You Cut out for Paying off Student Loan

Last Update: September 9, 2021 • College Students • Loans •

Paying off student loan debt is like a foray beyond the north wall, venturing into the territory of the wildlings where an evil eye gazes at you, where the danger can strike from all four corners.

Err…. for those who are not the staunch proponents of GOT and couldn’t get the analogy, here is the tussle of paying student loan explained: a hard nut to crack.

Keeping the analogies and metaphors aside, paying off student loan debt is commendable. You succumb to the pressure of financial obligation throughout your graduation while remaining tightfisted and saving each possible penny.

Fighting The Menace

According to our study, 42.9 million Americans owed $1.51 trillion in outstanding federal student loans until recently. The average federal student loan debt per borrower was $35,205.

Though every individual’s case is different, and not all may have student loan debt nearing 30k, still fighting it off is worthy of every praise as paying it off requires one to be in grit for a long time.

You may find many articles on the Internet that educate you on the importance of paying off student loan debt and the strategies you should adopt to accomplish the feat.

Only a few articles tell you about the flip side; possible negative impacts of channeling all your money and efforts to pay off student loan debt.

There is an Opportunity Cost

Besides, there is an opportunity cost to paying off student loan debt, which remains unaddressed. The resources are limited. The influx of money can only be stretched to a limit (You don’t have a genie who says your wish, my command).

Moreover, you can only curb expenses and prioritize paying off just one category of debt at a time (credit card debt, car loan debt, mortgage, etc.). So, we all must have a glance at what all you could lose in pursuit of overpowering student loan debt.

The Flip Side

Here are a couple of things that can grow sour and jaded if you pay your student loan debt. Paying off student loan debt is a blessing in disguise (at least it comes up as one sometimes), and people often don’t realize it when they are fighting it off.

Credit score getting pissed off

Whilst you were paying off student loans via timely monthly payments, your credit score was soaring high. Once you pay off student loan debt in full, the credit boost comes to an end, and more often than not, your credit score takes a dip as well.

Besides, student loans are also installment loans, so they add variety to your credit portfolio. Paying off a student loan implies that you have tarnished the variety. Therefore, the credit score lowers in these cases.

Saying goodbye to those soothing tax deductions

The student loan interest exemption is one of those deductions you can lessen without itemizing. It’s attached to the adjusted gross income AGI.

The deduction lessens your gross income, and in the process, you become qualified to take several other deductions and tax benefits.

The maximum student loan interest deduction you can claim is $2,500. There are some constraints to your deduction, and income is the greatest of them all.

Deductions are reduced for taxpayers with AGIs around the income limit. Moreover, it’s eliminated for taxpayers who earn well above the AGI limits.

Here are the rules and limits for student loan interest tax deduction.

Denying oneself the opportunities for growth

It shouldn’t be hard for you to understand this. The money you provide for paying off student loan debt is inversely proportional to the chunk of money you would provision for investing. Investing for beginners could get tough, but you can always hitch your wagon to a star Robo advisor to achieve success.

Though the market is no predictable, you can still make a lot of money through passive investing; benefiting from portfolio diversity over long stretches. The money you pay off could otherwise be dedicated to a retirement account.

Paying off a student loan is a certain thing. Making a lot of money through investing can backfire, but good things come to those willing to take the risk.

What Could be Worst?

No delusions of grandeur

Paying off student loans seems like pulling off a Tom CruiseR (stunt performed by the man himself), and it is like one to quite an extent.

However, folks who break out of this curse don’t get that sense of fulfillment as they thought they would be getting.

The science behind it says that when you work towards a goal (fighting off student loan debt in this case), the anticipation signals to the brain that the goal could be near, and the brain releases happy hormones beforehand. Thus, not releasing any dopamine upon the achievement of the feat.

This makes us look like skeptics, but our job is to make you acquainted with the truth, and we have been true to our purpose.

Between the devil and the dead sea

Student loan debt is nothing but a tiny errand compared to other overpowering and unsettling debts, for instance, credit card debt.

Credit card debt also comes with a fury of daunting charges. To add insult to the injury, the horses of interest keep taking a bolt in case of credit card debt.

There is a reason why credit card debt comes under bad debt and student loan debt under good debt. Your student loan debt isn’t particularly bad when you have federal loans with a low interest rate.

This gives you enough room to target debts with higher interest rates. Long story short, if you ignore your credit card debt in pursuit of shrugging off student loan debt, you may dig a deeper, darker grave for yourself.

Getting your priorities right

You seclude yourself from the worldly and dedicate each penny that you earn towards student loan debt, commendable. However, the virtues of having a cash reserve at your disposal are many.

Problems don’t come knocking. God forbid, what will you do if you lose your job? Whom will you reach out to? You can’t revoke the payments you have made recently to your student loan providers.

If you haven’t built up an emergency fund or put aside some money as savings, then paying off a student loan at the earliest might backfire.

You can’t build a penthouse unless you have built the basement. The same goes for paying off student loan debt. Paying off student loan debt may not be that critically urgent as you may think it to be.

Now that we have highlighted the not-so-good part of countering your student loan debt with agility. We will shed some light on some of the many virtues of paying off student loan debt.

The Virtues of Paying off Student Loan Debt

The problems

The best reward you earn for yourself by paying student loan debt is the breathing space, with no reminder or threat calls. The perks of lowering your anxiety and stress after countering student loan debt are countless.

No longer will you sweat to make your payments on time or suffer the wrath of high student loan interest rates. The sense of unregulated freedom you get after getting rid of student loan debt is as indescribable as the emotion itself.

The horses of interest won’t take a bolt

When you make the full and final payment for our student loan, the horses of interest come to a sudden halt. By ditching more accruing interest, you will save yourself a good amount of money. The principal money plus the build-up interest over the course of the loan can cost you a huge chunk of money.

The lesser the number of installments you make (with the increased amount to pay off the loan), the lesser you would have to pay as interests. Moreover, there are no prepayment penalties in student loan debt.

More achievable life goals

After paying off student loan debt, your debt to income ratio will curb. Having lesser credit lines will improve your credit score and increase your chances of opening other lines of credit.

So if you are planning to take a home loan, or owning a car, paying off student loan debt will go a long way in making you successful in your endeavors.

You can also commit the money you have been providing for student loan repayment towards your new life goals.

Conclusion

You have got to get one thing straight, none of the above points are mean to deter you from paying student loans.

There is no conflict between paying off a student loan and not paying off a student loan. Paying off your financial obligations is always good.

However, this critique intends to highlight that there are situations where getting rid of your student loan debt ruggedly may not prove to be the best in your interest.