Are you one of the thousands of college graduates with student loan debt? Do you spend hours worrying about how you will repay these loans as fast as you can? If so you may want to read this post and consider changing how you think about student loan debt in general. As debt can take on many different shapes and forms repaying that debt does the same thing as well. Just remember not all debt is created the same or is considered equal when it comes to repayment.
There are stories all over the Internet about how someone paid off $30,000 or $40,000 of student loan debt in a year or two. But the question that needs to be asked is at what cost was this debt repaid? Considering most people consider all debt as bad it is no wonder people are in a hurry to reduce this debt. But again I ask should you? The answer may surprise you if you consider everything as a whole and not just your student loan debt.
Most college graduates have more than student loan debt when they graduate. Many of us have car payments, possibly a mortgage depending on your marital status or age when you graduate, and almost everyone I know has the worst kind of debt there is today, and that is credit card debts. A car loan is not ideal for anyone, but at least it is an asset that you will own once the debt is repaid. A mortgage I consider as about the only good kind of debt as a home is generally an asset that will appreciate over time and will give most people some tax advantages when it comes to their Federal income taxes. Credit card debt comes with extremely high-interest rates and leaves most of us little or nothing to show for the debt when it is paid.
Compare those debts to student loan debt and you may change your mind on how you want to pay it off. These debts if guaranteed by the government and not private student loans will normally have low-interest rates depending on when the loan was made. Many student loans carry interest rates of 4% or so meaning you technically could invest the extra payments you would make and actually come out ahead say if your investment made a return of 5% or more.
Also, it is extremely important that everyone have an emergency fund to fall back on when something bad happens. And trust me, something bad can and usually does happen at some point or another. The question is, do you pay off the student loan or create an emergency fund? The correct answer is always have an emergency fund to cover those unexpected expenses that seem always to happen at the worst possible time. It is also extremely important to start saving for retirement as soon as possible, so the power of compounding works in your favor for your entire working career.
So as you can see, there are several reason not to hurry up and pay back student loan debt if there are compelling reasons not to. Pay the minimums and work on getting rid of other types of debt like credit cards that will end up costing you more due to their much higher interest rates. Always have a fully funded emergency fund to rely on when the time comes. And fund your retirement accounts as much as you can so that they may work over your entire career in your favor so you will have that nice nest egg when the time comes.
Once you are in a position to pay extra on your student loans, I would suggest it at that point but not until all the other areas have been addressed. And if you work for certain non-profits, local, state, Tribal, or Federal government entities and make ten years of qualified payments anything beyond the ten years is forgiven due to your public service. Also, look for companies or places of employment that will assist you in repaying your loans. Many jobs these days will have incentives to hire the right person which include the repayment of a portion of your student loan debt in exchange for a certain number of years worked.
Do not be one of those people who lose sleep over your student loan debt. Look at it the way described in this post and examine your situation as it applies to you and no one else. Take care of all of your debts but put them in perspective and in a logical order.
If you have any questions or need any additional information, please feel free to leave a comment or contact me directly.
