burden like myself and that is should you invest your

Money or pay off your loans as fast as possible i think before we come to this decision we have to take a few steps back and look at the bigger picture are all of your other debts paid off credit card cars etc do you have a three to six month emergency fund set aside do you invest in your retirement with a 401k a traditional ira or even a roth ira if all the

Aforementioned stuff is taken care of and you have a little extra spending money and you don’t know what to do with it this is the perfect video for you because you’re in the same position i am and we’re gonna go through this together like i mentioned i have all the above taken care of and i had a pretty good sum of money that i was ready to pull the trader and

Just pay off a large portion of my student debt however i took a few days to think about a few things and did my own research and ultimately i decided i could use the money other ways to make even more money and that’s exactly why i’m making this video today because a lot of people may be in my position or maybe in my position in the future and don’t really know

What to do so hopefully if you stay tuned watch this video you may learn something it may help you decide whether or not to pay off your loans quit or invest your money or somewhere in between also before we get into this video this is not financial advice i’m just some random doctor on youtube you should not listen to me or anybody on youtube for that matter you

Should do your own research as always and invest on your risk tolerance and make sure you stay tuned because i’m going to give you a real-life example of how i spent my money and invested it and well i don’t want to get ahead of myself so let’s get into the video okay so let’s first talk about student loans do you have a 500 000 plus student debt burden or are

You like me and have a 250 000 plus student debt burden oh and if you haven’t seen my video on my student loans check out the video up here i’m not going to get into too much detail because i did an entire video devoted to that so go watch that video when you’re done with this one next we’re going to talk about the interest rates on your loans do you have a high

Interest rate somewhere in the neighborhood of like six to eight percent like i did or did you refinance your loans and have a much lower interest rate like i do now at three percent as a good rule of thumb again not financial advice if you have a student loan interest rate of less than six percent you may benefit from investing your money rather than paying off

Your loans the reason being because you will probably get greater than six percent return on your investment so even though people in the same position as i am are up to our eyeballs and debt it may be beneficial to start building our wealth now rather than using our money to pay off our student loans investing now gives your money more time to grow and allows for

A better retirement so just how important is it to pay off your student loans i’ve heard so many people say they’re just going to pay the bare minimum of their student loans throughout their entire life because there’s really no reason to rush it it’s just going to be sitting there you have a low interest rate you might as well enjoy your life because after all

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We’ve experienced quite a bit of delayed gratification as it is so why continue the delayed ratification even further there’s also people on the other side who can’t even fathom having that student loan burden looming over their head and they have to pay it off as quickly as humanly possible and then there’s people like me who are somewhere stuck in the middle i

Don’t really feel rushed to pay off my loans because it doesn’t bother me that much having that student loan burden but also i don’t want to be that person who just puts it off for like 50 years i kind of want to get rid of them as fast as i can within reason part of me wants to aggressively pay down my loans the other part of me wants to aggressively invest so

What the heck should i do well like anybody in my position what do you do in this situation well you start with the pros and cons list and that’s exactly what i did so what are the pros of paying off your debt as fast as humanly possible well let’s get into it one you’ll save money on interest for paying off your loans quicker two you’ll be debt free obviously

Which is a plus three your debt to income ratio will drastically reduce when your student loan burden has decreased substantially and that will allow you to get a mortgage or buy a house going forward and four the benefit to paying off your loans fast as possible is peace of mind which for a lot of people that’s all they need so what are the cons to paying off your

Loans as fast as possible well it can take many years to do so and you may have to make extra payments on top of your current scheduled payments per month another reason is it’s not really necessary if you’re working with a loan forgiveness or repayment plan and furthermore you won’t be able to maximize your interest deductions on your tax returns year after year so

Who the heck is paying off student loans good for then well people who prioritize being debt free borrowers with high interest rates greater than six percent for example like i was or people planning to purchase a home and want to lower their debt to income ratio so that they can get a good mortgage now let’s discuss the pros and cons of investing your money rather

Than paying off your student loans one pro is that you can get a better rate of return greater than most student loan interest rates and just for reference the average rate of return on the s p 500 over the last 20 years from 2001 to 2020 was 7.45 and the annual return on the last 50 years of the s p 500 was 9.4 so based on just investing in the s p 500 you can see

That you can get a pretty high return on your money that could be significantly higher than your interest rate on your student loans another pro to investing early and not paying off your student loans is investing early may prevent you from working longer and into your older years and we all know that when i’m like 65 years old i do not want to be cranking around

Studies well maybe i’ll do like part-time stuff but i don’t want to be working for my money i want to be doing it for fun at that age another pro to investing early is that certain investments can allow you to withdraw the money as you need it now let’s get to the cons of investing over paying off your student loans number one if you invest too heavily you may not

Be able to afford your monthly student loan payment another con is that investing will not help your debt to income ratio which may affect you purchasing a home later on the ultimate con that not many people talk about with investing early rather than paying off your student loans is that investments carry risks you could essentially lose all of your money rather

Than paying off your loans and then you’re just back to square one there are no investments without risks the goal is to minimize those risks but there are inherent risks to investing so who is investing good for people with low interest rates on their student loans people enrolled in student loan forgiveness programs like i was until recently or people who already

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Have investment knowledge the last thing you want to do with 50 000 laying around without any investment knowledge is to just go gamble it away in the stock market imagine if you put it in like facebook a few weeks ago and you lost like 30 to 40 of your money it’s not good so now that we discussed the pros and cons of investing versus paying off your student loans

