Paying off your student loans is almost always the right move, but there is more to it than just clearing debt. The best approach depends on your financial situation, priorities, and long-term goals.
In this article, we will answer the question, should I pay off my student loans, explain why it matters, when other strategies might be worth considering, and how to do it in a way that sets you up for financial success.
Why You Should Pay Off Your Student Loans
Eliminating student loans can lift a massive financial weight off your shoulders. Without that monthly payment hanging over you, you can take financial risks, invest in yourself, and plan for bigger goals.
While some people choose to stretch out their loan repayment, paying them off sooner can provide long-term benefits that go beyond just peace of mind:
1. Interest rates are sneaky
Even with a low interest rate, student loan debt can cost more than it seems. Interest compounds over time, meaning you pay interest on your interest. Minimum payments often barely touch the principal, which means you could be paying thousands more than the original loan amount over time.
For example, a $30,000 loan at a 6% interest rate could cost nearly $40,000 if paid over ten years. Letting the loan run its full course adds up fast. The longer it lingers, the more money it drains from your future.
If you defer payments or go into forbearance, the situation only worsens. Interest continues to accrue, inflating the balance while no progress is made toward paying it down.
Interest rates can also change. Federal loan rates are fixed, but private loans may have variable rates that increase over time. Even if the current rate seems manageable, it is never guaranteed to stay that way. Some private loans even have prepayment penalties, making it harder to get ahead.
2. You’ll save money in the long run and feel better
The sooner a loan is paid off, the less you pay in interest. Every extra dollar toward the principal reduces how much you owe, shortening the repayment period and cutting interest costs. Even small additional payments, like rounding up your monthly payment or putting tax refunds toward your balance, can make a significant dent over time.
By paying down the balance faster, you could also qualify for better loan or credit options. Lenders look at debt-to-income ratios when approving loans. A lower debt burden can mean access to lower interest rates on mortgages, car loans, and even credit cards. Refinancing could also be an option to secure a lower interest rate, though it is essential to weigh the trade-offs, like losing federal loan protections.
Beyond the numbers, there is also the psychological benefit. Carrying student loan debt for decades can be mentally draining. Paying it off faster creates financial flexibility, reduces stress, and gives you more control over your future.
3. It can boost your credit score
Paying off student loans on time improves credit history, a major factor in credit scores. A strong score can open up better financial opportunities, such as lower interest rates on future loans and higher credit limits.
As the loan balance decreases, so does your overall credit utilization, which is another key factor in credit scoring. A lower utilization ratio signals responsible credit management, making it easier to secure favorable lending terms when you need them.
For more information about student loans and how to pay them off, read my articles:
- How Do Student Loans Work? (A Complete Guide For Borrowers)
- How To Pay Off Student Loans (with a real-life success story)
A high credit score opens doors to better financial opportunities, and eliminating student debt frees up cash flow for savings, investments, and long-term goals. Taking control of your loans today helps set the stage for a more secure financial future.
Real-life example of disregarding student loans
Meet Emi and Antonio, a couple struggling with debt for years. Emi pushed her student loans to the back burner, treating them as something she’d “just die with” while focusing on other financial problems. Over time, this mindset kept them stuck in a cycle of debt, delaying their financial progress.
[00:42:50] Antonio: We have talked about it and haven’t necessarily agreed, babe, but when we talk about it, your verbiage has been that you just don’t think it counts.
[00:43:04] Emi: Mm-hmm. No, you’re absolutely right.
[00:43:08] Antonio: And you’re like, ah, people just have student debt.
[00:43:11] Emi: I’m going to die with it. I wasn’t taking the responsibility needed to do say, hey, this is debt. Debt is bad. Debt is debt. Whether it’s credit card or whatever, we should be being aggressive about it. I’m like, oh, I’m going to die with it. Everyone dies with student loan debt, and I justified my way out of it. And I see that now, and that’s– I’m sorry. Again, I don’t want to justify my way out of things anymore when it comes to our finances.
Assuming student loans don’t count just because they aren’t as urgent as credit card debt is another trap. But ignoring them doesn’t make them disappear. As Emi realized, treating student loans like any other debt and planning to pay them off is key to breaking the cycle and building real financial stability.
