Should You Repay Your Student Loan Right Away?
There are two approaches to repaying your student loans. You can either pay them off a little at a time over a period of decades—by far the most common approach—or you could live far below your means and put most of the money you earn towards repayment until they’re completely paid off.
So is it a better idea to pay it off quickly or slowly? It depends on your situation—and the type of loans you have.
You have high-interest, variable rate loans
Many college students aren’t lucky enough to get out of school with only subsidized government loans. If you’re like most of us, you have at least a few private student loans with variable-rate terms. Private loans start off with higher interest rates on average than government loans—so these loans are more expensive to hold onto over the long term. In addition, those interest rates can change unexpectedly, and you can’t consolidate private loans to ensure a low, stable rate. So whether you’re planning to pay off all your loans quickly or slowly, focus most of your repayment efforts on your private loans first and get them paid off as soon as possible.
You have the money—and the stability
It’s always better to get your loans repaid as quickly as possible—within reason.
If you’ve just graduated medical school, chances are you have somewhere around $100,000 in student loans. But you’ve also got a lucrative, stable job waiting for you. In that case, it may be worth it to live cheaply for a few years while you eradicate your student loans—you’re more likely than, say, an English major would be to be able to afford to do this while still budgeting and saving for your retirement account and saving for emergencies.
You have the support
Some traditional college-age students move back in with their parents and apply all their earnings to paying off their student loan debt. But moving back in with the parents isn’t an option for everyone. If you’re an adult student with a full-time job or children, moving back in with your parents may not be an option—and regardless of your age, your parents may not be in a position to support you while you repay your loans.
This method is best if you have a debt load that can be paid off within only a few years—who wants to live with their parents for a decade while paying off student loans?—and your parents live in an area where you have plenty of opportunities for jobs that pay well and relate to your chosen career field. If not, you could be setting your career back by doing this.
Your student loans stand in the way of your goals
Do you want to travel for several years? Volunteer with an organization without a student loan forgiveness program? Start your own business or buy your own house? If so, having a large student loan burden could seriously hinder your goals. If you want to do anything besides putting nose to grindstone and working steadily for a decade or so in a stable job to pay off your loans—or if you want to do anything expensive such as buying a house or starting a family relatively soon after graduation—then paying off your student loans soon may be a good idea.
Your income situation is less than ideal
If you’re unemployed, underpaid, or have to choose between paying off your student loans quickly and buying health insurance, building emergency savings, or funding a retirement account, pay off your loans slowly. In addition, if you have a job now but you’re not sure whether you’ll have one in six months, it may be a better idea to save for emergencies than put all your extra income toward student loans.
You have fixed-rate, low-interest loans
These loans won’t become more expensive the longer you sit on them—so you have more leeway to pay them off slowly.
You have other debt problems
If you’ve got other loans with even higher interest rates than your student loans—such as significant credit card debt—then pay those off first. You should generally make it a priority to pay off your debts in order of highest interest rates first.
It’s always better to get your loans repaid as quickly as possible—within reason. You shouldn’t repay them quickly if your income won’t support it, if you don’t have the option of living well below the standard you’re living at now, or if your job situation is unstable, it’s better to pay off your debts slowly and steadily.
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More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch