Why You Should Pay Off Your Student Loans Quickly


$15,000 or $45,000 The primary reason why you should pay off your student loans as quickly as possible is the cost of your education. You may have borrowed $15,000 in student loans over four years to pay for tuition, room and board, and the cost of attending a college or university. If you pay off $15,000 in Stafford loans with a fixed interest rate of 6.8 percent over 10 years, you will end up paying $20,715, or an extra $5,715, for your college education.

Extend payments over 30 years, and you will have paid an extra $20,202 for your education. (The actual value in constant dollars will be slightly less because of inflation.) That is $20,202 that could have gone toward a down payment on a house or into your savings, where it could grow over time. The sooner you pay off your loan, the less you will have invested in paying for your education. And the earlier you pay down the loan balance, the less interest you will pay over time.


Freedom from Debt

As long as you have a student loan, auto loan, or credit card debt, you have a monthly obligation to make your payments, which means that you need a stable and steady source of income. Being in debt impedes your freedom to try a new career, travel, or handle the risks of launching your own business. You may be willing and able to make personal sacrifices when it comes to food and housing, but you will be obliged to come up with your monthly loan payments, no matter what your circumstances. When you travel to Wyoming to fight wildfires, or to Africa as a freelance journalist, you will need to make arrangements so that your loans do not go into default while you are out of touch.

Although you can obtain deferments or forbearance while you do graduate studies, serve in the Peace Corps, or are on active military duty, many other opportunities will not be open to you. In many cases, interest that accrues during periods of deferment is capitalized, adding to the balance of your loan and increasing the total amount that you pay off. According to Loan Advisor Reliable Moneylenders private student loans, which do not have the same repayment and forgiveness options as federal loans, are even more restrictive.


Plan for Your Future

Young graduates may not envision themselves as parents, homeowners, or retirees, but within a few years, many situations will arise that require financial goals and planning. Student loan payments will be joined by other financial obligations, like a mortgage, the expenses of raising a family or caring for elderly parents, and the need to save money for the future. The sooner you pay off your student loan debt, the more money you will have for your other financial objectives. No one enjoys paying for something they have already consumed; almost everyone feels excited when they anticipate future rewards or when they are able to actively invest in the present.  Case study: I’m glad I paid off my loan before I got married. Dana, age 36, is a middle school teacher in Wilmington, Delaware.  I graduated from college in 1993 with my bachelor’s degree in biology from Shaw University in Raleigh, North Carolina. The original amount of my loan obligation was $10,000 for my undergraduate studies. Later, I returned to school for my master’s degree and incurred an additional $7,000 in loans.  

When I graduated from college, I began working at a science laboratory. The pay was not very good, so I just paid my requested loan payments. This went on for about a year.  In 1994, I started working for Smith Kline & French Laboratories. The pay was much better, and I was able to pay more than my monthly payment amount — at least $80 more.

I decided to return to school in 1996 to receive my master’s degree in Education. The downside to returning to school was that I had to quit my job and complete a student teaching requirement of my graduate program. During that year, I made very little money and was forced to return to making my regular monthly payments. Upon graduation in 1998, I started teaching full-time as a salaried employee and resumed my increased payments. The loan amount decreased significantly with the increased payments, and in 1999, I was able to use my IRS tax return to pay off the remainder of the student loan.  


Often, I have contemplated whether I should have saved that extra money for other things, such as a home over an apartment, or a nicer car. However, it was probably the best way to go for me because not long after paying off my loan, I married, and soon after, had my first child. It is not easy to save money when you have a family. Many times, my husband and I find ourselves stretching our finances to pay for private school, extracurricular activities, eyeglasses, and so on. I know that I made the right decision to sacrifice and pay down the loans when I did. If I had not, it would have really affected my new family.


Over the years, my family has moved three times to accommodate for its increase in size — which eventually has included three kids, my husband and I, a dog, and a cat.


This is a guest contribution from Darleen Prangue.

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