Student loan debt weighs on the minds and wallets of millions of college graduates. Yet, it seems as if there are two types of people out there: the ones who view student loans as a curse that must be eliminated as soon as possible, and those who look at student loans as a simple fact of life.
If you’re wondering whether you should pay off your student loans early, consider these important factors.
Don’t Sacrifice Other Financial Interests
If you’re in a rush to pay off your student loan, you’re likely putting more than the minimum payment toward your debt. This is fine as long as you’re not neglecting other financial interests in the process. For example, student loans tend to have relatively low-interest rates, while credit card debt usually has high-interest rates. If you have to choose between the two, it’s always better to pay off the debt with the higher interest rate.
Additionally, you always want to make sure you’re building up your emergency savings before you start to aggressively tackle student loan debt. Car problems and other surprise expenses could cost you thousands of dollars. Even worse, a medical emergency could put you out of work for months, which means you’ll need those savings for living expenses until you can go back.
Know There Aren’t Many Options Out There
If you run up high credit card debt and suddenly find yourself in a serious financial position where you can’t pay your debts, you can likely apply for bankruptcy. Although this has a major impact on your credit standing, it can wipe away credit card debt and give you a fresh start.
On the other hand, with student loans, you’re stuck with the payments even if you have to declare bankruptcy. In fact, the government can take you to court to garnish your wages and withhold your income tax returns to make sure it gets its money. Luckily there are options if you’re having trouble making your payments, such as forbearance and reduced payment plans. However, you always want to make sure you have the money available to make the payments.
Make Sure Early Payoff Aligns With Your Goals
If being debt-free is one of your major goals in life, then paying off your student loan early makes sense. However, there are other goals that could get put on hold for this to happen. You need to make sure you’re fine with postponing these goals. For example, if you want to quit your job to open a business, or to buy a house, or start a family, you’ll need to put money away now to reach those goals in the future. In this case, it might be better for you to split your discretionary income between paying down your student loan debt and putting money toward your other goals.
Take a Look at Your Repayment Plan
For most people, paying off your student loan as early as possible makes sense. You’ll save money on interest, which you can put toward other savings and investments. However, depending on what type of repayment plan you have, it might not make sense to pay your loan back early. For example, if you’re looking to have your student loan forgiven under the Public Service Loan Forgiveness (PSLF) Program, you’re better off simply making your monthly payments on time.
If you automatically enrolled in the standard repayment plan when you graduated from college, you might not even realize there are other payment options available. In fact, the government offers multiple repayment plan options, and several of those options are available to borrowers who have low-income levels. If you qualify for one of these income-based repayment plans, you could have any balance remaining after 25 years forgiven.
Consider Your Mental Health
All that being said, perhaps the most important factor in whether or not you should pay off your student loan early is how you feel about debt. If the thought of your student loan debt causes you major stress and keeps you awake at night, it might be better paying it off. Although you’ll likely have to sacrifice going out to eat and traveling, if you can create a budget and repayment plan to clear your debt, it could help you stop worrying and let you enjoy your life.
There’s no one-size-fits-all answer when it comes to whether or not you should pay off your student loan early. Instead, you need to consider these factors and decide which course of action is right for you.