Nah, you don't get the math. So I'll break it down for you. We'll look at two different people, both with the same $35k loan at 3% interest with a $100 minimum monthly payment, both making the same money, hired at the same time at the same airline, and then furloughed five years later at the same time. The only difference is that the first pilot, we'll call him Brent, takes his spare $500 each month and pays down the loan over and above the minimum payment, while the other pilot, we'll call him Todd, takes his spare $500 each month and invests it in a conservative mutual fund that earns 6% per year on average and only pays the minimum payment on the loan.
Pilot A (Brent)
Loan Balance at end of 5 years: $2,462
Investments: $0
Net Worth: -$2,462
Pilot B (Todd)
Loan Balance at end of 5 years: $34,206
Investments: $34,885
Net Worth: $679
Pilot B comes out $3,141 ahead. Both pilots have now lost their jobs. Pilot A still has another 24.6 months to pay that minimum monthly payment on his loan of $100, and he has zero money set aside while he has no income. Pilot B, on the other hand, has to continue making that $100 monthly payment, but he has $34,885 in investments that he can cash out to make those payments, plus pay other living expenses while he looks for another job. Granted, he still has nearly the full loan balance, but it's irrelevant to their current circumstances. He's still in the far better position both from the perspective of being able to make his monthly payments, plus in terms of net worth.
People who think it's wise to pay off low interest debt either don't understand math, or just haven't done the math. I assume you're the latter. So please do the math.
That math all checks out, but again, it's not a realistic scenario. The numbers you've provided are inconsequential. My scenario, wherein I absolutely need to take home $5,000/mo in order to live
and service $1715/mo in debt payments ($1476/mo in loans, $239/mo on my car), is much more realistic for modern college grads who didn't have their family's financial support.
Now, in order for me to take home $5,000/mo, I have to have roughly a six figure income. Thankfully, I do fine at Beachball International and make it all work, including putting 10% each month into my 401k for full employer match that balances my monthly budget to $0 left over. But, it's a precarious scenario: If I lose my job 5 years from now, I'll still be paying $1476/mo for my student loans (car would be paid off by then), requiring me to
still need a job that puts me in the six figure range. And man, I don't know about Georgia, but those aren't growing on trees in California.
So, while we can all (and do) understand the simple math that you're providing, you're forgetting one crucial detail: Reality has ideas that can't always be foreseen on paper. While the S&P500 has returned roughly 10% per year historically, there have been entire
decades where it's shown a loss (2000-2010 is a perfect example). People with high debt loads, regardless of interest rate, are very exposed to sudden economic downturns or job losses. And while the math you're showing is good and clean on paper, most people in the middle class (to upper middle class) range would more than likely find that
actual financial security is in being able to get rid of debt and not be saddled by high payments during a job loss. They'd be able to take a lower-paying job in the mean time and still make ends meet.
Now, of course, this doesn't at all mean that you should stop saving or investing while paying down debt. I certainly haven't. 15% of my gross earnings each month goes into an S&P500 tracking fund. But beyond that, my 5-year plan is to be debt free and able to withstand a potential downturn better. After that,
then it's full throttle. The theoretical math may show that I'm losing a bit of money, but the realistic threat of an industry downturn down the line needs to be taken into account.
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