Why I Paid Off My Student Loan With a Final Lump Sum Payment

So a while back, you might have seen the article I wrote about using PocketSmith to pay off my student loan. If you missed it, you might want to go and read it before embarking on this next adventure. That was Part One. This, my friends, is a somewhat spontaneous Part Two.

The ten-second summary

At the time, my strategy for paying off my student loan was tried and true, and, above all, simple: Sit back and let the automatic repayments take care of it over the next four or so years. For a while, I also set a bonus autopay of $50 a week. It wasn’t a lot compared to the loan amount, but it was enough to make me feel like I was making progress.

I didn’t have to think about it: My company or my tax agent did that for me. Student loans in New Zealand are interest-free, so there was no incentive to pay it off faster. All I had to do was cast an eye over my custom Student Loan dashboard in PocketSmith, where those infinitesimal automatic repayments were ever-so-slowly nibbling away at the mountain of student debt I’d somehow accumulated as a late teen.

Yep. That was the problem, really. That word…

The awful d-word: Debt

If that word were a gif, it would be the classic gif from Jurassic Park. You know the one. Where Dr. Ellie Sattler is elbow-deep in a steaming pile of… dinosaur digestion.

So what? I didn’t have to look at it. I didn’t even have to do anything. The repayments were taking care of the loan, like thousands of tiny flies gradually taking care of that poop. I had crossed the income threshold of $22,828, beyond which 12% of every pay is deducted to repay the loan. I’d moved from being an employee to being self-employed, so my tax agent took care of it.

12% of every invoice vanished before it ever hit my personal accounts. I never saw it.

But I was still in debt

I was in debt. Not looking at it didn’t change that fact. I had been in debt since finishing university. Thanks to years of part-time work in a job I’d loved, where I hadn’t earned enough to meet the repayment threshold, I still had almost half my original loan amount remaining. I was on track to still be in debt for another 3-4 years.

And those 12% repayments? The ones I never saw, the ones that came out of every single invoice?

They were killing me. Figuratively speaking.

It was death by a thousand cuts

Sure, those nibbles were killing the student loan too. 12% here, 12% there, it added up. Slowly. Far, far too slowly for my liking. Every nibble hurt. I looked at my remaining loan balance, at the constant 12% bites being taken out of every hard-earned invoice I sent to my clients, and then looked ahead.

I didn’t need PocketSmith’s forecasting to see the future.

I looked at the next two, three, four years of this — of watching 12% of every invoice vanish before I saw it, of standing passively by while my student loan eroded away so slowly I could barely see it move — and made my decision.

With the benefit of hindsight, that was another problem with the whole thing. I didn’t have to do anything to pay the loan off. It was all automatic. Inactive. Passive. But by doing nothing, I felt like I was… well… doing nothing.

So I took action

I talked it over with my mother (thanks, Mum!) I consulted a friend whose money advice I trust. I looked at my PocketSmith dashboard and saw I had enough money sitting there to pay the loan off in one swoop — importantly, without touching my emergency fund.

What was I losing? The money had been earmarked for a house deposit, but I was far from settled, looking at moving overseas and years away from affording a mortgage anyway. I still had the emergency fund, so it wasn’t going to drain my reserves.

What was I gaining? Peace of mind. The IRD off my back. An instant 12% pay rise without the annual performance review.

Ultimately, it was something my mum said that tipped the decision.

“What happens if you go overseas?”

Good question. Student loans in New Zealand are interest-free… as long as you’re in New Zealand. Once you go overseas for longer than six months, the IRD starts charging interest at 2.9%.

And I wasn’t interested in that.

I wanted it gone. I wanted that 12% pay rise. I wanted my one and only debt removed from the Liabilities column on my Net Worth page. I’d discussed it with people I trusted, I’d weighed the pros and cons — it was a solid decision.

All that was left was doing it

I paid off the remaining balance of my student loan on a Friday morning at the end of March — which just so happened to be the last day of the financial year. Now that hadn’t been on my EOFY checklist!

Calculating the final payment carefully, I decided I would rather overpay it than risk underpaying. As a result, once the final transactions were processed, I received a refund from the IRD.

A refund for how much, you ask? $1.33.

One student loan closed for good: Check.

One deliriously happy debt-free writer: Check.

Afterword

It was only when I sat down to write this that I realized how exhausting it had been, looking ahead and seeing years of drip-fed repayments on the loan. It’s one reason why I don’t engage with debt-based purchasing systems like AfterPay: I don’t like current-me spending future-me’s money before future-me has a chance to spend it herself.

With my student loan paid off in full, I’m starting from scratch. I have a clean slate. I’m debt-free. The future is bright.

See you there.

Rachel E. Wilson is an author and freelance writer based in New Zealand. She has been, variously, administrator at an ESOL non-profit, transcriber for a historian, and technical document controller at a french fry factory. She has a keen interest in financial literacy and design, and a growing collection of houseplants (pun intended).