Should I Pay Off My Student Loans Before I Need To?

Student loans are often described as both beneficial and disadvantageous, as they can provide much-needed funding to pay for college tuitions, school supplies, and other expenses associated with education, while also creating a significant financial burden on young adults, many of whom are already overwhelmed with financial obligations. Nonetheless, the majority of college students have taken out some form of student loans, and a significant percentage of them will deal with ongoing debt due to these loans for years to come. In fact, studies have shown that a lot people with poor credit had their credit score damaged during college because of the overwhelming financial obligations caused by their student loans and/or student loan defaults. With the feeling of impending financial doom that is often caused by having outstanding student loans, you may be asking yourself “should I pay off my student loans before I need to?”

The Pros of Paying off Student Loans Early
Perhaps the most obvious advantage of paying off student loans early is the fact that you’ll no longer have an additional financial obligation each month that adds to the pressure of paying your monthly bills. By eliminating the obligation to make monthly repayments towards student loans you can minimize the risk of defaulting on the loans or other financial commitments like credit cards, which could result in a damaged credit score that subsequently would decrease your chances of obtaining approval for future loans, mortgages, credit cards, and vehicle/home rentals. Paying off your student loans early may also improve your credit score, making it easier to obtain mortgages and credit cards with higher limits and lower interest rates.

The Cons of Paying off Student Loans Early
The primary disadvantage of paying off student loans early is the fact that you will have to save a large sum of money to repay the loan all at once, which could result in the same aforementioned financial hardships that you are trying to avoid by repaying the loan early. While students that have access to a large amount of money to repay their loans in a lump sum may find it beneficial to do so, those that do not may benefit more by depositing their money into a high interest savings account and setting up automatic monthly transfers or loan repayments. This will not only allow them to earn interest, it will also provide a backup source of funding in times of need, which would not be accessible if they decided to use the same money to pay off their student loans.

Can I Pay off My Student Loans before I Need to Using Other Loans?
Yes, it is possible to take out other loans to receive a lump sum of money that can be used to pay off your student loans. However, doing this can be counterproductive because you are simply transferring the debt from one lender to another, and in many cases the loans that you’ll receive as a student with average or below-average credit are going to carry higher interest rates than those that are already accruing on your student loans. In other words, you’ll be converting the debt from your student loans to a new debt that will accumulate faster. Furthermore, many lenders are more lenient with students in regards to repaying student loans because they understand the financial hardships that young adults can endure, while lenders that offer personal loans and payday loans are much more likely to apply strict penalty interest rates to students that are able to make payments on time.