Student loan debt can be a drain on your personal finances. The thought of having student loan debt may not put a smile on your face, but in some cases, it can make sense to hold off on repayment.
If you are on the fence about accelerating your student loan repayments, this article will walk you through why you might want to wait to pay off your student loans.
We’re partnering with Chipper to help you understand when it might make sense to NOT pay off your student loans (and of course, when it does make sense to, as well). Chipper is an app that can help you manage your student loans, find loan forgiveness you qualify for, and even help you chip away at your student loans faster. Check out Chipper here >>
When Should You Wait To Pay Off Student Loans
Perhaps you have the income to start paying down your student loans, and although it’s never a bad idea to eliminate debt from your life, it might not be the most efficient use of your money.
Here’s why you might want to NOT to pay off your student loans.
You Qualify For A Loan Forgiveness Program
Depending on your situation, you might qualify for a student loan forgiveness program. If that’s the case - you NEVER want to pay extra on your student loans. Simply make your minimum required payments, and maximize the amount of loan forgiveness you can get. If you do pay extra, you’re simply throwing your hard earned cash away!
One of the most common forgiveness opportunities is the Public Service Loan Forgiveness (PSLF) program. If you work full-time for a government organization, religious organization, or non-profit, you can qualify for PSLF after making 120 qualifying payments on an income-driven repayment plan.
A second popular option is Teacher Loan Forgiveness. As a teacher, you can qualify for $5,000 to $17,5000 of forgiveness if you work five complete academic years at a Title 1 school.
Are you eligible for student loan forgiveness?
If you're unsure if either of these forgiveness options apply to you, Chipper is a great tool to help you understand whether you qualify.
Your Loans Are Currently Paused
The federal pause on payments also includes a break on your student loan’s interest accumulation. With the temporary interest rate set at 0%, your loan balance won’t grow whether or not you make payments during the pause.
As of now, the payment pause is set to expire on December 31, 2022.
Since your loans are paused (no payments due, no interest accruing), you probably shouldn’t give the government any of your extra cash. They’re not asking for it, so don’t give it to them!
Instead, the 0% interest rate offers an opportunity to tackle other things on your financial to-do list. Let’s look at some reasons you may decide to take advantage of the 0% interest period and focus on another financial priority.
You Have High-Interest Debt
Student loan debt is just one type of debt. Before focusing on paying down your student loans, carefully evaluate any other debts you may have. If you have high-interest debt, it makes sense to prioritize that debt.
For example, let’s say that you have $5,000 in credit card debt with a 15% interest rate. It makes sense to put any available funds towards that high interest debt. After eliminating that debt, you can consider paying down your student loans.
You Don’t Have An Emergency Fund
Life is unpredictable. You may have some extra funds to throw at your student loans today. But you might get hit with an unexpected car repair bill tomorrow.
Most experts recommend setting aside three to six months of expenses in an emergency fund. But if setting aside that much is unrealistic, consider putting $1,000 in a high yield savings account to act as a safety net for unexpected expenses.
If you don’t have any emergency savings, consider prioritizing that financial goal over paying down your student loans ahead of schedule.
You Aren’t Saving For Retirement
Retirement might seem like a dream from a distant future. But saving now can make a big difference in your retirement.
If you haven’t set aside anything for retirement, it’s important to make that a priority. Although tempting to hold off on retirement savings until you repay your student loans, try to reverse that line of thought.
Prioritize setting aside some retirement savings. Even if that means not paying down your student loans as quickly as you’d like.
You Aren’t Saving For Other Goals
Student loans and retirement aren’t the only financial goals you might have.
Other goals could include:
- Saving up for a down payment on your first home
- Covering the high costs of childcare
- Taking some time off of work to spend more time with your loved ones
Take time to evaluate your financial goals and priorities. Maybe your goals are on the back burner because of your laser focus on paying down your student loans. It’s important to ask yourself if this is what you truly want, as it relates to your income and future.There’s nothing wrong with sprinting to the finish line of your student loans. Try to strike a balance between debt repayment and other savings goals that work for your life.
When Does It Make Sense To Pay Off Your Student Loans?
Of course, there are still plenty of reasons why it makes sense to pay off your student loans as quickly as possible.
You might want to make extra payments or pay off your student loans as fast as possible IF:
- Don’t qualify for any forgiveness options, paying off your loans as quickly as possible will minimize the total interest costs.
- Have relatively high income, you may be able to tackle all of your savings goals faster, including paying off student loans
- Are dealing with high interest debt. However, if your student loans are your only debt, paying them off is a smarter move.
- If you have a small amount of student loans, knocking them out might be easier than waiting years for loan forgiveness.
As a student loan borrower, you’ll have to decide whether prioritizing this payment is the right move for your unique financial situation. If it is, create a plan to tackle your loans.
Savings Tip: If Chipper has caught your eye, one tool to take advantage of is the round-up feature. The platform will round up all of your purchases and put the change towards your student loans. Every little bit helps when it comes to paying off your student loans! If you can round-up $35 per month, you can save over $1,000 in interest over the life of your loans! Check out Chipper here >>
Student loans provide a way to invest in your future by funding your education. But like all other loans, you’ll have to pay them back at some point.
Whether or not you decide to accelerate your student loan repayment strategy will vary based on your unique financial situation.
However, in some cases, it might not make sense to make extra payments and pay down your student loans faster. In other cases, get rid of those loans ASAP.
If you’re unsure where to start, check out Chipper, link your loans, and get started >>
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Editor: Claire Tak