How fast should I pay off my Student Loan debts?

How fast should I pay off my Student Loan debts?

This is a common question that might be asked by a recent college graduate, and a very good question too. It is also a growing trend for recent college and university graduates to have thousands of dollars of student loan debt upon finishing their hard earned degrees. According to MSN the average student loan debt upon graduation is around $20,000, no wonder younger adults continue to rack up more and more debt right out of college. If you start out this far in debt, what’s another $20,000 in unsecured debt?

There are many myths about why you should keep your student loans around and how they are good debt, but let’s face it there is no such thing as good debt.  The main misconception about student loan debt is that it is a tax advantage. You can claim your student loan interest on your taxes at the end of they year. Sure, if you have to have the loan then you should take advantage of it, but simple math will tell you that if you pay off the loan early you will make a lot more money putting those extra payments into good investments.

A second misconception is that student loan interest rates are so low, usually lower than 5%, that you can actually invest the extra money you would pay over on your loans somewhere else and make money. This might make sense to a very disciplined financial planner, but for the average college graduate it’s ludicrous. Trust me I’ve been there before and the last thing a freshly graduated student wants to do with their extra income is invest in a stock portfolio. Simply put this just won’t happen.

There are also many other advantages for paying off student loans early. As I just mentioned you will be able to invest the normal payment into a good mutual fund or help fund your roth IRA. Over the years you will come out much more ahead financially paying off the loan early and investing instead of keeping it for the tax break.

Second, it will get rid of a debt and free up money that has to go out each month. This could put more money in your pocket to invest or to start saving for a house, car, etc. It also lowers your debt to income ratio which looks better to money lenders such as mortgage companies.

Finally, and probably the best reason to pay them off now is that you are used to living cheap. Most college students live on a very small budget and many of them don’t even have a part-time job. The only income they have is what mom and dad allows them each month. You also don’t have any major expenses like a mortgage, kids, or a fancy car. So take your new found after college income and put it toward paying off your debt.

College debt for some people might be an unescapable certantity; however, it doesn’t have to last a lifetime. It might be a good idea to refinance your state loans, federal loans, and private loans into a single low interest rate loan, but make your student loan debt a priority and your future will thank you!