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How Fast Should You Pay Off Student Loans?

Like so many others in our country, I’m in debt. Fortunately, it’s more of what some have termed the “good” kind of debt—the kind used for getting educated—but it’s debt nonetheless. So the big question that everyone with student loans, including myself, asks themselves at some point in time is "how fast should I pay these things off?" Some feel the lower interest rates justify a slower approach to tackling them, while others hold a more feverish Dave Ramsey approach.  Which is the right path to take?Regardless of which way you're leaning at the moment, the following discussion will hopefully help you assess the situation from both sides as you try to determine the best route for you.

Rapid Repay Graduates Many recent graduates don't have investment opportunities that would offer returns high enough to justify keeping the student loans around. With the uncertainty of market conditions these days, this is certainly the case for many of us. So, if you won't be using the money you earn to invest at a greater return or to pay down existing higher-interest debt, it may be wise to use whatever extra cash flow you can generate to pay off the student loans. However, there might be some negative effects that stem from being so aggressive in your approach. For example, you may find that you still need to live like a student far after you graduate and finally have a paycheck.  In addition, you may even need to sacrifice more time away from friends and family while working extra hours to get the debt paid down as fast as possible. It won't be easy at first, but living debt-free will be worth it.  Just think about how liberating it will feel when you make your last payment years before you ever imagined you would!

Tortoise-style Repay Graduates Some of you that see the low interest rates and the long horizon on student loan debt may not feel any sense of urgency to get rid of it. This camp may also have other opportunities in which their current income could be used to make significantly more than enough to compensate for the interest payments on the loans. In this case, you certainly would not want to sacrifice a high-yielding opportunity by using those funds to pay off student loans.  It may be a bit more risky of an approach, but it could pay off in the long run. Further still, there are those whose incomes are not high enough to rapidly pay down the student loans they've accrued. Or perhaps you've been busy paying off your credit cards first, beginning with those that have higher interest and then tackling other low interest credit cards and debt further down the road. For this group, be sure to keep pushing forward and sticking to your plan.  Pay down the highest-interest debt first, and keep working at it until you're debt fee.  A twenty to thirty-year repayment plan on a student loan is a long road, but it's completely doable. Just don’t put it off forever. Even if the interest is low, it's still interest. How do you plan on dealing with your student debt? Are you a tortoise or a hare?  Do you plan on paying down your loans as fast as possible or do you see the interest accruals and think, “it’s not worth it, I would prefer liquidity now rather than being immediately out of debt?" Let us know in the comments section below.  We would love to hear your input.

Photo credit: Shutterstock / zimmytws

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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Comments

Joshua Heckathorn's picture

@Laura - I agree with you on student loans. It's best to just get them paid off as fast as possible so you can focus on other things.

Laura Morton's picture

I believe that you should pay off all debt as soon as you can. This includes student loans. When you have money sitting around something happens and you spend it. Or if a relative hears that you have a few thousand in the bank, all of a sudden, they have an emergency and you have to help out.