There was a time I swore I’d never pay off student loan debt a second sooner than required. Why would I do something dumb like that? There were so many benefits to keeping it around until 2020.
By paying off my student loan, I’d avoid 2.625% of interest on the outstanding balance each year. That’s nothing. I know people who pay over 5.00% on their government loans. And don’t get me started on people with private student loan debt. I was miles ahead of them on the interest rate front. It felt real good knowing I had the foresight to graduate from college when interest rates were at historical lows.
I’d come out ahead just by banking the money I could’ve used to pay down debt. Not long ago, ING Direct was paying 4.50% – 4.75% on savings accounts. Since I didn’t have more than $100,000 (former FDIC insurance limits) on deposit, the risk of losing my money was nonexistent.
Then, get this. After four years of on time payments, Sallie Mae reduced my interest rate a full percentage point. Who would race to pay off a debt that only cost 1.625% in tax deductible interest? And on an installment loan too? Please. It’s one thing to pay off lines of credit or payday loans. But once you pay off your student loan, it’s paid. You can’t go back to the lender and ask for credit in the event of an emergency.
Did I mention that 1.625% was fixed? As long as I paid my bill on time, I’d never have to worry about the interest rate increasing.
With student loans (at least the government kind), you have more options when it comes to repayment. If you lose your job, you can postpone payments by placing your loans in deferment or forebearance. So even if I stumbled on temporary hard times, I could avoid making the payments without hurting my credit.
Yeah. Paying off student loan debt made absolutely no sense.
So why’d I do it?
Because freedom tastes good.
I don’t expect you to agree or disagree with me. Everyday another person makes the decision to extend the life of a student loan as long as possible. (I have no statistical evidence to support that statement.) What I’d like to know is the choice you made. If you have student loan debt, do you plan on paying it off early? Why?