I Could Pay Off My $50k Student Loan in a Few Years—if Government Stopped Taking My Money

If more college graduates were allowed to keep the dollars they earn, they would get out of debt a whole lot faster.

Twelve-thousand dollars.

That’s how much the government will take out of my income this tax season. As a college graduate, I would have used this money to start tackling my over $50,000 of student debt.

But instead of using this money to pay off two of my student loans this year, the government gets to keep this tidy sum of my hard-earned money.

This is the sad truth for many college graduates, like myself, working full-time jobs and still finding it hard to manage basic daily needs like rent, food, gas, car insurance, health insurance, and the like. Many of us are left feeling like Rachel Green from Friends when we get our paychecks, saying: “who’s FICA? And why is he getting all my money?”

For student loan borrowers, an average of $12,000 a year saved would be transformative.

But instead, we are facing a true debt crisis for borrowers across all demographics and age groups making student debt the second highest consumer debt category in the US behind mortgage debt, according to Forbes. Total student loan debt amounted to $1.56 trillion last year alone.

Research also shows that “college graduates aged 35 and under with student loans now are spending nearly one-fifth (18 percent) of their current salaries on student loan payments and that 60 percent now expect to be paying off student loans into their 40s,” according to Citizens Bank.

As college debt becomes larger, it’s no wonder that more and more politicians are advocating student loan forgiveness programs.

But this tax season, I’m not asking for student loan forgiveness or a special government program to bail me out. I’m just asking to keep more of my hard-earned money.

Your Self-Interest Makes the World Better
I urge fellow student loan borrowers to imagine a world where you can keep all of your income and decide how to best spend your money. I would venture to guess that the majority of student borrowers would use this money to pay off their loans as fast as they can. Why? Because borrowers have an incentive to get out of debt.

Being debt free would be transformative for me! I would finally be able to move to my dream state, buy a house that I could design from scratch, help my parents pay off their mortgage, save for my future kids, donate more to my church, and accomplish the list of things I’ve written down for when I am debt free.

You see, when borrowers become debt free, their financial power changes drastically. They are more inclined to make major financial purchases like the ones I’ve shared.

Our rational self-interest to get out of debt frees up our ability to make major financial purchases which promote economic activity, benefiting the economy as a whole.

Adam Smith, the father of modern economics, discusses this idea of rational self-interest in his book, The Wealth of Nations, where he explains that the best economic benefit for all can be accomplished when individuals act on their self-interest.

Most of the economic activity we see around us is the result of self-interested behavior. The realtor selling my dream house acts on her own self-interest to build a salary to perhaps go on vacation. The workers cutting tile to fit in my new bathroom act on their own self-interest to build up savings and put a roof over their heads, the construction workers putting the house together act on their own self-interest to buy food for their families, and so on.

The beauty of rational self-interest is that it takes many self-interested people to work on one house, but as we all act on our self-interest, we inevitably serve one another and even more—produce economic activity that serves one another.

Your Spending Decisions Are More Rational Than Government’s
While using your income taxes to pay off your debt may be a rational and commendable spending decision, government’s spending decisions are oftentimes inefficient and ineffective.

Government’s track record of spending your taxpayer dollars is, well, horrid. GoBankingRates reports taxpayer dollars being used for things like studying monkey drool, examining how the world’s religions might react if humans make contact with aliens, having computers binge-watch hundreds of hours of television, proving that frat brothers like to party, putting fish on treadmills, and so much more. Governments’ poor spending habits have gotten so out of control that it’s put our nation in over $27 trillion dollars of debt.

So why do governments spending habits vary dramatically from individual spending habits?

Because incentives change when money comes out of your own pocket, versus the pockets of others. My favorite economics professor put it this way—“progress, efficiency and effectiveness don’t begin with someone else’s money.”

Your Liberty Is Being Taken Away
If we understand that individuals know better how to spend their own money than the government and that our spending decisions will help promote economic activity, why have we come to accept income taxes as normal?

Because of the increased taxation in the US economy, the average American now works approximately 4 months out of the year to pay all of their taxes. That means 4 months out of the year I work for the federal government instead of working to pay off my student loans.

If more college graduates were allowed to keep the dollars they earn, they would ultimately have the liberty to spend their money how they want —and get out of debt a whole lot faster.

But we need to keep more of our income to do this.

As we file our taxes this year, I encourage you to look at the amount of your money the government is claiming and ask yourself these two questions: what would you have done with this money? And does the government actually spend this money better than you can?