Why Paying Off $80K in Student Loans Could Cost You $500,000
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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 can never be 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 in the form of avoided interest. 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 rather than a guarantee, but the underlying market data gives it a credible foundation. SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has returned roughly 320% cumulatively over the past ten years and approximately 700% 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%. Both figures 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 meaningfully lower assumed return would still clear the 5.35% hurdle. Stocks carry no guarantees, but a 5.35% payoff return is a low bar when the alternative has historically delivered two to three times as much, and when the borrower has twenty-plus years of runway to absorb the inevitable drawdowns along the way.
The Risk-Free Landscape Has Shifted
The comparison to safe-harbor alternatives is now more nuanced than it was when this advice was first given. The 10-year Treasury is yielding approximately 4.9% as of early November 2026, a meaningful step back from the recent peak above 5% earlier in the fall. That yield still falls short of the 5.35% loan rate, leaving equities as the logical destination for surplus dollars.
The I bond picture changed on November 1, 2026. Newly issued I bonds now pay a composite rate of 5.51%, which actually clears the student loan rate by a small margin. That rate reflects a 1.40% fixed component and a variable inflation component that resets every six months, so it offers no durable guarantee of staying above 5.35%. For a borrower with a long time horizon, locking into an inflation-linked instrument that will float unpredictably is still a weaker choice than a diversified equity portfolio, but the gap between I bonds and the loan rate is worth noting. High-yield savings accounts and conventional CDs continue to lag the 5.35% hurdle on a guaranteed basis. The comparison ultimately hinges on equities rather than cash equivalents, but the safe-yield landscape is more competitive today than it was a year ago.
The Variable That Flips the Math
The single factor determining whether Hankwitz’s advice helps or hurts a borrower is the interest rate on their debt.
At 5.35%, the spread over safe yields is relatively thin and the spread below long-run equity returns is wide, so 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 is straightforward: if the debt rate sits comfortably below a realistic long-run investment return, invest the surplus. 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 when sheltered 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 those fees come out every year regardless of whether the market is up or down. Moving to a low-cost, self-directed account is the most direct way to recapture that drag without taking on any additional risk.
What to Actually Do
The hosts laid out a specific blueprint for the $130,000 earner with a mortgage and a new baby:
- 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.
- 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.
- 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.
- 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.
- 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 is simple: at a 5.35% rate, the real financial emergency is the missed decade of compounding, not the loan itself.
Editor’s note: This pass updates the 10-year Treasury yield to approximately 4.9%, reflecting the pullback from the October 2026 peak above 5%. It also updates the I bond composite rate to 5.51% for bonds issued November 2026 through April 2027 (up from 4.26%), which now slightly exceeds the 5.35% student loan rate and warranted a revised discussion of the safe-yield landscape. SPY’s 20-year cumulative total return has been corrected to approximately 700% (from 730%), consistent with current data from multiple financial sources.
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