Why You Shouldn’t Pay Off Your Student Loans First
It’s natural to want to pay off your student loans as fast as possible, but putting all your money into debt repayment could hurt your long-term financial growth. Here are some reasons why focusing only on paying off loans might not be the smartest move:
1. The interest may not be as bad as you think
Many federal student loans come with relatively low interest rates, especially compared to credit cards or personal loans. If your loan has an interest rate below five percent, aggressively paying it off may not be the best financial move.
Overpaying on low-interest debt can hold you back from other financial goals. The money used for extra loan payments could be invested instead. Historically, the stock market has averaged higher returns than most student loan interest rates. Over time, investing could yield more wealth than saved by paying off a low-interest loan early.
2. You’re not building a solid financial foundation
Rushing to pay off student loans can leave other important financial priorities neglected. Without an emergency fund, a sudden job loss or unexpected expense could force you into high-interest debt, like credit cards or personal loans.
A strong financial base includes savings, retirement contributions, and a manageable approach to debt. If paying off student loans too quickly means skipping retirement savings or not having cash reserves, it may not be the wisest decision.
However, student loans are unique because they are not forgiven in bankruptcy. This means they cannot be easily discharged, even in the worst financial situations. While prioritizing savings is important, ignoring student loan payments completely can also create long-term challenges, so it’s important to recognize this balance.
3. You could be better off investing
Investing early creates long-term financial benefits due to compound growth. The longer money is invested, the more it has the potential to grow.
Some debts can be considered “good debt” if they contribute to future financial growth.
- Bad debt includes high-interest credit cards or personal loans that do not provide financial benefits.
- Good debt includes investments that appreciate over time, such as a mortgage or student loans with low interest rates, allowing for better career opportunities.
Federal student loans often fall into the “good debt” category because they come with lower interest rates, long repayment terms, potential tax deductions, and forgiveness programs.
That said, relying on a long-term financial strategy to justify keeping student loans can be risky. If the money that could be used for repayment is not actively invested or saved, then delaying repayment serves no real benefit.
My advice is that leaving your student loan can be risky without a solid investment or future, often complex, financial strategy—so in this post, we’ll focus on paying them off.
How to Pay Off Student Loans Faster
Student loans can feel like they will never go away, but they don’t have to linger for decades. A strategic approach can speed up repayment and save thousands in interest. Let’s break down strategies on how you can knock them out faster than you think:
1. Know your loan
Before making extra payments or adjusting your budget, be clear about your loan details. Many people make the mistake of sending payments without fully understanding their loan terms, which can lead to missed opportunities for faster repayment.
Start by writing down:
- Your total balance
- Interest rates for each loan
- Minimum monthly payments
- Repayment terms and deadlines
Federal loan details are available through the National Student Loan Data System (NSLDS). Private loans may require checking credit reports or contacting lenders directly. Reviewing these details ensures payments are applied correctly and helps identify which loans should be prioritized.
2. Explore forgiveness opportunities
Certain careers and circumstances may qualify for student loan forgiveness, reducing or even eliminating remaining balances.
- Public Service Loan Forgiveness (PSLF): Available for government and nonprofit employees after making 120 qualifying payments.
- Teacher Loan Forgiveness: Eligible teachers in low-income schools can have up to $17,500 forgiven.
- State-Specific Forgiveness Programs: Many states offer loan forgiveness for healthcare workers, lawyers, and other specialized fields.
Loan forgiveness rules and repayment plans change frequently. New programs and revised eligibility requirements are introduced regularly, so it’s important to check with loan servicers to stay updated on available options.
3. Create a budget to pay off your student loans
Using my Conscious Spending Plan helps balance loan repayment with other financial priorities. A well-structured budget ensures that loan payments fit into your financial plan without sacrificing essential expenses or future savings.
A good breakdown looks like this:
- Fixed Costs (50-60%): Loan payments, rent, bills.
- Investments (10%): Retirement savings.
- Savings (5-10%): Emergency fund for unexpected expenses.
- Guilt-free Spending (20-35%): Occasional treats and lifestyle spending without financial guilt.
The fastest way to free up money for loan payments is by cutting unnecessary expenses. This doesn’t mean eliminating everything you enjoy but making small changes that add up over time.
For example, trimming down subscriptions you barely use or cooking at home more often can redirect extra cash toward your debt. Even adjusting your living situation—like moving to a cheaper apartment or splitting costs with a roommate—can make a huge difference.
