After 6 years dragging myself through the ivory tower, I owed over $30,000 in student loan debt. That student loan debt was like a giant “debt elephant” sitting on my shoulders. Paying off my student loans was one of the best financial decisions I’ve made to date. I’m only 30, but I suspect I’ll still consider the pay down one of my biggest financial accomplishments, even 30 years from now. Do student loans make you miserable? If they don’t, they should.
While rational people from both sides of the student loan “debate” (pay them off as fast as possible vs pay them off slowly because they’re “good debt”) disagree about why it makes sense to pay or “keep” student loan debt. Obviously you need to consider your own personal financial situation. But for me, the benefit of paying off my student loan debt, well outweighed the opportunity cost of spending that “paydown” money on other things.
Top 10 Reasons to Pay Off Your Student Loans ASAP:
- Interest rates. Take a look at the chart below; and these are, “low” compared to most private loan interest rates…need I say more? Still thinking you should “hold on” to the loans for the tax deduction? The amount of money you “save” from the deduction is far less than the amount of interest you’ll pay over the life of the loan. Pay them off!
Direct Unsubsidized Loans Fixed at 6.8% Direct PLUS Loans (Parents and Graduate or Professional Students) Fixed at 7.9% Perkins Loans Fixed at 5%
- Bankruptcy. Federal student loans are NOT default-able in bankruptcy. If you have the income necessary to pay the loans back and can’t prove an “undue hardship” your student loans will not be legally discharged in bankruptcy and you’ll still have to pay them.
- Wage Garnishment. If you default on your federal student loans your paycheck can be garnished. Yup that’s right, the feds can take the money you owe them directly from your employer.
- Mom & Dad. Did mom, aunt Sally or your grandparents co-sign your private loans or Parent Plus loans? If you aren’t able to pay them, they’re on the “hook.” Imagine grandma and grandpa slaving away during their retirement years trying to pay off your education, sad!
- Defaulting Ruins Your Credit. If you’re delinquent paying your private student loans your credit will be trashed. Late payments ruin your credit score and impact your ability to sign up for utilities, buy a car, rent an apartment and even get a job.
- Future planning. When all of your friends start buying homes and you start getting the housing “itch”, you don’t want to be denied a mortgage because you have $120k in outstanding student loan debt. While student loans don’t impact your credit score they are included in your debt-to-income ratio. If your debt-to-income ratio is too high, your mortgage application will be denied.
- Kids. Maybe you can’t afford to have kids when you want them because you have to keep working to pay off your student loans. Imagine dropping them off at the babysitter on your way to work when you wanted to be a stay at home mom.
- Jobs. Working a job you hate? Think what it will be like to be “chained” to a job you hate for the next 10 years because you can’t afford to take a lower paying position that you’d love.
- Kids part II. Paying for your kid’s college at the same time you’re paying off your own student loans? Ouch!
- Financial peace. Probably the most important and most inspirational reason to pay off your student debt. You can’t have true financial peace knowing that you owe money to someone else. Kick Sally Mae to the curb!
Which of the top 10 motivated you to pay off your loans. Still paying them off? How’s it going?Image: Sam_Churchill