I have met so many recent grads that are convinced that they need to pay off their student loans as quickly as possible. It is admirable that they want to be relieved of their debt sooner rather than later, but it seems to me that most of the recent grads don’t really understand student loan debt.
I know it can be overwhelming with all the different kinds of loans out there and many of us have student loan debt amounts greater than any amount of money we have ever had in our bank accounts. I get it. The thing is that student loan debt is the best kind of debt you can have. Here are my top 3 reasons why you shouldn’t rush to pay off your student loan debt.
Low interest rates
Student Loans have the lowest interest rates of almost any debt, especially credit cards. If you are working hard to pay off your student loans and in turn putting your living expenses on a credit card to stretch your budget, in essence you are trading a 3-5% interest rate for a 17-20% interest rate. Pay the minimum balance for your student loans and use the extra to pay for your living expenses.
Another great thing about student loan interest is that it is tax deductible. At the end of every year your student loan provider will have a printable form stating how much you accrued in interest for that tax year. This amount can then be deducted from your income taxes on line 33 of the 1040EZ. Reporting this lowers your adjusted gross income which ultimately lowers your taxable income.
With more and more emphasis being placed on higher education, student loans are becoming ever more flexible. Besides the common deferment programs that allow you to defer your loans while attending school, through unemployment, disability, or working as a teacher. There are also programs such as the Income Based Repayment Option (IBRO) that bases your monthly payments on your income.
As economic hardship continues I believe that more and more of these programs will become available to ease the burden of higher education. I can also predict without a hint of doubt predict no such programs or flexibility will ever come with any other type of debt.
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