Normally, I advocate paying off student loans as quickly as possible. They’re a burden and something that should be conquered early in order to make room for more important and pressing life goals.
However, I concede that in a few unique situations, you shouldn’t pay off student loans early. In these situations, it just doesn’t make mathematical sense to pay off your loans, or it’s just not a wise life choice.
I’ve outlined four of these situations below. So, before you pay off student loans early and get rid of them, first make sure that one of the situations below doesn’t apply to you.
1. You Have High-Interest Credit Card Debt
If you have high-interest credit card debt in addition to your student loan debt, then it’s better to conquer your credit card debt first before you attempt to pay off student loans early.
Credit card debt can be very difficult to escape, especially when average interest rates exceed 15%. If your student loan interest rate is less than that, then paying off your credit cards needs to be your priority. Otherwise, you’re essentially losing money.
To pay off your high-interest credit card debt, pay back as much as you can afford to each month, not just the minimum. If you pay only the minimum amount, then it will take years for you to pay off your balance.
Another strategy is to transfer the balance to a 0% card for 12 months to avoid incurring more interest while you pay off your debt. Just be sure to watch the balance transfer fees as well interest rates after the 0% interest period ends.
If necessary, or if your credit card debt is astronomical, then you might need to speak with a credit counselor to discover what options are available to you. These options might include negotiating with your credit card companies to lower their fees and lower your interest rates in order to help you to conquer your debt.
If your case is severe, then they might also recommend bankruptcy.
2. You Might Want to Go Back to School
If you think that you might want to back to school someday, but you’re just not sure when, then I would postpone making any large payments on your student loan debt. Instead, build a large savings account.
Why? When you go back to school, you can pause payments on federal student loans if you’re enrolled at least half-time. Keep in mind that if you have subsidized student loans, then you can defer them without interest while being enrolled half-time. By contrast, if you have unsubsidized loans, then know that they will accrue interest while you’re in school.
Plus, you might need that money that you would have otherwise spent paying off your loans to be in a savings account.
Going back to school often means juggling work and school and trying to live on a very limited graduate school stipend. If you’re expecting that situation or a similar one in which you won’t have much extra money, build up savings beforehand to make life a little easier while you’re in school.
3. You Need to Save an Emergency Fund
Emergency funds are an extremely important part of staying out of debt. When an emergency happens—and they will happen—you need to have the resources to pay the cost without having to take out another credit card. In this sense, emergency funds help to keep your credit healthy.
If you have a family or want to start a family soon, then emergency funds are especially important. Though you never want to imagine the worst that can happen, if it does happen—and it can—then you need to be financially prepared.
I was diligent and had saved, when my husband and I decided to have our first child. At our first ultrasound, we found out that we were having twins. Needless to say, it was quite a shock, and I immediately stopped paying the additional $800 per month as part of my aggressive student loan repayment strategy but instead put it into a baby fund.
It’s a good thing that I did. Our twins were born prematurely and required a great deal of medical care. Paying off my student loans early hardly mattered when I needed money to take care of my children. Clearly, having a savings account can be more important than being debt free, depending on your stage of life.
4. You Work in Public Service
The federal government also offers Public Service Loan Forgiveness, forgiving your student loans after you work in the public service for 10 years and met eligibility requirements.
This program is far better than the standard Income-based repayment plan that discharges what’s left of your loans after 25 years. In that case, it’s often not worth waiting 25 years, but better to pay it off as soon as possible.
If you want to qualify for the Public Service Loan Forgiveness program, you’ll need to work in public service. This includes many non-profit and government organizations. It also includes being active duty in the military or a member of the Peace Corps.
There’s no reason to pay more toward your loans when you’re enrolled in this program, because after 10 years of consecutive payments, your remaining loan debt is forgiven, no matter the amount. Why pay money that you don’t have to just to pay off student loans early?
Interested in refinancing student loans?Here are the top 6 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 5.99%1||Undergrad & Graduate|
|1.99% – 5.64%2||Undergrad & Graduate|
|1.99% – 6.84%3||Undergrad & Graduate|
|1.91% – 5.25%4||Undergrad & Graduate|
|2.25% – 6.53%5||Undergrad & Graduate|
|2.17% – 4.47%6||Undergrad & Graduate|
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.