Automating payments also keeps you consistent, ensuring you never miss a due date while helping you stay on track.
These simple shifts can accelerate repayment without making your life miserable.
4. Look for ways to boost your income
Cutting costs helps, but increasing income makes the biggest difference when paying off student loans faster. Even an extra few hundred dollars each month can significantly reduce repayment time.
Picking up freelance work or side hustles, taking on part-time hours, or monetizing a skill can provide additional funds for loan payments. Some people sell unused items, offer tutoring, or use platforms like Upwork and Fiverr to generate extra cash. Others negotiate a raise or switch to a higher-paying job to improve their financial position without adding extra work hours.
Side income should be treated as bonus money for student loan payments rather than blending into everyday expenses.
The more aggressively additional income is applied to debt, the faster the loan balance shrinks. Even small increases in monthly payments can cut years off the repayment timeline and save thousands in interest.
Mistakes to Avoid When Paying Off Your Student Loans
Rushing through payments without a strategy or ignoring repayment options can make the journey harder than it needs to be. Avoiding these common pitfalls will help you stay on track and pay off your loans the smart way.
Defaulting on your loan
Missing payments can have serious consequences. If a loan goes into default, it can damage your credit, lead to wage garnishment, and make it harder to qualify for financial assistance.
Many assume forbearance or deferment will happen automatically if they struggle to make payments, but that’s not true. You have to apply for those options, and approval isn’t guaranteed.
If you’re struggling to make payments, contact your loan servicer immediately. Income-Driven Repayment (IDR) plans can lower your monthly payment based on your income, making repayment more manageable. The worst thing to do is ignore the issue—acting early gives you more options and helps protect your financial future.
No repayment strategy
Throwing money at your loans without a plan can slow down your progress. Some people make extra payments without specifying that the money should go toward the loan principal, which means more of their payment goes to interest. Others assume all their loans have the same interest rate, missing the opportunity to pay the highest-cost debt first.
A smarter approach is to prioritize high-interest loans while making minimum payments on lower-interest ones. Double-check that any extra payments are applied directly to the principal, not just toward future interest. The more intentional you are, the faster you’ll see real progress.
Example of what happens when you don’t plan for student loans
Take a look at Sam and Alana. Unfortunately, they never planned for their student loans because they thought family would help. Fast-forward years later, and they’re still sitting with $157,000 in student debt hanging over them.
Sam put it on the back burner, convincing himself that other financial priorities came first. Without a clear repayment strategy, the debt continued to grow, leaving them stuck in a cycle of avoidance and stress.
[00:04:33] Sam: We’re not paying my student loans right now.
[00:04:37] Ramit: How much are those student loans, Sam?
[00:04:39] Sam: Uh, $157,000.
[00:04:42] Ramit: Sam, that seems like the primary issue, right?
[00:04:46] Sam: Yeah, it is. It is. But I put it on the back burner, and that’s not good.
[00:04:52] Ramit: Okay, so you have $157,000 of loans. You put it on the back burner means you avoid talking about it.
[00:05:00] Sam: Sure.
[00:05:00] Ramit: And then what’s the overspending part?
[00:05:07] Alana: Too much takeout.
[00:05:09] Ramit: Too much takeout. Okay.
[00:05:10] Sam: I think too much takeout in comparison to the $157,000 is probably low on the totem pole.
As you can see, ignoring student loans doesn’t make them go away; it only makes them harder to deal with later. Sam’s debt kept growing while other financial habits, like overspending on takeout, distracted from the real issue. Without a plan, loans can spiral out of control, turning into a long-term burden that limits financial freedom.
Missing out on benefits
Many borrowers don’t take full advantage of programs that could help reduce their debt. Forgetting to recertify an Income-Driven Repayment plan can cause payments to jump unexpectedly. Some employers offer student loan repayment assistance, but you might never know if you don’t ask.
Another commonly overlooked benefit is the student loan interest tax deduction, which can reduce taxable income by up to $2,500 annually. Loan forgiveness programs also have strict eligibility requirements, and missing a step—like failing to submit an annual employment certification form—can mean losing thousands of dollars in savings.
Paying off student loans is just one piece of a bigger financial picture. The strategies that help you tackle debt, like budgeting, increasing income, and making smart financial decisions, also build the foundation for long-term financial success.
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