Why Paying Off $80K in Student Loans Could Cost You $500,000

On a recent episode of the Rich Habits Podcast, co-host Austin Hankwitz answered a listener’s question about a $130,000-a-year household carrying $80,000 in student loans at 5.35% interest and delivered a blunt verdict: “Paying off debt only goes to zero.” His argument was that sending every extra dollar toward a low-rate loan is one of the costlier mistakes a young investor can make. According to Hankwitz, that same $80,000 left in the market “gonna double now every 7 years to $160,000, $320,000, $640,000”, so twenty years later “that $80,000 is now half a $500,000.”

Follow the aggressive-payoff instinct instead, and the real cost is a two-decade head start on compounding that never gets rebuilt.

The Verdict: Right, and the Rate Is Doing the Work

Hankwitz’s advice is sound for this specific borrower, and the mechanism is opportunity cost. Every dollar sent to a 5.35% loan earns a guaranteed 5.35% return. Every dollar invested in a diversified equity index earns whatever the market delivers, which has historically been far higher over long stretches. The doubling-every-seven-years figure is a projection, not a guarantee, but the underlying market data gives it a plausible anchor. SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has returned roughly 320% cumulatively over the past ten years and approximately 730% over the past twenty, both figures with dividends reinvested. On an annualized basis, SPY has delivered a 10-year average return of roughly 15% and a 20-year average of roughly 11%. Those figures comfortably clear the loan rate by a wide margin.

Consider a simplified illustration using Hankwitz’s own numbers. He frames $80,000 doubling every seven years to $160,000, then $320,000, then $640,000. Even a lower assumed return would clear the 5.35% hurdle. Stocks may not replicate the past, but a guaranteed 5.35% payoff return is a low bar when the alternative asset class has historically delivered far more, and when the borrower has twenty-plus years of runway to ride out drawdowns.

Compare that to the risk-free alternatives available right now. The 10-year Treasury is yielding approximately 5.23%, near its highest level since 2002, and still falls short of what equity markets have historically returned. I bonds pay a composite rate of 4.26% for bonds issued May through October 2026, confirmed by TreasuryDirect, with the rate resetting on November 1. High-yield savings and conventional CDs generally lag the 5.35% loan rate on a guaranteed basis. That gap is why the answer here hinges on equities rather than cash equivalents.

The Variable That Flips the Math

The single factor deciding whether Hankwitz’s advice helps or hurts is the interest rate on the debt.

At 5.35%, the spread over safe yields is thin and the spread under long-run equity returns is wide. Investing wins on expectation. Flip the rate to 22% on a credit card, and the calculus inverts immediately. No diversified portfolio reliably clears a 22% hurdle, so every dollar applied to that balance becomes the best available return. The practical rule: if the debt rate sits comfortably below a realistic long-run investment return, invest the surplus instead. If it sits above, pay down the debt first. Federal student loans in the 4% to 6% range typically fall on the investing side, especially inside tax-advantaged accounts. Private loans above 8% often do not.

The Fee Drag Nobody Sees

Robert Croak added a second warning on the same episode. He said Edward Jones “is going to sell you what they make the most money on” and charges roughly 1.25% in annual fees. On a portfolio meant to compound for decades, a 1.25% annual haircut is not a rounding error. It quietly erodes a meaningful share of the doubling Hankwitz described, because it comes out every year regardless of whether the market goes up or down. Moving to a low-cost, self-directed account is the simplest way to recapture that drag.

What to Actually Do

The hosts laid out a specific blueprint for the $130,000 earner with a mortgage and a new baby:

1. Contribute 5% to the employer 401(k) to capture the full 4% match, roughly $541 a month. The match is an immediate 100% return on the matched portion. Nothing else in this blueprint comes close.
2. Max both Roth IRAs at $625 a month each, totaling $1,250 a month. The 2026 Roth IRA contribution limit is $7,500 per person, meaning $625 a month fills the account exactly. Tax-free growth for decades is the payoff.
3. Move brokerage assets off a 1.25% advisory platform to a self-managed account at Fidelity or Public. Keep total monthly contributions near $1,800.
4. For the baby, open a 529 and a Trump Account. The Trump Account program was created by the One Big Beautiful Bill Act, signed into law July 4, 2025. Contributions to the accounts opened on July 4, 2026. Children born between 2025 and 2028 receive a one-time $1,000 federal deposit, and families can contribute up to $5,000 per year until the child turns 18. That federal deposit is free money worth claiming.
5. Do not make extra payments on the 5.35% student loans until the equivalent balance is invested. Pay the minimum, on time, every month.

The takeaway: at a 5.35% rate, the real emergency is the missed decade of compounding, not the loan itself.

Editor’s note: This pass updates the 10-year Treasury yield to approximately 5.23% (a 24-year high, up from the prior “approximately 5%” reference), corrects SPY’s 10-year cumulative return to roughly 320% and its 20-year return to roughly 730% (both with dividends reinvested, as of early October 2026), clarifies that the One Big Beautiful Bill Act was signed July 4, 2025 with Trump Account contributions opening July 4, 2026, and adds context on the I bond rate resetting November 1, 2026.

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