Like i did when i was in this situation just very recently actually let’s talk about what i decided to do what i’ve decided to do is pay off my student loans month after month on the normal regularly scheduled program while also investing heavily it’s kind of like the best of both worlds ultimately i made my decision based off my own personal financial priorities

And options available to me as many of you all know i’ve already invested pretty heavily in real estate and i actually have two more properties closing this week and since i invest pretty heavily in real estate i wanted to give you all an example and show you why i decided to invest in real estate rather than pay off my loans because very recently i was sitting

On a nice chunk of money where i could have basically paid off almost 50 of my loans but instead i decided to keep buying real estate and here’s why so what i’ll do is i’ll go over a quick example of a property that we recently purchased we actually purchased this property last year and we also purchased a few more just like it as well so maybe going through the

Rate of return on this property it can give you kind of an understanding of why i chose this path rather than paying off my student loans quickly so the property i purchased cost eighty four thousand five hundred dollars and i know what you’re thinking where the heck do you find rental properties that cost eighty four thousand five hundred dollars well you gotta

Go to the south which is where i was born so the purchase price was eighty four thousand five hundred dollars and i put down twenty five percent or twenty one thousand one hundred twenty five dollars add a few closing costs into that roughly around seven thousand dollars you come up with a grand total of twenty eight thousand one hundred twenty twenty-five dollars

All said and done that’s all it takes to get this house so if you wanna know a little bit about the mortgage info so we got a 30-year fixed-rate mortgage at three percent with a monthly payment around 335 dollars a month pretty crazy right add a little sprinkle of insurance onto that and it brings your total to about four hundred dollars per month for this particular

House we run it out for 950 a month or 11 400 per year so our monthly cash flow is the rent minus the mortgage payment which comes out to 550 per month so if you multiply that by 12 it comes out to around 6600 per year cash flow without doing anything so now let’s talk about the roi or the return on my investment on this particular property and we’ll do a few more

Calculations to further talk about that to calculate the roi on this particular property we divide the annual return by our out-of-pocket expenses which is our down payment plus our closing costs so using these same numbers we have 6600 which is our annual return and we divide that by 28 125 and we get a grand total of 0.2346 which if you multiply by 100 gives

You 23.5 percent which means the return on my investment is 23.5 which is significantly higher than my three percent interest rate on my student loans so now you can see when you do the math why i would do this over paying off my student loans so i spent twenty eight thousand one hundred twenty five dollars up front and it could have gone to my loans but instead i

Decided to make a 23.4 return on that money which is pretty good return especially since i didn’t really have to do much for it and this is the gift that keeps on giving every year i’m making money off of the cash flow from renting it out i’m deducting the depreciation off my tax return every year and i’m building equity as long as i hold it so i plan on holding

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These houses for many many years and they just keep building and allow me to retire early which is the ultimate goal furthermore this doesn’t even include any equity in the equation so the crazy thing about these homes is that when we bought them for 84 500 we got a really good deal on them because the seller needed the money very quickly and when my lender ordered

The appraisal on the house it actually came out at 120 000 and i paid 84 500 so you can see that with this instant transaction i made over 30 000 in equity before even doing anything and that’s on top of the 23.4 return that i calculated so i hope this is kind of clicking now why i decided to go this route rather than using that sum to pay off some of my loans and

I know what you’re thinking i thought you said you had enough money to pay off half of your student loans and i did which is why i bought multiple houses this is just one example that i wanted to give you and all of them are kind of similar to this one but this one’s just easier to kind of piece together so i decided to do this one some of them have a less return

Some of them have a higher return but overall this is kind of the average the goal is to not invest my money unless i’m almost guaranteed like a 17 roi and as you can see this fits the bill oh and for those of you who are new to the real estate game the definition of equity is the market value of the property minus the loan amount outstanding equity is obviously a

Nice part of owning real estate and who doesn’t love an instant 30 plus thousand dollars when purchasing a home but it doesn’t happen that often this was just a fantastic example and everything worked out for this house so aside from the amazing 23.4 return on my investment plus the 30 plus percent equity i got on this home just by purchasing it it also cash flows

Forever and the rent goes up around three percent per year my equity will likely increase over time until i sell it now i know what you’re thinking you must have gotten lucky how did you come across a property like this that gives you such a nice return on your investment well the short answer is you just have to do the research be plugged in with the right people

And do your homework there’s obviously risks to buying these homes but if you do your homework and you do your research and you calculate everything possible you essentially diminish those risks to almost negligible now there are always things that could come up like you know your roof maintained or something that completely destroys your first year return on your

Investment but this is investing you always have to take those risks and you have to be ready for those risks which is why you need an emergency fund all of your retirement accounts set up and all of your other debt paid off before you even think about investing your money this house and many other houses that we have purchased have been exceptional investments

For us that cash flow every single month and build our equity and our net worth this is why i decide to ultimately invest in these properties when i have the chance versus paying off my loans hopefully now after you watch this you understand what i’m talking about and maybe it’ll kind of open your eyes to other things for you going forward i know this investment

Strategy isn’t for everybody but i just wanted to show a real life example in which investing can pay off quite well all while letting your loans simmer in the background at that measly 3 interest rate so hopefully you all enjoyed this video if you like more videos like this let me know in the comments below because i obviously love making them as always make sure

You gently smash that subscribe button follow me on instagram and take that if you don’t already and uh i’ll see you all on the next video bye

Transcribed from video
Why I'm NOT Paying Off My Student Loans By Dr. Cellini