Should I Pay Off My Student Loans Early? 5 Reasons to Wait

Student loans often are likened to a burden that puts life on hold, and many graduates set their long-term goals aside while they feverishly work to pay them off. That often means delaying buying a house or a car or saving and investing while putting most of every paycheck toward paying off student loans. Some graduates will move back in with their parents, cut back on every possible expense, and work multiple jobs so that every spare penny can go toward their student loans.

While it may seem counterintuitive, many financial experts recommend making your regular minimum monthly payments on student loans rather than rushing to pay them off.

Here are five reasons why.

Interest Rates

Interest rates on student loans, especially those backed by the federal government, can be relatively low. Before you put all of you extra money toward your student loans, check whether you are paying a higher interest rate on other debt. It may make more sense to pay off other debts first.

For example, if you have $15,000 in student loan debt at a 4 percent interest rate and $15,000 in credit card debt at a 15 percent interest rate, you should first pay off your credit card.

The interest you pay on your student loans is also tax deductible, unlike interest on credit card debt.

Emergency Cash

New graduates typically have a lot of debt and little savings, and it's important to build up a cash reserve for unexpected situations such a medical bills or car repairs. Even $1,000 in a savings account can cover many surprise costs, which you otherwise might have to cover by sinking yourself more in debt. Putting some money toward savings rather than toward student loans will provide a measure of financial security.


Making your money work for you rather than rushing it all into loan repayment can reap benefits in the long run. Buying a house or building up a stock market portfolio can turn a profit in years to come, while money that goes toward paying off a student loan will not bring any financial return.

Loan Forgiveness

Before you pay off your loan, read the terms of your loan carefully. You may qualify for the Public Loan Forgiveness Program, which forgives the remaining balance on some federal student loans after 120 qualifying monthly payments. To be eligible, graduates also must work for a qualifying employer such as a government agency or tax-exempt, not-for-profit organization.

Quality of Life

The Draconian measures sometimes taken to pay off student loans can severely impact a graduate's happiness and well being. Sacrifices such as not buying healthcare to free up more money to pay off student loans can be risky, and foregoing even small luxuries such as occasionally eating out can make life miserable.

Instead, look for a balance between paying off debt and allowing yourself a monthly budget that can afford health care and some small enjoyments.

Determining when and if you should pay off student loans early requires looking at your long-term goals and your current situation. While those monthly student loan payments may be an annoyance, it could work in your favor to focus on other financial goals first.

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