A man who is master of himself can end a sorrow as easily as he can invent a pleasure. I don’t want to be at the mercy of my emotions. I want to use them, to enjoy them, and to dominate them.
— Oscar Wilde

I have a confession to make — I have a strong urge to make a financial move that I know is foolish. Specifically, I really want to pay off the last of my student loans.

Let me offer some background. 2012 was by all accounts a very good year, financially, for the RW household. We sold my house in Virginia at a tidy profit, reaping the rewards of a great deal of renovation work over the past few years, and used some of the proceeds to pay off the last of my higher-interest private student loans. We paid off the last of DW’s debt as well, and even with the wedding, the honeymoon, and buying a new house, our wealth ratio was about 73%, and our capital wealth ratio was 63%. We moved the bar a long way this year.

Here’s the trouble. Apart from our shiny new mortgage (well below average in size for the Bay Area, but that’s sort of like being the classiest person on Jersey Shore), we have one debt left. One last student loan. And that bugs me.

The Niggling Debt

This is a federal loan, and for various reasons including a solid credit rating and never missing a payment, the rate is locked in at 1.6% (not a typo). I’m looking at our bank statements, and we have more than enough to just write a big, fat check and pay it all off right now. I really, really want to. But we really really shouldn’t.

The reason we shouldn’t is pretty obvious — the rate we’re paying is ridiculously low. In fact, it’s actually lower than the rate of inflation. Even if we were mortgage free and had $10 million in the bank, the rational move would be to make the minimum payments until it’s paid. Inflation will eat away at the debt over time, and we’ll pay less in real terms in the end that way, and that’s not even accounting for opportunity cost.

Since we’re carrying a mortgage, it’s even more obvious that we shouldn’t pay that student loan down. The mortgage is at a ridiculously low 3.25%, but that’s still higher than my student loan’s rate, even after you account for the tax deduction. If we have money to spare to pay down debt, the logical move is to pay the mortgage off, first.

The funny thing is, I have no intention of accelerating our mortgage payoff. After adjusting for taxes, the effective rate is about 1.9% (yep, taxes are high in California). I may not be Warren Buffett, but I’m pretty sure I can do better than that with some pretty conservative investments, and I’m perfectly comfortable with the idea of doing so.

Reasonable minds could differ as to whether that’s wise ¹, but it’s beside the point. The real question is, why don’t I feel the same way about the last of my student loan debt? Why can’t I stop thinking about paying it off, when I know it would be a mistake? (Far from the worst mistake we could make, to be sure, but a mistake nonetheless, no matter what Dave Ramsey may say.)

Perhaps it’s because its very existence is a constant reminder of the mistakes I’ve made in the past. Perhaps I just want to be able to say that we’re debt-free-except-for-mortgage. Perhaps it’s because student loans are not dischargeable, so I’m worried it would follow me forever if financial disaster struck (the closest thing to a logical reason in the bunch).

Most people seem to think of money as a dry, humdrum subject, but in fact it’s highly emotionally charged. We must always guard against allowing our judgment to be clouded. So I’m going to stick to my guns on this one, and put my money to better use, even if it bugs me. But I’ll have to grit my teeth when I do.

At the end of the day, perhaps a constant nagging reminder of the financial sins of my youth is not such a bad thing. It may serve to help keep me on track when other temptations arise.