With the student loan debt amount nearing $1 trillion soon, there are clearly tons of graduates facing repaying their student debts. The only option for many to attend college or continue with post-graduate work, student loans have gotten easier to obtain but with the poor job market, paying them off isn’t so easy. Here are some pros and cons to consider when deciding your plan for student loan repayment and whether or not you should pay them off early.
There are many benefits to paying off your student loan debt early. Since the government funds a large portion these loans, they offer very low interest rates. Even though any payments made on interest are tax deductible, you only save a small portion compared with how much you actually pay in interest so you aren’t benefitting much by keeping a longer loan repayment term. Unlike with a mortgage, for example, paying a student loan off early will not change your income tax level much at all.
The only way to get rid of student debt without repaying is through death or permanent disability. It may be better for you in the long run should you hit any rough patches financially to get rid of your student debt as early as possible since bankruptcy won’t forgive student loans.
By paying off your loans early, you’ll also improve your income to debt ratio which will help you buy a house, start a business, or simply free up some extra income each month. By paying off your loan earlier, you’ll pay less in the long run, even with the low interest rates.
It may not seem like there are many cons to paying off your loans early, but in some cases, it is a better idea to keep your repayment plan as is. One reason to keep the debt is to help improve your credit score if you can stay up with at least a minimum monthly payment. Plus, as long as you communicate with you lender and they know you’re making an effort, they’re usually willing to work with you on your payments should a financial upset occur. They rarely make you pay an amount you can’t afford so if you ever can’t pay, it won’t be as devastating as not being able to pay on other kinds of debt.
If you don’t want to pay off your student debt as early as possible like some, you can use that to your advantage by investing the rest of what you could pay each month. With such low interest rates, you could pay the minimum amount they require and dedicate the rest of the amount you could afford to investing and start gaining some returns.
Since you take student loans with you to the grave, you also don’t have to worry about creating extra burden for your family in the event of your death.
When deciding whether or not to pay off your student debts early, it really depends on you. If you’re the type who hates carrying the burden, get rid of it. If you could use extending the debt to your advantage, then keep your repayment plan. Don’t let the prospect of facing student debt stop you from earning that MSW degree or furthering your education because it’s a worthy investment and whether you pay it off immediately or not, you can find ways to make the debt work in your favor.