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I graduated with $ 19,000 in student loan debt, which seems like a drop in the bucket compared to other student balances that are approaching six digits and beyond. Yet a bill of $ 19,000 was enough to scare off any new graduate.
Taking out student loans was a necessity for me to go to college. Otherwise, my family could not have paid for my attendance at a public school a few hours from my home. Initially, my goal was to get rid of this debt as quickly as possible; I would consistently make monthly payments above the minimum amount required in order to achieve this goal.
In fact, I had become so aggressive about freeing myself from any debt that a financial planner I spoke to actually told me that I didn’t need to run to pay off the balance though. quickly. Like she said, my interest rate was low so it was okay to prioritize other things.
At the time, however, I was extremely uncomfortable carrying debt and couldn’t wait until the day I made the last payment on my student loan and closed the account. His words didn’t carry much weight with me – I always thought I would feel more secure financially by paying off my debt quickly.
Over time, however, I went from wanting to pay off the rest of my balance in a year to deciding I was better suited for other goals. And while the low interest rate was a factor in my choice, I had other, more powerful achievements that ultimately solidified my decision.
My federal loans have a low interest rate
Interest rates on federal student loans change every school year and have trended downward for the past decade, however, there have been a few years where interest rates have actually gone up. If you took out subsidized student loans for the 2009-2010 school year, for example, you may have received a fixed interest rate of 5.60%. However, if you had taken out a federal subsidized student loan for the 2015-2016 school year, your interest rate could have been around 4.29%. The 2020-2021 school year actually saw the lowest fixed rate for subsidized federal student loans: 2.75%.
The interest rate on my federal loans is about 3.7%. And because I had already paid off a large chunk of my balance since graduating, my interest charges are pretty manageable. Therefore, I feel comfortable making monthly payments slightly above the minimum amount required instead of spending a lot more money on debt.
I have no other forms of debt
I used to have credit card debt and had a few instances where I nearly maxed out my credit card, but have since reigned over my spending and paid off my balance. Now, if I make purchases with my credit card, I make sure to pay them off in full each month. Not having a credit card balance makes it easier to manage other aspects of my financial life, including my student loans.
My student loan debt is really the only major debt I carry. I don’t have a mortgage, car loan, or personal loan. Having less debt to account for allows me to take my time paying off this low-interest loan so that I can redirect the rest of my income elsewhere, such as into investments that could help me build wealth.
I became more comfortable with debt
Managing money is very emotional, and often our financial habits as adults have been influenced by what we have learned and seen about our environment growing up.
Growing up, I knew debt was a real problem for my family. And as a college graduate, I wanted to get out of debt as quickly as possible. For many, having a monthly payment for a balance they owe seems like an emotional and financial anchor that they must continue to drag. Often times, high debts can actually hamper a person’s ability to devote money to other goals or expenses.
But not really having other forms of debt made me feel more emotionally comfortable with paying off my student loans over a longer period of time. If I had had other loans to repay, I probably would have felt more overwhelmed by the multitude of payments I made each month. I would feel more inclined to get rid of it as quickly as possible.
I could get a better return on my money by investing it
I used to make monthly payments much higher than my minimum in an effort to get out of debt faster. But I realized that by spending extra money on my student loan debt rather than on investment opportunities, I was becoming debt free faster, but I was not building my assets any faster. And since I want to be the first millionaire in my family, it was important for me to start investing more.
In fact, I had an experience where I made a pretty large student loan payment (well above my minimum required amount) and realized far too late that if I had invested that extra money instead. in an action that I had researched and was considering buying, I would have more than tripled the money over a year later (note that it is not common to triple your money in less than ‘a year).
I am a long term investment strategy, however, I know that each year makes a difference when trying to build your wealth. And since I had never before known how to save for retirement and build wealth or why it all matters, I felt I had to start catching up as soon as possible. I got off to a good start with my brokerage and Roth IRA account through Fidelity (and tracked my progress with the Mint app), but I still have a long way to go. So I decided I didn’t mind paying off my student loan debt slowly if it meant I could grow my investments much faster.
Opening an account with a robo-advisor like Wealthfront and Betterment, or an investing app like Robinhood, can be an easy way to start investing extra money for the future.
At the end of the line
I intend to invest my money while I pay off my student loan debt, however, I will not be making loan payments as aggressively as I used to.
The fact that my loans have a low interest rate and that I have no other form of debt made me feel emotionally and financially comfortable carrying my debt longer. Now, I will redirect the extra money I would have used to make larger payments towards my investment goals.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.